Greenhouse gas accounting at project and portfolio level

Explanation

Project level GHG accounting

The WBG Climate Change Action Plan (2021–2025) (CCAP) restated the Bank Group’s commitment to conduct GHG accounting in “all WBG investment financing operations where methodologies are available”. In practice, this has involved a differentiated approach across the constituent WBG institutions.

According to the WB’s Environmental and Social Framework (ESF), as part of the environmental and social assessment of projects, borrowers are expected to identify and estimate gross GHG emissions resulting from a project (ex-ante). In doing so, they are permitted to utilise national methodologies that have been accepted in the context of international agreements on climate change, provided the WB agrees to them. It is not clear what concrete, universal requirements or thresholds are in place regarding the content of these national methodologies. As a result, it is impossible to ensure they consistently facilitate robust GHG estimations that are comparable to those produced using the Bank’s own methodology, and that excessive variability in the procedures and estimates used across projects is avoided.

Should a borrower lack sufficient capacity, the Bank will support with its GHG estimation process. Depending on the nature of the project, this can mean carrying out the estimation on behalf of the borrower or providing technical assistance to strengthen the borrower’s capacity to use the methodologies established by the Bank.

GHG estimation is required in all cases where technically and financially feasible, excluding projects with “diverse and small sources of emissions” or where emissions are “not likely to be significant”. However, the ESF does not provide concrete definitions to accompany these nominally quantitative thresholds, establishing what qualifies as “small” or “not significant” sources of emissions. Prior to the implementation of project level GHG accounting, the WB undertook an internal study on GHG analysis at the World Bank, resulting in a recommended approach covering the forestry, energy, and transport sectors. As part of this effort, an inclusion threshold of net emissions of 20 ktCO₂e/year was recommended, but it is not clear whether this was later adopted as part of the Bank’s approach.¹ No ex post GHG emissions accounting appears to take place, preventing any verification of ex ante estimations which might vary in practice.

Since 2018, the WB has mandated a third-party assessor to validate its GHG calculations and the proper application of its methodologies. For this purpose, Climate Focus reviews sample projects that have undergone GHG accounting by WB operational teams, concentrating on aspects such as emissions scope, timeframe, project boundaries, baseline/project scenarios, and the quality of data and assumptions involved in the GHG calculations.² Climate Focus then relays its evaluation to the Bank. Thereafter, it is not clear to what extent its observations or recommendations are considered binding and/or are made publicly available. However, in principle instituting a layer of independent quality assurance in this manner represents a best practice approach.

In place of the WB Environmental & Social Framework, IFC implements its own Performance Standards. MIGA also has its own Performance Standards in place. Guidance on GHG emissions is covered under “Performance Standard 3” (PS3) of both documents and is identical across the two institutions. PS3 requires that clients “implement technically and financially feasible and cost-effective options to reduce project-related GHG emissions during the design and operation of the project.” The thresholds for technical and financial feasibility, in particular in the context of measuring “cost-effectiveness”, are not clarified. Projects that are expected to produce (or already produce) emissions of more than 25 kt CO₂ equivalent per annum are required to account for scope 1 and 2 emissions. This accounting must be carried out in accordance with “internationally recognised methodologies and good practice” such as those of the IPCC, “various international organisations”, and “relevant host country agencies”. This relatively broad and imprecise indication of suitable “good practice” methodologies that clients can use leaves notable scope for variation in GHG accounting and compromises comparability across operations.

Portfolio level GHG accounting

As part of the project level accounting commitment made in the WBG CCAP 2021–2025, the Bank Group also committed “to disclose aggregate gross and associated net emissions” – implying full, portfolio level GHG accounting for the whole WBG. There is no indication in the CCAP 2021–2025 or elsewhere that portfolio level accounting is to be accompanied by any associated GHG-related portfolio level targets.

The WBG’s New Corporate Scorecard FY24–FY30 includes a dedicated indicator on net GHG emissions (CO₂e/year) under outcome area 5 (Green and Blue Planet and Resilient populations).³ This indicator aggregates an annual average across all “eligible” WBG operations that undergo GHG assessment of the difference between gross emissions (estimated ex ante) and a baseline scenario, resulting in a net annual figure.⁴ Notably, since this calculation uses ex ante estimates, the resultant net annual figure should also be viewed as an indicative estimate (as opposed to if ex post data was used). Results indicators in the new scorecard will be broken down by institution (e.g. IBRD, IDA, IFC, and MIGA), as well as by region, country-income group, and with specific results for Small Island Developing States (SIDS), least developed countries (LDCs), and small states. This reflects an excellent degree of granularity in GHG reporting at the portfolio level.

