For too long, this tool has been available exclusively to investors for their bonds and equity portfolios. However, if we are to achieve the objectives of the Paris Agreement, it is essential to involve the banking sector more in these efforts. Finally, banks play a central role in the fight against climate change, thanks to their lending decisions and their commitment to customers. For this reason, over the past two years, the 2-Investing initiative has undertaken to extend its flagship methodology of the Venture Capital Agreement (PACTA) to the corporate credit sector. The first challenge of orientation is to “do no harm.” In recent decades, public development banks have focused their efforts on financing projects to reduce greenhouse gas emissions, such as renewable energy production and energy efficiency. Funding for such development projects with climate benefits is important, but it is also important not to finance the construction of a new coal-fired power plant at the same time. In order to “guide” institutions, therefore, institutions must not, in the first place, cause harm to all sectors of activity. In addition to the collective commitment to climate protection for banks, asset owners around the world are launching an important climate alliance today. For more details on this complementary initiative, a coalition convened by the UN Environment Programme (UNEP) funding initiative and partners, click here. PACTA for Banks allows banks to measure the alignment of their corporate loan portfolios with climate scenarios across a number of important climate-related sectors and technologies. It is a major step forward in the analysis of climate scenarios for lending, giving banks an overview of the climate direction of the capital stock and the spending plans of their corporate clients. Since 2017, development banks have been developing common policy principles that will be decisive not only for their own direction, but also for the financial sector as a whole.
However, there is still no consensus on what alignment with the objectives of the Paris agreement means. In order to create a common language, to talk about the challenges of harmonization, we recently published a study to support the development of these principles: the I4CE “Alignment Bullseye” provides a common guide to all financial actors that highlights the main challenges for each type of institution and, in particular, for public development banks. The first challenge is to reach a common understanding of what “Paris harmonization” means for multilateral development banks.