Publications

After the sudden resignation of David Malpass, the World Bank’s Trump-appointed President, mid-February, Washington surprised the world again last Thursday, with the nomination of Ajay Banga, long-time Mastercard CEO, as his potential successor. Not only was the timing very rapid, but the controversial profile of the nominee also generated some sense of puzzlement. His limited […]

The proposal for mandatory climate transition plans for banks is slowly making its way through the regulatory debate. Proposed by the European Commission and confirmed by the EU Council, this proposal has now also been taken up by the European Parliament. This obligation could be a game-changer for financial risk management and the alignment of financial flows with the transition to a low-carbon economy. It could lead banks to limit their activities in climate-damaging activities, adjust their business models, review their strategies as well as their governance and risk management procedures.

The legislators in Europe are discussing the introduction of mandatory climate transition plans for banks. After the European Commission and the Council, the European parliament has adopted its position. Now trilogue negotiations between the three will begin. While all three seem to agree on the idea itself, differences remain in how these plans are defined. Anuschka Hilke, Director of the Finance program from the Institute for Climate Economics (I4CE), explains in this blog which parameters will be decisive for framing the ambition of this legislative proposal.

Last August, the US Congress adopted the Inflation Reduction Act (IRA). It became the epicentre of EU fears of seeing cleantech projects, like battery or solar panel gigafactories, settling in the US rather than in the EU. There is some rationality behind that fear. The IRA indeed provides sizable public funding, with 10 years predictability and the simplicity of having a single federal level scheme. Moreover, the IRA does not only subsidize cleantech manufacturing. For instance, in the case of electric vehicles, the IRA supports the mining of critical minerals, the manufacturing of the battery, the purchase of the electric car and the production of renewable electricity. In other words, with IRA the US now has a genuine long-term climate investment plan.

2022 ended up on a consensus that the global financial architecture is no longer “fit for purpose”. In other words, the financial ecosystem created post-war to support international development - at the centre of which are the IMF and the World Bank who were joined later by other international public financial institutions - wasn’t designed to address the multiplicity of challenges the world is facing today, foremost among which climate change. Time is running, and the good news is that 2023 is set up to be a busy year with key events setting the milestones for a reform of the international financial architecture, including a Paris Summit in June. The year will close at COP 28, where we will officially take stock of current achievements.

2023 will be busy with many events organised to address different parts of the financial architecture reform, including a Paris Summit in June. Alice Pauthier from [i4ce] tells you more about this agenda and identifies two conditions for a successful reform process. First, it has to be led by countries’ financing needs… wheras we are still lacking a granular analysis of countries’ investment needs for a sustainable development. Second, it has to be guided by the objective of maximising the impact of public finance. What we should count is the impact of public finance on the transition and not only volumes.

2022 was an eventful year in terms of climate. The year saw the emergence of a new concept, that of the polycrisis: war in Ukraine, the aftereffects of Covid, the return of inflation, the gas crisis, agricultural shortages, persistent droughts and other dramatic climatic events... all of these crises have ultimately pointed to our direct or indirect dependence on fossil fuels; our weaknesses when faced with a changing climate; and the vulnerability of our economies and the middle and lower classes.

How can we differentiate between projects that really enable carbon to be stored and those that only claim to do so? This is a complicated question when dealing with projects in agriculture and forestry, where quantifying carbon storage is complex, and where other environmental challenges, like the preservation of biodiversity, must also be taken into account. A complicated question, therefore, but one that needs an answer! Private actors and public authorities want to ensure that the agricultural and forestry projects financed in the name of the climate have a real environmental benefit.

Yesterday, 30 november 2022, the European Commission adopted a proposal for a first EU-wide voluntary framework to reliably certify high-quality carbon removals. This proposal provides a framework, broad guiding principles, and the details will be specified in 2023 supported by an expert group on Carbon Removals. “The devil may be in the detail”, but the framing is no less important. Claudine Foucherot of [i4ce] has analysed it and identified four points on which we must be vigilant. Overall, it can be said that the Commission is submitting an ambitious proposal, which nevertheless presents a risk: not being sufficient incentives to ensure a massive deployment of certified projects.    