While this refreshed net emissions reporting approach implies that aggregate gross emissions are indeed calculated for the full WBG portfolio, initial indications from the updated scorecard signify that reporting will only cover net emissions. This suggests that the WBG’s portfolio level GHG indicators will continue to fall short of fulfilling the commitment made in the CCAP 2021–2025 for both aggregate gross and net emissions to be reported across the full WBG.

Moreover, contrary to the retention and enhancement of the net GHG emissions indicator for the updated corporate scorecard, the indicator on GHG emissions reductions (CO₂e/year) included in the previous scorecard has been dropped.⁵ In practice, this means that while the updated corporate scorecard might well provide more comprehensive accounting of net portfolio GHG emissions, it also constitutes a less transparent approach to accounting for and disclosing emissions reduction contributions.⁶

Recommendations: 

• The WB should set out the thresholds (in gross and/or relative terms) above which a GHG accounting assessment is required. This should align with the best practice inclusion threshold of net emissions greater than 20 ktCO₂e/year, as recommended by the internal study conducted on GHG analysis at the World Bank.
• The WBG should consider implementing ex post requirements for accounting and reporting at the project level, thereby complementing the existing ex ante procedures. This would allow the Bank Group to verify and evaluate the ex ante estimations of project emissions, and monitor for unexpected deviations, including for use in its portfolio level reporting.
• The WBG should ensure that indirect emissions, even if not directly controlled by the project (scope 3), are included throughout its GHG accounting practices. This would bring the Bank in line with leading practice among PDBs in this regard, alongside frontrunners such as the Dutch Entrepreneurial Development Bank (FMO), as well as with comparable accounting norms and standards in the financial sector, such as from the TPT and SBTi. Their inclusion can substantially change the assessment of environmental and climate impact and is therefore relevant to investment decisions.
• The WBG (and/or each of its institutional arms) should consider introducing a bank-wide or sector-specific portfolio level absolute GHG emissions target. Any target(s) should be set with reference to: (1) scope (in terms of institutional arm(s) and sector); (2) trends in current annual emissions reporting; and (3) a forward pathway for peaking and reducing emissions consistent with limiting warming to 1.5 °C that considers the development needs and decarbonisation trajectories of the WBG’s member countries. This would enhance accountability and transparency, driving more consistent and impactful climate action across its investment portfolio.
• The WBG should consider extending the best practice approach of mandating third-party assessments of its GHG calculations by Climate Focus to cover all arms of the WBG. Moreover, the Bank Group should consider making these assessments publicly available and specifying the process for selecting sample projects for third-party assessment.

¹ Notably, other aspects of the recommended approach set out in the study do not appear to have been implemented in full, such as considering scope 3 emissions where considered “significant and measurable”.

² It is not clear how sample projects for review are selected.

³ The previous iteration of the WBG Corporate Scorecard (replaced by the new version in April 2024), similarly included a net GHG emissions (CO₂e/year) indicator in “Tier 2” (covering client results). This was in turn reported as a cumulative trend, showing consistently negative net emissions across all of sample years available (FY2019–FY2022), albeit with some variation in degree. However, this previously only covered the two WB institutions (IBRD & IDA), making the new scorecard an improvement in this regard.

⁴ Eligibility here refers to the project level guidelines set out in the previous section.

⁵ This statistic incorporated data from across all projects that undergo GHG assessment from all arms of the WBG. However, critically, only projects that were expected to reduce emissions (in the case of the World Bank institutions) and mitigation projects for which annual emissions reductions were calculated (in the case of IFC & MIGA) were included. Results were reported as a cumulative trend and revealed a very consistent level of annual emissions reductions across the sample years available (FY2019–FY2022), with the exception of a slight dip in FY2020 (likely as a result of the COVID-19 pandemic).

⁶ Dropping this indicator does not mean that emissions reductions are now entirely absent from the WBG’s GHG accounting and reduction approach. The calculation of net portfolio emissions will still account for emissions reductions contributed to by WBG operations. However, it will no longer be possible to determine annual figures or trends in specifically this component of the WBG’s overall net portfolio emissions.