The U.S. International Development Finance Corporation announced new climate commitments Thursday at the Leaders Summit on Climate, positioning the agency to play an important role in President Joe Biden’s climate finance commitments.
The new policies “represent the most ambitious climate agenda of any [development finance institution] both in terms of speed to net-zero and dollars deployed and processes,” a senior DFC official told Devex.
DFC announced that its portfolio would get to net-zero carbon emissions by 2040, which is earlier than any other DFI in a G-7 or G-20 country.
While a lot of financial institutions have rolled out announcements that they will be net-zero by 2050, many haven’t released plans for how they intend to get there, the DFC official said. But the DFC’s program is “credible.” The agency has gone through every asset and project and modeled emissions, and “created a path to get to net-zero by 2040,” the official said.
As the Leaders Summit on Climate kicks off, advocates say they want to see the White House put forward a clear plan for ambitious climate finance.
DFC will place climate at the core of its strategy. It will update the Roadmap for Impact it released last year to focus on climate. The agency has also committed to having a third of all of its investments be linked to climate by fiscal year 2023.
DFC won’t end carbon investments until 2030, but there will be a higher threshold for approving “carbon-intensive” projects, and the agency will be more selective in approving them. It is likely to continue making some investments in natural gas where there is a significant development impact, and the project can bring electricity to communities that still lack access.
The strategy to continue investing in some carbon-intensive projects through 2030 is part of a “just transition,” the senior official said. “We felt having a policy that said no new carbon projects tomorrow would sacrifice our development goals, so we basically chose a path to advance development goals and climate goals simultaneously.”
The Biden administration sees nuclear power “as part of a future low-carbon environment,” so DFC may consider investments there. However, it may not be best suited for large reactor projects, and smaller modular reactors are still years from commercialization, the senior DFC official said.
Achieving these goals is “ultimately a management challenge,” the official said. The agency’s management and leadership need to help shift the agency’s focus, pipeline, and business development priorities to focus on climate, the official said.
The agency is expected to announce its first chief climate officer in the next few weeks to help manage all these changes.
The focus on climate will mean the agency has to take on more risk, so it is looking at working with insurance companies on a risk-sharing agreement to mitigate some of that risk, the DFC official said.
“We want to drive a risk-taking culture. This would give us comfort,” the official said.