Ten multilateral development banks (MDBs) – including the World Bank – have defined a multi-step process to establish whether projects meet the goals of the Paris Agreement, which aims to limit global warming to well below 2°C and to “pursue efforts” to keep it under 1.5°C.

The principles, which make good on a commitment first made by MDBs in 2017, require projects to line up with national climate plans and include a list of acceptable activities.

But analysts and campaigners are sceptical whether the rules will divert public money away from polluting activities and prevent global warming. A key criticism is that the framework does not explicitly prohibit financing for fossil fuel activities.

Focus on national plans

For a proposed investment to be considered under the new principles, it needs to align with countries’ climate strategies submitted to the UN, known as nationally determined contributions (NDCs).

If an activity – even a highly polluting one – appears in the relevant NDC, it will be waved through to the next step. The exceptions to this are support for coal mining, coal power plants and peat extraction, which are not considered Paris-aligned in any circumstance .

Laura Sabogal, policy advisor at E3G, considers it “very likely” that the banks’ portfolios will actually overshoot the Paris Agreement threshold because of the heavy reliance in the decision-making process on national climate plans that are “not robust enough”.

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“These documents are extremely vague, not uniform or comparable,” Sabogal told Climate Home News. “Many NDCs are not aligned with a 1.5C, or even 2C, trajectory. If you aggregate all of these investments it is very likely the banks are not actually aligning with the goals of the Paris Agreement.”

According to Climate Action Tracker, no country’s NDC is compatible with 1.5C of global warming.

The UN Environment Programme says the current pledges made collectively by countries in their NDCs put the world on track for a temperature rise of between 2.4C and 2.6C by the end of the century.

First step in reforms

MDBs hold over $1.8 trillion in assets, giving them an outsized influence over the direction of funding flows toward developing countries in particular. They have long been accused of continuing to fund polluting projects and not doing enough to support climate-friendly ones. A growing coalition of nations, gathered in Paris last week, has been calling for deep reforms.

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The new principles were agreed on by the African Development Bank, Asian Development Bank, Asian Infrastructure Investment Bank, Council of Europe Development Bank, European Bank for Reconstruction and Development, European Investment Bank, Inter-American Development Bank Group, Islamic Development Bank, New Development Bank and the World Bank Group.

Each lender will now have to adopt them into their own methodologies and use them in vetting investment proposals.

Across the ten lenders, the work to turn high-level principles into something tangible is at very different stages. At one end, the European Investment Bank says all its new investments have been Paris aligned since the start of 2021. Meanwhile, the African Development Bank hopes to reach that target by 2025.

If fully implemented, the new framework could mark a degree of progress toward more climate-friendly operations for some lenders.

Although mining and electricity generation from coal and peat are in an exclusion list of projects considered incompatible with the emission reduction goals of the Paris Agreement, this does not amount to an outright ban on investing in these activities. But experts believe it should further discourage development banks to fund them.

Multilateral banks’ investments in industrial livestock undermine their Paris climate commitments

Of the MDBs that signed up to this initiative, the Islamic Development Bank and the African Development Bank are the only ones without an explicit commitment to end coal finance. The African lender’s president Akinwumi Adesina pledged to scrap coal funding in 2019, but this has yet to be formally reflected in the bank’s energy policy.

Aki Kachi, an analyst at the New Climate Institute, told Climate Home News that “inevitably, it was always going to be the lowest common denominator between all the banks”.

“Some may go further and interpret it in a more ambitious way, others will use all of the flexibility to carry on almost with business as usual,” he added.

Campaigners pushing for MDBs to stop funding all fossil fuel operations were also left disappointed by the exclusion of any mention of oil and gas in the framework. “As they are not part of the exclusion list these will continue to be assessed on a case-by-case basis,” said Sabogal.

Political considerations

The document agreed on by the development banks draws a scenario in which a country is seeking funding for a fossil-fuel-powered technology. If, for instance, the country’s climate strategy states specifically that technology needs to be phased out by 2035, a project with a ten-year lifetime submitted in 2025 would not be considered aligned. But, if the NDC does not mention that fossil fuel activity at all, it will be allowed to progress to the next stage of assessment.

The other steps in the process look at the consistency with sector-specific decarbonisation pathways, the feasibility of cleaner alternatives and the risk of creating stranded assets.

Kachi said ultimately a lot would depend on the interpretation given by the banks’ officers, which is often driven by the political dynamics of their governance.

“We can’t assume this is merely a technical exercise,” he said. “It is very much a political one. The strategies are driven by political agendas within the banks’ management and shareholders. It’s only going to have an impact if the shareholders want that result.”

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Animal agriculture contributes up to a fifth of global greenhouse gas (GHG) emissions, including a third of the world’s methane emissions. Because methane has over 80 times the global warming potential of carbon dioxide (CO2) over a 20-year timeframe, swift and absolute reductions from the livestock sector are vital to keeping the Paris Agreement climate targets within reach.

According to leading researchers, even if fossil fuel emissions were immediately halted, livestock emissions could make it impossible to limit warming to 1.5°C and difficult to limit it to “well below” 2°C.

MDBs livestock investments

Despite this, since 2010, the World Bank and other Multilateral Development Banks (MDBs) have invested over $4.6 billion of public money to help expand large-scale livestock production, exacerbating the climate crisis while also driving deforestation, biodiversity loss, and air and water pollution.

