Climate risk, resilience and adaptation

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Paris alignmentReasoning
Paris alignedAFD has a comprehensive climate risk evaluation process in place and provides a significant proportion of climate finance (22% in 2021) towards adaptation.
Project-level climate risk management proceduresEnhancing client climate resilience
AFD procedures include evaluating climate risk and climate proofing options.AFD supports clients in assessing their climate risks and AFD dialogue focuses on mitigating those risks.

Explanation

AFD approaches financial climate risks from three perspectives: physical, transition and litigation risks. Since 2017, AFD has worked on integrating financial climate risks into its risk analysis processes through various methodologies, e.g. its physical climate risks methodology which systematically assesses the level of client’s exposure when granting new loans to existing clients.

Collaborations

When identifying potential collaborations with other financial institutions, AFD undertakes climate risks assessments (considering legal, financial and reputation aspects). AFD group has published studies dedicated to climate litigation risks and according to the midterm review will continue to do so in the coming years.

Furthermore, AFD partners up with other organizations to work on transitional financial climate risks. Such is the case of the collaboration with think tank Climate Policy Initiative (CPI) in South Africa which supports a better accounting of financial climate risks by the Development Bank of South Africa DBSA. Furthermore, AFD facilitates the public policy dialogue on low-carbon transition with national authorities. AFD shares the lessons learnt and its progress in incorporating climate and transition-related financial risks in its overall risk analysis.

Adapt’Action

AFD developed a climate adaptation tool for its most vulnerable clients called Adapt’Action (currently covering 15 countries). This tool helps countries to implement their climate adaptation and resilience commitments. The bank provides support through policy dialogue, technical assistance and capacity building aimed at helping its countries of operation to better access climate finance. In addition, Adapt’Action explicitly mentions the opportunities offered by nature-based solutions and the tool aims to help AFD and its clients to better take into account gender-related climate risks.

Adaptation finance

According to AFD’s 2021 climate activity report, 22% of all AFD operations counted as adaptation, with over $ 2 billion of investments in adaptation. The volume of adaptation finance offered by AFD remains stable in AFD investments.

Last Update: November 2022