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Key initiatives and trends in aligning finance with the Paris Agreement

Since 2015, a number of coalitions of financial institutions committed to “align with the goals of the Paris Agreement”, i.e., to make their activities consistent with a low-GHG climate-resilient development pathway. A number of key actors are currently leading the way in the development of methodologies to assess alignment.

In 2015, governments adopted the Paris Agreement, which sets 3 main objectives for the international community:

  • Holding the increase in the global average temperature to well below 2°C […];
  • Increasing the ability to adapt to the adverse impacts of climate change and foster climate resilience […];
  • Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.

Since then, pioneer groups and coalitions of both public and private institutions across the financial community took joint commitments to “align” with these three objectives. These groups and coalitions rapidly started to 1) define what alignment means and implies for the different types of financial institutions and what may be expected from them specifically, and 2) develop common frameworks and approaches to assess the alignment of their activities with the goals of the Paris Agreement. While individual institutions may be using a range of different tools and methodologies, the guiding principles, frameworks and approaches developed by these pioneering groups may soon become de facto standards for respective types of financial institutions.

Nevertheless, further methodological developments are needed for a number of tools, including the harmonization of key methodological choices and agreement on the ‘minimum requirements’ for practice. These discussions are occurring in different forums, such as the Group of MDBs as well as part of new work undertaken by the Task-force on climate-related financial disclosures (TCFD) around climate-related metrics and portfolio alignment tools.

Alignment approaches are currently mostly voluntary, but some jurisdictions are starting to request financial institutions to report on this aspect. This is the case in France since 2015 where disclosure of contribution to climate goals as well as exposure to climate-related risks is mandatory. Influential initiatives such as the Coalition of Finance Ministers for Climate Action and the G20 Sustainable Finance Working Group have begun to “explore approaches to encourage financial institutions to align their practices with the goals of the Paris agreement”. Incentives, regulations and disclosure requirements are thus expected to increase in the coming years.

List of key initiatives: