Development banks put on strained show of unity on climate, SDGs

BRUSSELS — Hundreds of public development banks pledged to “align” with the Sustainable Development Goals and Paris climate accord at a first-of-its-kind summit Thursday, though organizers admitted there is not yet consensus on what that means. In the nonbinding “Finance in Common” joint declaration, signatories — including associations of development finance institutions and some but not all multilateral lenders — committed to “align our activities with the objectives of the Paris Agreement.” To do this, the banks will “strive to develop, operationalize and scale-up strategies and methodologies of alignment in the perspective of COP26.” However, an earlier draft seen by Devex was clearer on the need to align financial flows with the Paris Agreement “by COP26” in November 2021. In addition, some key institutions, including the World Bank, failed to sign up to even the diluted final text. Rémy Rioux, CEO of Agence Française de Développement, which organized the summit, told journalists at a virtual press conference that another hurdle was harmonizing the various efforts underway to decide what amounts to sustainable finance. “There are for now tens of methodologies on what does it mean to do the good investments,” Rioux said, citing the Organisation for Economic Co-operation and Development and United Nations Development Programme’s joint Framework for SDG Aligned Finance, released this week. “We know [what it means] for climate,” he said, later clarifying that he was referring to work done by multilateral lenders and the International Development Finance Club, which he chairs. “It’s a process. ... We will discuss again for all of us, the whole family, to build this infrastructure, this global architecture.” --— Rémy Rioux, CEO, Agence Française de Développement However, SDG alignment — meaning “investments that are both contributing positively, or at least do not harm, for planet and for people at the same time” — was more complicated, he said. “This is the challenge we are all tackling and we are all discussing.” Public development banks account for about 10% of public and private investment worldwide, yet in the case of multilateral development banks, a new tracker from the think tank Third Generation Environmentalism found that none is “yet on track to a climate safe world.” With OECD warning that the financing gap to meet the SDGs could increase by 70% to $4.2 trillion due to the COVID-19 pandemic, many banks came to “Finance in Common” with new pledges. The Association of bilateral European Development Finance Institutions announced the transition of members’ portfolios to net-zero greenhouse gas emissions by 2050 at the latest and $4 billion for smaller businesses in Africa by 2021. A total of 13 agriculture and rural banks from sub-Saharan Africa, Asia, and Latin America committed to invest more in food and agriculture, as the International Fund for Agricultural Development found just 1.7% of climate finance goes to small-scale farmers in developing countries. And the European Investment Bank presented its Climate Bank Roadmap. Speaking at the summit Thursday afternoon, French President Emmanuel Macron said the public development banks were “creating a new global public financing infrastructure, of a kind that had never been conceived at this level and that we sorely need.” For some, though, the declaration went too far on climate action. The likes of the World Bank Group, Asian Development Bank, Inter-American Development Bank, and Asian Infrastructure Investment Bank did not sign up and were instead listed “in the presence of” in the final text. “They are not full signatories,” Rioux told reporters. “But it’s a process, so there will be other steps and we will discuss again for all of us, the whole family, to build this infrastructure, this global architecture.” For NGOs, meanwhile, the summit’s joint declaration did not go far enough. Oil Change International called it a missed opportunity to end fossil fuel finance, while Eurodad said it fell short of expectations and failed to address low-income countries’ sovereign debt crisis. Macron wished “longue vie” to the “movement” represented at the summit. The joint declaration foresees a second meeting of this new “global coalition” next year, and Koen Doens, head of the European Commission’s development department, told reporters he would be working for more ambition “at next year’s summit, the summit afterwards, and so on.” But it is not universally accepted that the world needs another multilateral platform. One source told Devex that some participants had resisted the idea of institutionalizing the “Finance in Common” concept. An Oct. 19 draft of the declaration, obtained by Devex, stated that signatories were “setting out to join forces and form a global coalition of PDBs,” while the final version referred to “setting out to join forces and reinforce the global coalition.” For now, Rioux told reporters, the International Development Finance Club and the World Federation of Development Finance Institutions have signed a memorandum of understanding “to pursue the ‘Finance in Common’ dynamic” with anyone who wants to join, including foundations, the private sector, and central banks. “Now,” that is, “that multilateralism is back and renewed.”