Article / 16 Jan, 2019
Greening Financial Flows Requires Harmonised Standards

UN Climate Change News, 16 January 2019 - One of the Paris Agreement’s key aims is to achieve climate neutrality in the second half of this century. The recent IPCC report noted that the pathways limiting global warming to 1.5°C would require rapid and far-reaching transitions in energy, land use and infrastructure requiring unprecedented financial flows.

Across the world, the transition has begun. Solar panels are increasingly found on roof tops in every country, wind turbines silently produce an increasing share of grid electricity, clean electric vehicles have been legislated by 2030 in a number of leading economies, to name a few examples. But the transition needs to be driven further and more opportunities need to be created for it to reach the tipping point that will see low-carbon sustainable development as the new norm.

One key element that is required to reach that tipping point is the greening of financial institutions and financial flows. In other words, the world’s financial movements must back the transition instead of continuing to finance fossil fuel-intensive and business-as-usual investments.

This means that financial institutions need to increasingly adjust their operations towards a sustainable, climate-safe future.  This entails green financing, for example through green bonds, but it also entails measuring and reporting the greenhouse gas and environmental footprint of financial flows and investments.

The overall goal of green finance is to help mobilize public and private sector financing for sound climate- and environmentally-sustainable investments and help enhance the transparency of environmental finance. Yet existing financiers sustainability metrics are either narrowly focused or not robust enough to permit a reliable determination of the outcome of the climate action implemented.

Clearly, a different, harmonized approach is needed.

Encouragingly, a group of International Financial Institutions (IFIs) - some of them experienced green bond issuers and investors – recognised the need for action as early as 2012 and began developing best practices for the reporting of environmental and climate change impacts.

To speed up the work, the Technical Working Group of the International Financial Institutions (IFI TWG), recently requested the UN Climate Change (UNFCCC) secretariat to serve as the Group Coordinator in addition to support its work with technical expertise, recognizing its distinctive competencies on development of GHG accounting methodologies.

There are over 25 institutional members to the IFI TWG which includes all multilateral development banks, Green Climate Fund and Global Environment Facility, among others

The participating IFIs recognize that a harmonized approach will improve consistency and comparability of their climate and development projects, set a good-practice standard, and provide increased reliability for the assessment of the climate impact of their investments. 

So far, the working group has developed harmonised approaches for the energy and energy efficiency sectors, as well as for the transport sector – and more sectors will follow.

The easy-to-use harmonised standards, will also be shared at the UNFCCC website as a resource to allow project developers, donors, financial institutions, issuers of green bonds and other practitioners to easily access them. See here for details.