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    • Climate finance

    What does 'Paris alignment' mean for development donors?

    The world's biggest bilateral aid donors and multilateral development banks have committed to "align" with the Paris climate agreement, but what that entails in practice isn't always clear. Here's how to understand the process.

    By Andrew Green // 09 November 2021
    As the 26th United Nations Climate Change Conference kicked off in Glasgow at the end of last month, the world’s biggest aid donors — under the banner of the Organisation for Economic Co-operation and Development’s Development Assistance Committee — pledged to align all their development aid with the Paris climate agreement. “This is the next chapter in what best practice for development cooperation looks like,” DAC Chair Susanna Moorehead told Devex. In aligning with the agreement, the committee members join a handful of bilateral and multilateral donors that have already made this commitment. But what that means in practice isn’t always clear. Here’s a look at how to understand the process: What is ‘alignment’ with the Paris Agreement? Alignment signals a commitment from donors to tailor their activities to — or at least not work against — the goals laid out in the Paris Agreement, including mitigating carbon emissions to keep the global temperature rise below 1.5 degrees Celsius and spurring adaptation to a changing climate. Donor alignment is not compulsory but fits most clearly within the third goal of the agreement, which aims to make financial flows consistent with efforts to promote climate-resilient development. Before DAC, the French and British development agencies had already made alignment pledges. Those came alongside a joint commitment from multilateral development banks and, later, members of the International Development Finance Club, which represents several other development banks and agencies ― although observers say engagement with this pledge remains uneven. “The big question at the COP is whether we see only a new round of statements or [instead see] … concrete demonstrations and reporting of progress on climate alignment.” --— Ian Cochran, senior adviser, Institute for Climate Economics Why is it important? Development finance reflects only a small amount of the overall money being invested in low- and middle-income countries, or LMICs, but it could have an outsize influence. “The [DAC] members are shareholders in development banks and donors to U.N. agencies,” Moorehead said. “We can use this to permeate the way that we all begin to think about climate in the context of development cooperation.” Some say that donors and development finance institutions, given their regular engagement with recipient governments, also have an opportunity to push them to take more ambitious climate action. What are the key elements of Paris-aligned aid? Across all funders and observers, the consensus first step in alignment is to drop financing for carbon-emitting projects, beginning with coal. Then it gets complicated. Funders have to think through the entire life span of a potential project, including whether it will result in ongoing emissions after countries are supposed to reach net-zero. They also must consider how to sustainably phase out some activities without harming development efforts. Excluding funding for projects that rely on fossil fuels such as oil is relatively straightforward ― though still not a step that all MDBs have taken, with a debate raging about whether sources such as natural gas can serve as “bridge fuels” in countries lacking energy access. But building roads, for instance, can fall into a gray zone. The developers must consider the potential increase in emissions against possible improvements in green vehicle technology and the other benefits to the climate, and development more broadly, that may result from improved access. “It’s not that we can’t change things, but it is going to be a process, rather than something that from one day to the next can see a complete shift,” said Ian Cochran, a senior adviser for the Institute for Climate Economics. There is some way to go. According to SEEK Development’s Donor Tracker initiative, the share of DAC donors’ total bilateral ODA — or official development assistance — going to projects that also contribute to climate objectives remains below 30%. “Nearly three-quarters of bilateral ODA is not in the realm of alignment,” said Raimund Zühr, a project manager with SEEK Development. “That’s certainly something that’s not very encouraging.” Within its October pledge, DAC focused on helping LMICs achieve an equitable transition to net-zero emissions by 2050. That includes investments that could help them leapfrog fossil fuel dependency by developing a renewable energy sector. At the same time, the declaration recognized an imbalance in global financing, which has prioritized mitigation over helping countries adapt to climate change. That does not make sense in LMICs, where “the primary concern is adaptation,” Moorehead said. “They have much less to mitigate.” Not all ODA projects will have climate as their focus, but Paris alignment means thinking about ways to build mitigation or adaptation into all projects — from health to literacy — or at least ensuring funding will not work against the Paris goals. Donor governments are particularly well positioned to use ODA to layer adaptation efforts onto existing projects, Moorehead said, such as improving water resource management as part of WASH projects. Commitment is just a first step, though, as made clear in a recent evaluation of the U.K. government’s alignment efforts by the Independent Commission for Aid Impact. Determining alignment requires fairly specific tools for measuring projects in individual sectors, as well as monitoring and reporting on it. That infrastructure is still missing in the United Kingdom and elsewhere — with the World Bank also still in the process of developing methodologies for assessment, even as the institution strives to achieve alignment by 2023 ― and it will now have to be developed. How does Paris alignment differ for DFIs? In some ways, development finance institutions have outpaced bilateral donors in thinking about alignment. This includes building out assessment methodologies that reflect the complexity of the process. By also evaluating the impact of undertakings in potential gray areas, these go beyond just ending direct financing for carbon-intensive projects. All donors, including bilaterals, have an opportunity to work together to standardize these approaches, though collaboration is currently limited. At the same time, the European Investment Bank ― the first MDB to commit to aligning all of its activities with the Paris Agreement ― is charting progress in how DFIs work with corporates and financial intermediaries that may not share a commitment to alignment. Ahead of the conference of the parties in Scotland, EIB released a framework for engaging counterparties that requires them to take steps toward decarbonizing business activities in line with the 1.5 degree goal and strengthening resilience to climate change. “It greatly increases the impact we have with our financing by actively engaging with our clients on this topic,” Wouter Meindertsma, a climate change specialist with EIB, told Devex. How is progress measured and accountability determined? Amid the drive for high-income countries to provide $100 billion annually in climate finance to LMICs, one concern is that this might happen at the expense of ODA. Zühr pointed to a plan created by Germany and Canada to track countries’ commitments to providing the $100 billion as a potential starting point for accountability efforts. At the moment, it lacks any mention of ODA. But the plan could be built out to detail not just pledges but also disbursements, Zühr said, to ensure that countries are achieving their climate finance targets and not double counting ODA money. DAC says it offers an additional layer of accountability. “When you get a declaration like this [one issued by DAC members in October], it actually means it now has to be a road map for prioritization and what the committee spends its time on when we peer-review our members,” Moorehead said. Accountability is an open question for the DFIs, as well. Activists are still looking for a clear list of the types of projects that the DFIs will no longer fund, as well as details on anticipated emissions for each project, including initiatives that are funded through intermediaries. They’re looking to both bilaterals and multilaterals for as much information as possible, ranging from frameworks to projections as first steps in working toward a consensus on coherently reporting on Paris alignment. “The big question at the COP is whether we see only a new round of statements or commitments, or also — and perhaps more importantly — concrete demonstrations and reporting of progress on climate alignment,” Cochran said.

    As the 26th United Nations Climate Change Conference kicked off in Glasgow at the end of last month, the world’s biggest aid donors — under the banner of the Organisation for Economic Co-operation and Development’s Development Assistance Committee — pledged to align all their development aid with the Paris climate agreement.

    “This is the next chapter in what best practice for development cooperation looks like,” DAC Chair Susanna Moorehead told Devex. In aligning with the agreement, the committee members join a handful of bilateral and multilateral donors that have already made this commitment.

    But what that means in practice isn’t always clear. Here’s a look at how to understand the process:

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    About the author

    • Andrew Green

      Andrew Green@_andrew_green

      Andrew Green, a 2025 Alicia Patterson Fellow, works as a contributing reporter for Devex from Berlin.

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