About the FI Group on Aligning Financial Chains with the Paris Agreement:

The Paris Agreement has strengthened the call to the financial community to provide an essential contribution to climate action. To date, the focus of alignment efforts has principally been on what is financed – i.e. the individual projects or business activities. However, financial institutions of all types have recently been expanding the focus from the alignment of what is financed to also include an assessment of the alignment of who is financed. In response, in December 2020, marking the fifth anniversary of the Paris Agreement, and in the follow up of the Finance in Common Summit, UNEP FI and the Climate Action in Financial Institutions Initiative are convening an informal FI Group on Aligning Financial Chains with the Paris Agreement.

The FI Group aims to share knowledge, experience and best practices, discuss emerging trends and develop possible guidance on how to advance the alignment of financial chains, from capital markets, corporate banking and institutional investors to development banks, commercial bank intermediaries and to the project/corporate level.

Presentation and Summary of the event

The first webinar of the group was held as part of the London Climate Action Week and focused on why financial institutions are focusing on the alignment of counterparties.

Ian Cochran, Senior Advisor at I4CE and Head of the Climate Action in Financial Institutions Secretariat, opened the webinar highlighting that while financial institutions may initially focus on alignment either through a use of proceeds “what” or counterparty “who” point of view, they are increasingly recognizing the importance of looking at both – or the broader financial chain.

Amal-Lee Amin, Senior Advisor on Public Finance and Strategy to the UK COP26 Presidency provided an overview of how the issue of alignment is a core component of both the public and private finance agendas for COP26.

The Panel brought together representatives from financial institutions from across the sector, including:

  • Camille LAURENS-VILLAIN, Climate Finance Lead – Strategy Department, French Development Agency
  • Simon CONNELL, Global Head, Sustainability Strategy, Standard Chartered Bank
  • Amal-Lee AMIN, Climate Change Director, CDC Group
  • Antoni BALLABRIGA TORREGUITART, Global Head of Responsible Business, BBVA
  • Wouter MEINDERTSMA, Climate Change Specialist, European Investment Bank

Key messages from the panel included:

  • For development banks, looking at the alignment of counterparties stems from the need to put the projects they finance in perspective vis-à-vis who the borrower is. This may occur both with the aim to identify how to support the counterparty in its alignment journey – as well as to identify and manage potential reputational risks.
  • Financial intermediation, whether through credit lines or investment through equity funds, poses challenges – both in terms of new transactions as well as the consistency of the entire portfolios of counterparty FIs.
  • Commercial financial institutions see this as part of a journey from an initial inward-facing discussion on minimizing exposure to climate risks – to an outward-facing understanding of how an FI’s exposure to the economy contributes to the transition of the economy as a whole. They see that they have a role to play in helping finance the transition of the economy by looking at both the use of proceeds, but also the entire transition of counterparties.
  • All types of FIs stressed the importance of seeing counterparty alignment as a means of identifying and supporting those counterparties that are seeking to transition towards alignment – and to link them with the technical assistance whenever possible to do so.
  • All panelists have started on the topic of counterparty alignment to varying degrees, encountering challenges around choice of metrics, data availability and reference scenarios. They noted the importance of information available on the country-level policy frameworks as a reference to evaluate the alignment of counterparties.
  • Commercial FIs highlighted the role that the public sector can play to support further financial chain alignment – either through regulatory frameworks to improve and enhance disclosure, or through direct engagement via the DFI community in the form of blended finance or technical support for countries to improve national climate policy frameworks.
  • Overall, FIs have noted that there is ample space for learning and collaboration given that the impact of a single financial institution alone is often insufficient – rather a critical mass needs to be reached across the entire financial sector.

Eric Usher, Head of UNEP FI concluded the webinar presenting how the discussions within this group will aim to fill in many of the gaps and connected the dots between the existing conversations. He stressed the importance of linking the difference conversations – particularly between public and commercial financial institutions – to work together to establish norms and best practice as a means to help advance the alignment of financial changes within the entire financial industry.

