IFIs - Harmonization of Standards for GHG accounting

The need for harmonized standards and approaches for quantifying the greenhouse gas (GHG) impacts of investments

The implementation of the Paris Agreement to holding the increase in the temperature to well below 20 C above preindustrial level requires financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development (Article 2.1c, Paris Agreement).

Equally, achieving the Sustainable Development Goals (SDGs) requires an enormous transition away from fossil fuels towards sustainable, low-carbon development, backed and supported by appropriate financial flows. This entails green financing, for example through green bonds, and the impact of the SDGs on climate mitigation can be assessed by measuring and reporting the greenhouse gas and environmental footprint of financial flows and investments.

The transparency, accuracy and comparability of climate actions, also called upon by the Paris Agreement, are the key pillars to build mutual trust and confidence among all actors in order to quantify and report the greenhouse gas emissions of their financial contribution/investments.

Estimating the impact of investments on greenhouse gas emissions in a transparent and comparable manner can be achieved only through common principles for GHG accounting supported by credible and robust standards. However, a plethora of standards currently available creates confusion among climate actors (e.g., donors, clients, and co-investors).

In the light of the foregoing, there is a strong and urgent need for credible, harmonized and widely accepted standards covering a broad range of economic sectors that meet the expectations of the climate investors.

Infographics 1: The need for harmonization on estimating impact of investments on GHG emissions

Stakeholders' expectations

Stakeholders' expectations

Donors as well as institutional investors expect standards that are simple to use but that also ensure comparability of GHG emissions estimates to inform their decision-making related to project finance. They also expect the standards to be credible, transparent and widely accepted.

Infographics 2: Key expectations of harmonized standards/approaches

Development of harmonized standards by IFIs

Many financial institutions (IFIs)—including multilateral development banks such as the Asian Development Bank, African Development Bank, European Bank for Reconstruction and Development, European Investment Bank, Inter-American Development Bank, and the World Bank Group—have been working together since 2012 through the technical Working Group of the International Financial Institutions (IFI TWG) to harmonize project-level greenhouse gas emissions accounting.

Close to 25 institutions are currently members of the IFI TWG, although the level of engagement varies among the IFIs. The group has lately expanded to cover inter-governmental organizations such as the secretariats of the Green Climate Fund (GCF), Global Environment Facility (GEF), and UNFCCC.

The participating IFIs recognize that a harmonized approach will improve consistency and comparability of their climate and development projects, set a good-practice example, and increase the robustness of the assessment of the climate impact of their investments.

The Paris Agreement has provided a new impetus for harmonizing GHG emissions accounting to assess climate investments by the public and private sectors, including institutional investors and the capital market.

Benefits of harmonized standards

Who will benefit from the use of harmonized standards?

Project entities, financial institutions including those under the Convention (GCF and GEF) as well as their implementing entities, issuers of green bond, institutional investors, and other non-Party stakeholders implementing climate actions on a voluntary basis will all benefit.

It is critically important to ensure the comparability and consistency that will result from internationally harmonized standards for estimating the impact on GHG emissions of investments. Application of harmonized standards with wide coverage will help make worldwide GHG accounting estimates comparable, transparent and more cost-effective.

Infographics 3: Potential users of the harmonized standards

Present and future harmonized products

Which harmonized products have already been developed and which are in the pipeline?

At COP21 (2015), the IFI TWG released harmonized GHG accounting methodologies for renewable energy, energy efficiency, and transport sector projects. These methodologies are developed in accordance with the International Financial Institution (IFI) Framework for a Harmonized Approach to Greenhouse Gas Accounting.

Please click here to view list of harmonized standards/approaches adopted by IFI TWG.

Please click here to view the list of sectors and areas where harmonized standards/approaches are being considered for development.