One year ago the creation of the Glasgow Finance Alliance for Net Zero - GFANZ – was announced. The expectations were as big as the numbers: a coalition gathering 500 financial actors representing 130 trillion dollars. Private financial actors were finally stepping in and mobilizing. But one year later, the coalition raises many doubts. On one side it faces criticism from NGOs, and on the other some US actors are considering leaving the coalition under the pressure of members of Republicans Party.  

As COP27 draws to a close, let us remember the obvious: implementing the Paris Agreement will require financial flows from developed to developing countries. However, these flows are not just the much discussed $100 billion a year promised by the nations of the North to their counterparts in the South - a promise that has not been kept to date. And they are not just about budgetary flows either. More fundamentally, the architecture of development financing - or at least its climate component - needs to be reviewed in depth. It is therefore primarily the mission and modus operandi of the multilateral banks, and more broadly of the public development banks, that must be reviewed.

This year again, expectations for the COP are high regarding developed countries’ commitments towards the funding of action against climate change and its impacts. The question of loss and damage, which pertains to questions of climate justice and of who should pay for the significant impacts of climate change endured by the poorest countries, has just been added to the official COP agenda. And climate finance will again be a hot topic: the pledge made back in 2009 by rich nations to channel US$100bn every year by 2020 to help less wealthy nations mitigate the rise in temperatures and adapt to climate change is still falling short of targets.

In 2022, the G20 raised a key question: are development banks well equipped to deliver their mandate and lead the way to a more sustainable development, in a world faced by multiple crises? Multilateral development banks (MDBs) and development financial institutions (DFIs) business model was historically developed around project financing. But they now need to shift to supporting the transition of their counterparts: country governments, ministries, financial regulators but also national public banks, local financial institutions and companies. A new journey for development banks, and a new journey for their counterparts. Quite a challenge.

The end of the year is always a busy period for the climate finance world, with international events multiplying to take stock of the latest achievements in the implementation of the Paris agreement and to identify the next – more ambitious – steps to be taken by the international community. Though the climax of these events is undoubtedly the COP (starting in two weeks in Sharm El Sheikh, Egypt), with the New York Climate Week, and the World Bank and IMF’s international meetings behind us, and the Finance in Common summit coming to an end, we start sensing that some topics are already drawing a lot of attention.

Over the past couple of years, the growing net zero commitments across financial institutions strengthened the focus on their portfolios’ greenhouse gas emissions. Yet, this focus does not guarantee emissions are truly reduced in the real economy. For that to happen, there is a pressing need for decarbonisation approaches focused on impact generation, with the appropriate indicators. According to Sarah Bendahou, Public development banks are in a unique position to adopt such approaches and indicators, paving the way for private financial institutions.

The industrial sector currently accounts for around 20% of French greenhouse gas (GHG) emissions.

The climate emergency is here and now. The consequences of climate change seemed remote to many and the summer of 2022 will perhaps be remembered as the summer of the end of carelessness.

The European Commission will propose a `carbon certification’ by the end of the year as a first step towards remunerating farmers and foresters who contribute to carbon farming. This certification project raises debates and concerns. For Adeline FAVREL of I4CE, the EU can respond and develop an ambitious certification by relying on the experience of the Member States in this field.

For a year, I4CE has been meeting with the campaign teams of the main presidential candidates to encourage them to prepare their climate program in order to reach the French objectives. In particular, we asked them to prepare their "climate budget": the State and more broadly the public authorities now play a decisive role in the necessary investments for the climate, and they must anticipate the considerable increase in these investments for France to achieve its 2030 objective. All the more now the European target has been raised. Preparing a climate budget is a mark of credibility and transparency, a test of consistency.

In France, the investments for the climate that will have to be made between now and 2030 to meet the objective are considerable. And since this target will have to be increased to contribute to the new European objective, the need for investment will also increase. Today, the State and public authorities are actively involved in climate-friendly investments. What will happen in the future? Who will pay, who will go into debt: the State, local authorities, taxpayers, households, companies or future generations?