Greenhouse gas accounting at project and portfolio level

Explanation

The IsDB 2023 annual report makes reference to the Bank developing a GHG accounting system (as well as accompanying staff guidance) to account for and report on both operational and organisational GHG emissions. Further details on the content and details of this system have not been made publicly available. However, a comprehensive system for this purpose has been developed and implemented internally.[1] To reflect the Bank’s progress in this regard, the analysis of this metric is accordingly based predominantly on internal documentation.

Project-level GHG accounting

The IsDB has prepared an internal staff handbook to support with the integration of GHG accounting and reporting across projects. The staff handbook clearly recognises the Bank’s commitment for all sovereign operations to be Paris aligned, with explicit reference to the temperature goals of the Paris Agreement, as well as the joint MDB building blocks and methodological principles for Paris alignment that are particularly relevant for GHG accounting.[2]

The Bank’s GHG accounting methodology is deliberately aligned with the International Financial Institutions (IFIs) Framework for a Harmonised Approach to GHG Accounting. Under the methodology, the Bank commits to:

1. Screening all direct investments for likely significant GHG emissions (in line with the decision tree outlined below).
2. Measuring GHG emissions in line with the methodologies and tools established.
3. Monitoring GHG emissions during implementation.

Any reference to public reporting (project- and portfolio-level) is notably absent from these commitments, as well as to indirect investments. Moreover, the comprehensive processes set out in the remainder of the handbook are exclusively focused on ex ante GHG assessment, with no further references to any ex post monitoring during implementation, despite the commitment to do so.

Screening

The Bank has developed a decision tree to guide the initial screening process, where the thresholds and conditions under which either a qualitative or quantitative GHG assessment takes place for a given project are defined. This includes first assessing whether the Bank has the appropriate tools for screening projects in a given sector, and the availability of sufficient information to undertake the assessment. The IsDB has in-house screening tools for the following sectors: buildings, transport (road and railways), transmission lines, wind and solar energy, and wastewater treatment.

Provided the Bank has the in-house tools to undertake the screening, a threshold of 25,000 tCO₂e is applied to determine whether a qualitative (below) or quantitative (above) assessment is required. Should this not be the case, local-scale projects require only a qualitative assessment. National- and regional-scale projects are subject to a further GHG appraisal to determine whether a qualitative or quantitative assessment is required at the detailed design stage. The IsDB undertakes this appraisal itself provided a project falls in the covered list of sectors (which is identical to above, but notably also includes the thermal power generation sector at this stage, for which industry reference tools will be used in lieu of an in-house tool being available). If the project falls outside of these sectors, the recommendation is made for a detailed GHG assessment to be carried out at the detailed design stage.

Measuring and monitoring

The GHG assessment itself takes place at the detailed design stage of the project. The rationale is that this is the optimum point in the project cycle to influence the project design, and when sufficient information is available to ensure the assessment is maximally accurate and informative. The assessment includes all scope 1 and 2 emissions, and scope 3 where relevant (defined as emissions directly up- or downstream of the project). The most realistic alternative scenario is selected as a baseline.[3] The executing agency is responsible for conducting the detailed GHG assessment in accordance with acceptable methodologies (recommended and verified by the IsDB). The handbook in turn suggests the IsDB should prompt project designers to implement GHG reduction measures wherever feasible and viable.

Portfolio-level GHG accounting

The IsDB has not published any details relating to the portfolio-level application of its internal GHG accounting system. Internal documentation refers to the Bank preparing and reporting a corporate-level emissions inventory, covering emissions associated with IsDB buildings and associated activities, but not to the aggregation of project-level emissions.

In the Bank’s 2023 Development Effectiveness Report, there is some reference to sector-level aggregated emissions reductions. However, this indicator only features for transport sector operations (notably omitted for the energy sector) and is presented only as an ex ante estimate of “planned results” without a corresponding “completed results” indicator (as is the case for other indicators).

Recommendations: 

• The IsDB should consider publishing the internal handbook on GHG accounting and reporting as a valuable resource for stakeholders and peer institutions to consult. Moreover, the Bank should consider the following improvements:
  • Clarifying the procedures applied to indirect investments.
  • Reducing the inclusion threshold to cover all projects expected to produce or currently producing >20 ktCO₂e/year, to align with best practice among peer institutions.
  • Clearly setting out the project-level public reporting requirements, and how these relate to aggregated reporting (at the sector and/or portfolio level).
  • Clearly setting out the ex post measures in place to operationalise the commitment to monitoring GHG emissions during project implementation.
• The IsDB should provide a robust basis for monitoring and reporting of absolute emissions and emissions reductions at the portfolio level. In doing so, it should draw on leading practice exhibited by other PDBs, such as by the European Investment Bank (EIB), as well as comparable accounting norms and standards in the financial sector, including from the Transition Plan Taskforce(TPT) and Science Based Targets initiative (SBTi). Regular disclosure of portfolio-wide absolute emissions and emissions reductions (as a complement to the planned disclosure of net emissions) would allow the Bank and stakeholders to track its progress toward a peaking commitment and provide transparent insight on the emissions trajectory of the Bank’s portfolio over time.

[1] Information received directly from the IsDB.

[2] In particular: BB1: Alignment with mitigation goals; BB3: Accelerated contribution to the transition through climate finance; and BB6: Align internal activities.

[3] This can be one of either “do nothing” (e.g. continuation of current activities), “business as usual” (e.g. adopting the average market technology, design or practice that would deliver the project outcomes) or “forward looking” (e.g. implementation of new technologies or practices other than that proposed to be financed by the IsDB). If more than one alternative is considered feasible, the baseline with the lowest relative emissions to the project is selected.