***

Moving forward, the FI Group will bring together on a voluntary and open basis interested financial institutions via a series of webinars for group exchange, peer learning and joint problem solving around three questions:

  • WHY financial institutions who committed to be “Paris aligned” have identified a need to focus on counterparties?
  • HOW are financial institutions assessing the alignment of counterparties?
  • WHAT are financial institutions doing with counterparties’ alignment assessments results, at strategic and/or operational levels?

Recording 

Background on the FI Group on Aligning Financial Chains with the Paris Agreement:

 This FI Group responds to the need to share knowledge, experience and best practices, discuss emerging trends and develop possible guidance on how to advance the alignment of financial chains, from capital markets, corporate banking and institutional investors to development banks, commercial bank intermediaries and to the project/corporate level.

By joining forces and providing a space for a more structured dialogue on financial system alignment approaches between all stakeholders, the FI Group aims to, in particular:

  • facilitate cross-capitalization and knowledge sharing between leading financial institutions across the financial community on approaches for the alignment of clients and counterparts, and the critical conditions for success;
  • foster collective emulation to help overcome internal and external challenges;
  • send signals to the rest of the financial community about possible next steps on the alignment journey.

This informal group is open to all financial institutions with a shared interest and ambition, no matter their level of progress in developing and implementing alignment approaches. It is open to representatives from individual institutions, including institutional investors (pension funds and insurers) such as those involved in the AOA, commercial banks taking part in the CCCA, public development banks such as MDBs and IDFC members, supporting institutions of the Climate Action in Financial Institutions initiative, and other interested financial entities and stakeholders.

The FI Group will bring together on a voluntary and open basis interested financial institutions via a series of webinars for group exchange, peer learning and joint problem solving. An in-person event may be scheduled in the margins of COP26.

If you are interested in participating in the FI Group on Aligning Financial Value Chains and would like to share your institution’s experience with this challenge, please contact: Alice Pauthier (alice.pauthier@I4CE.org)

About the Conveners:

UNEP FI

United Nations Environment Programme Finance Initiative (UNEP FI) is a partnership between UNEP and the global financial sector to mobilize private sector finance for sustainable development. UNEP FI works with more than 350 members – banks, insurers, and investors – and over 100 supporting institutions – to help create a financial sector that serves people and planet while delivering positive impacts. We aim to inspire, inform and enable financial institutions to improve people’s quality of life without compromising that of future generations. By leveraging the UN’s role, UNEP FI accelerates sustainable finance.

UNEP FI supports global finance sector principles to catalyze integration of sustainability into financial market practice. The frameworks UNEP FI has established or co-created include:

These frameworks establish the norms for sustainable finance, providing the basis for standard-setting and helping to ensure private finance fulfils its potential role in contributing to achieving the 2030 Agenda for Sustainable Development and Paris Agreement on Climate Change agreed by governments around the world in 2015.

Website: www.unepfi.org/

 Climate Action in Financial Institutions

The Climate Action in Financial Institutions Initiative was launched on the sidelines of COP21. It is the only network bringing together both public and private financial institutions to share concrete expertise, insights and practice in mainstreaming climate change across their operations. Built around shared commitments to implement the Five Voluntary Principles for Mainstreaming Climate Action, the Initiative aims to support and guide financial institutions moving forward in the process of adapting to and promoting a low-carbon climate resilient development. These principles, agreed at COP21 in Paris by around 20 public and private financial institutions are:

Principle 1: COMMIT to Climate Strategies

Principle 2: MANAGE Climate Risks

Principle 3: PROMOTE Climate Smart Objectives

Principle 4: IMPROVE Climate Performance

Principle 5: ACCOUNT for your Climate Action

As of May 2021, 52 public and private financial institutions representing over an estimated USD 14 trillion of assets from around the globe, confirmed their support for the Climate Action in Financial Institutions Initiative and for the guidance provided by the 5 Mainstreaming Principles.

Website: www.mainstreamingclimate.org

The Group benefits from the labelling and support of the Finance in Common Summit (www.financeincommon.org)