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Aligning Investments with the Temperature Goal of the Paris Agreement

This working paper from Germanwatch and the New Climate Institute assesses how Multilateral Development Banks can support the global temperature goal of the Paris Agreement. It illustrates how the banks could strengthen existing tools to align their portfolios and activities with the globally agreed mitigation goal. It focuses on the energy supply sector and transport, and provides options both for direct project investments as well as for financial intermediaries and policy-based lending.

Key points

The analysis starts with a review of scientific scenarios to understand what the temperature goal means for different investment areas.

Based on the analysis of Paris-compatible pathways and other relevant scientific literature, authors start by defining three categories of investments: “Paris-aligned”, misaligned” and “conditional”.

“Paris-aligned means investments in this area fully support the achievement of the Paris Agreement’s temperature goal. Misaligned means they undermine this goal. For investment areas and technologies classified as “conditional”, whether they can be considered Paris-aligned depends on the exact circumstances and characteristics of a project. In order to assess investments in the “conditional” category, more granular decision-making tools are needed. The classification should become a recurrent exercise, which is updated at least every five years as new knowledge becomes available. Where possible, it should also be forward-looking, i.e. indicate from today the point from which an investment area might move from the “conditional” to the “misaligned” category.”

Building on those, the research then suggests various tools and approaches to align portfolios with the temperature goals, based on existing tools and activities at the Multilateral Development Banks.