- New study by CPI shows that less than 25% of the largest public financial institutions’ assets are under a net zero or Paris aligned target.
13 October 2022. CPI today released a report, Public Financial Institutions’ Climate Commitments, that tracks the climate commitments made by public financial institutions since 2015. While headway is being made in some public financial institutions, our findings show much needs to be done to increase ambition across nearly all public financial institutions so they are aligned with the goals of the Paris Agreement.
Due to their local financial market expertise and capital mobilization potential, public financial institutions can be among the most effective vehicles for mobilizing climate finance. Public financial institutions themselves, however, have fallen behind on making effective and specific targets and commitments. Understanding the current state of public financial institutions’ climate commitments is crucial to measure progress on climate action and to determine whether current efforts are sufficient to keep global climate ambitions on track.
To help close this information gap on public financial institution commitments, CPI developed a taxonomy for tracking finance-related climate commitments and institutional climate strategies covering:
- Paris alignment, net zero, carbon neutral, and other climate targets,
- Climate finance and sustainability goals, including adaptation,
- Exclusion and divestment policies, and
- Institutional climate strategies and related implementation actions.
This included developing an automated data scraping and processing pipeline, utilizing advanced data extraction and natural language processing tools to collect primary and secondary data for the 70 largest public financial institutions: multilateral, bilateral, national and subnational development banks, development finance institutions, export credit agencies, mortgage securitization and public housing agencies, and policy banks. Overall, the entities tracked represent 95% of the total assets held by public financial institutions, equivalent to USD 20.4 trillion in assets.
Key takeaways from the analysis include:
- Overall, just 20 of the 70 tracked public financial institutions, holding 25% of tracked assets, have set net zero or Paris alignment targets.
- Outside of multilateral development banks, very few public finance institutions are making commitments to align their operations and future investments to the goals of the Paris agreement. Where commitments exist, they often lack complementary interim targets or focus only on operational emissions.
- While 47% of tracked entities have announced climate finance and sustainability goals, these were rarely accompanied by sectoral or geographical specificity. This specificity is key to ensuring that public finance is directed to projects and places less attractive to private financial institutions.
- Only six public financial institutions have set climate finance goals that explicitly mention adaptation. Public financial institutions have a key role to play in closing this gap, so the lack of clearly defined commitments relating to climate adaptation is concerning.
- Twenty-two public financial institutions have climate-related exclusion and divestment policies of varying breadth and ambition. Only nine included pledges to phase out all fossil fuel financing without exception.
- Public financial institutions have been slow to adopt institutional strategies on climate. Little over half of tracked entities (39 institutions, 55% of our sample) have institutional climate strategies outlining how climate goals will be integrated into the entities’ operations and planning, and most of these institutions operate in an OECD country or globally.
- National and subnational development banks, in particular, are falling behind their peers. While national and subnational development banks make up 37 of the 70 of the entities in our dataset (53%), only nine of them have mitigation targets of any kind, and only nine have announced climate finance goals.
Our analysis identified insufficient accountability measures and lack of guidance from global coalitions and governments as key barriers to credible climate commitments by public financial institutions.
“Leadership from public finance institutions is critical to creating the right conditions that will scale and guide international and domestic investment into climate opportunities,” said CPI’s Global Managing Director Dr. Barbara Buchner. “It’s time to leverage this potential to create concrete climate action.”
To ensure that public financial institutions take the actions necessary on climate change, the report includes multiple recommendations for key stakeholders.
By defining and disclosing climate commitments, public financial institutions can signal their intent to respond to growing calls for more ambitious climate action, facilitating future engagement and climate finance flows. Addressing barriers to setting and implementing climate commitments in public financial institutions will help ensure that public finance is aligned with national and global climate objectives, private climate finance is mobilized at scale, and innovation is embraced to expand climate finance deployment.