UN Climate Summit: Development Banks make major Commitment

International Development Finance Club (IDFC) Communiqué

National and regional development banks have a huge potential to support the implementation of the Paris Agreement on climate, and to generate green, public and private finance to meet the needs of national economies, societies and environments. 

Over the period 2014-2018, the national and regional development banks of the IDFC reported on average close to $150 billion of climate finance yearly, representing about 20% of their total financial commitments. The IDFC members have also shown they have the technical and financial capacities to deliver even higher amounts of climate finance, as the $200 billion mark of yearly climate finance was reached during this period. 

However, if this additional money remains the kind of “climate finance as usual” that is being mobilized by other major banks worldwide, it will not be enough to fulfill our common climate objectives. The redirection of all financial flows, beyond public and private climate finance, is essential, for better quality investment.  

IDFC pledges to contribute to this goal by promoting the mainstreaming of climate considerations throughout the international and national financial communities. The group urges all interested partners to re-align financial flows so that they are consistent with the Paris Agreement. 

More than 1 trillion dollars by 2025 

With a view to achieving the ambitious objectives of the Paris Agreement and foster sustainable, low carbon and resilient development, IDFC has the potential to mobilize significant volumes of finance to help achieve these goals:
-    Provide more than $ 1 trillion of climate finance by 2025, including an increasing share for adaptation and resilience
-    Leverage financing from the private sector and create the space for blending of public finance to accelerate the crowding in and reorientation of private finance for sustainable and climate-compatible development. 
-    Beyond volumes, IDFC commits to further contribute to the quality and impacts of finance to implement the climate and sustainable development agendas. IDFC commissioned a study by think tanks I4CE and CPI on aligning finance with the Paris Agreement published on the occasion of the Climate Summit, which provides a robust framework usable by the financial community at large. 
-    It promotes a comprehensive scope of action, i.e. screening all activities financed for positive or negative climate impacts; the contribution of near term actions to the achievement of long term goals of the Paris Agreement and the SDGs; and a do-no-harm approach while aiming for deep transformations of systems and value chains.
 

Aligning financial flows

-    Inspired by the recommendations of the study, IDFC will further align financial flows with the Paris Agreement and the SDGs by having Club members: Work at country and sub-national level and engage with other actors to support national constituencies implement their commitments to the Paris Agreement and provide policy advice to devise development pathways consistent with long term resilience and carbon neutrality; Further embed climate change considerations and alignment with the Paris Agreement within IDFC members’ strategies; and Redirect financial flows in support of low-carbon and climate-resilient sustainable development. 

IDFC members play a key role to provide market signals and enable the reorientation of other financial flows, public and private, local and international, towards climate-compatible investment and development pathways. 

Recalling its commitment taken at the 2017 One Planet Summit to promote the development of sustainable alternatives to fossil fuel, IDFC will work towards reinforcing collaboration to: 

-    Promote and contribute to long-term carbon neutrality; 
-    Support increased pace and coverage of renewable energy and energy efficiency investments as well as clean technologies; 
-    Consider the range of fossil fuel investments in portfolios, work towards applying more stringent investment criteria according to members’ mandates, and consider ways and means to reducing it, taking into account national and regional circumstances and in line with NDCs and long term strategies, such as explicit policies to exit from or significantly reduce coal financing.   
 

Meeting Targets 

To achieve these targets, and to operationalize alignment with the Paris agreement, the members of the IDFC are implementing several concrete actions, such as: 
- Launching a USD10mn IDFC Climate Facility to build collective capacities of all IDFC members to originate and finance climate activities, with effective operationalization before COP25, at the end of 2019, including the setting up of the Facility’s Coordination Unit and related staffing arrangements as well as the implementation of initial knowledge sharing and analytical work
- Setting up a strategic partnership with the Green Climate Fund with a view to achieving together the Paris Agreement objectives and promoting direct access to national and regional development banks to provide, intermediate, implement and/or mobilize domestic and international climate finance.

In addition, IDFC members call for strong political support from governments and regulators to consolidate this momentum and unleash the potential of public national and regional development banks to best deploy, shift and facilitate increased investment towards low-carbon, resilient and sustainable development; lead the needed sectorial and national transitions; and make a systemic contribution to the achievement of the objectives of both the Paris Agreement and the Sustainable Development Agenda. 

This may include the explicit mention of climate and sustainable development considerations in the mandates of development banks or in their business plans. 
It may also entail evolutions in the regulatory frameworks of such institutions to further enhance climate and sustainable development investments (SDI). 

It also implies consolidating the international climate and sustainable development finance architecture, to make it more collaborative and coordinated, in particular by making the best use of the resources, capacities and added value of local financial systems, national and regional development banks, multilateral development banks and the United Nations Agencies and financial mechanisms. 

In that perspective, the IDFC would like to propose that, under UN sponsorship, a Summit of Development Banks be organized in 2020, ahead of COP 26, to mobilize all development finance institutions worldwide as well as their broad stakeholders, with a view of further tapping their decisive potential to enable the implementation of the climate and SDGs agendas.