Tomorrow world leaders will meet in Paris for the Summit for a New Global Financing Pact, organized by French President Emmanuel Macron and Barbadian Prime Minister Mia Mottley.

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The summit will address key issues, including reform of multilateral development banks, with the goal of “addressing climate change and the global crisis.” Central to such reform should be a commitment by MDBs to end their support for GHG-intensive and highly environmentally destructive industrial livestock operations.

On his first day as World Bank President, Ajay Banga made climate change a clear priority by directing his staff to “double down” on their climate efforts. But words aren’t enough. The World Bank and other MDBs must take concrete steps to preserve the best possibility of limiting global warming to “well below” 2°C. In agriculture, this translates into shrinking, not expanding, the global industrial livestock sector.

Fatal flaws

MDBs are fueling the global expansion of factory farming while failing to account for the sector’s impacts on climate.

In a new report we co-authored on behalf of the Stop Financing Factory Farming Campaign (S3F), we argue that flaws in MDBs’ frameworks for aligning their investments with the Paris Agreement are resulting in the misclassification of industrial livestock investments as compatible with the Agreement’s mitigation and adaptation goals.

A key flaw is that the frameworks are based on countries’ Nationally Determined Contributions (NDCs)–the climate plans they submit to the United Nations Framework Convention on Climate Change (UNFCCC). But the UN’s climate body itself actually finds that NDCs are “not on track to meet climate goals.”

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Equally important, only 40% of countries incorporate livestock into their NDCs, and none have set methane reduction targets from the sector. MDBs’ Paris Alignment frameworks also fail to account for the extreme vulnerability of intensive, highly centralized livestock operations to climate-related heat stress, disease spread, and water shortages.

None of the world’s leading MDBs currently require that industrial livestock sector borrowers provide comprehensive (Scope 1-3) emissions reporting or commit to absolute, time-bound GHG reduction targets.

IFC’s poor record

Even more concerning, a comprehensive analysis by Bank Climate Advisors reveals that the World Bank’s private sector arm, the International Finance Corporation (IFC), has systematically failed to apply its own GHG-related environmental standards which are already insufficient to the task of reducing absolute emissions from industrial livestock production.

Only last month, IFC approved a $32 million loan to Brazilian dairy giant Alvoar Lacteos and a $47 million loan to GXYX, a massive pig farm operation in China, despite civil society concerns and opposition to each. Neither company has committed to comprehensive GHG reporting or reductions or time-bound zero-deforestation targets, and neither has addressed other negative l impacts of value-chain activities, including biodiversity loss from feed production and grazing.

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Often, MDBs use arguments about food security and the need to keep food prices low to justify investments in resource-intensive factory farming operations.

In reality, however, a shift away from industrial livestock production toward agroecological systems could more efficiently and equitably feed the planet. These systems prioritize smaller-scale farmers and communities, help facilitate a shift toward sustainable, plant-forward diets, conserve natural resources, and yield significant climate and biodiversity-related benefits.

To honor their commitments to Paris Alignment, MDBs should shift their agricultural investments toward climate-friendly agroecological farming systems that support food sovereignty and food security, and end their investments in intensive, polluting and high-emitting industrial livestock operations. Shifting investments in this way would deliver economic, public health, food security, and climate dividends now and for future generations.

Kelly McNamara is a senior research and policy analyst and Kari Hamerschlag is deputy director of food and agriculture at Friends of the Earth U.S.

The post Multilateral banks’ investments in industrial livestock undermine their Paris climate commitments appeared first on Climate Home News.

Six leading MDBs were assessed on the progress they had made in aligning their financial flows with the Paris Agreement goals, which they committed to in December 2017.

The Inter-American Development Bank (IDB) was ranked top and the European Bank for Reconstruction and Development (EBRD) bottom. None were fully in line with the 1.5-2C global warming limit agreed in Paris.

Helena Wright, senior policy advisor at E3G and lead author of the report, said that while the banks had all increased their investments in clean energy, they were still channeling too much money into dirty energy.

“Scarce public finance should not be used to invest in fossil fuels when we need an urgent shift away from fossils to prevent the worst impacts of climate change,” said Wright. “Given that we are far from reaching Paris goals, all public institutions will need to undertake radical reforms to support the transition.”

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Development banks provide support to the private sector for development in developing countries and have a large influence on where investment goes.

Wright told Climate Home News “the development banks’ leadership is important as they are standard-setters and can send a strong signal for finance institutions worldwide”.

By the MDBs’ own estimates, they committed more than $27 billion in climate finance in 2016, but the report noted “most of them spend almost as much on fossil fuels as they do on energy-related climate projects”.

Amal-Lee Amin of frontrunner IDB said increasing investment in sustainable infrastructure was “a key area of priority” and aligning with the Paris Agreement was “an ongoing and continuous process”.

Svitlana Pyrkalo of last-placed EBRD said the bank did not recognise itself in the study and the conclusion “falls short of being helpful in getting all the MDBs aligned around the Paris agreement”.

“Even by the report’s own admission, the EBRD is a leading multilateral bank in energy efficiency,” Pyrkalo said. “Climate change is a global challenge, and we are a committed driver for more, and more efficient, climate finance.”

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