This page is part of the E3G Public Bank Climate Tracker Matrix, our tool to help you assess the Paris alignment of public banks, MDBs and DFIs
| Paris alignment | Reasoning |
|---|---|
| Paris aligned | The ADB leads by example in several areas of climate mainstreaming, including portfolio emissions commitments, climate finance transparency, and the use of innovative financial instruments. In the latter case, the Bank has developed pioneering initiatives such as the Energy Transition Mechanism, a market-based approach to retiring fossil fuel assets ahead of schedule, and IF-CAP, a guarantee platform for unlocking climate finance. In addition to its efforts to lead by example, the ADB has actively sought to share its leading experience (such as on results-based financing) with other institutions. To become a transformational institutional leader, there remains scope for the ADB to strengthen the implementation framework for its Paris alignment commitment. For example, the Bank has yet to publish its own internal Paris alignment methodology, and associated reporting of Paris aligned projects. Moreover, to truly become the “Climate Bank of Asia and the Pacific”, the Bank should increase its efforts to disseminate its own learnings and facilitate knowledge exchange on climate mainstreaming practices, particularly among regional financial institutions. |
Explanation
The ADB has demonstrated institutional leadership on mainstreaming climate change in several respects. The ADB was the first MDB to announce an absolute climate investment target (as opposed to as a percentage of operations) in 2015.[1] It was also the first MDB to mandate climate change risk screening for its projects, with the publication of its Climate Risk Management Framework in 2014.
Building on its reputation as a first mover MDB on climate ambition, the Bank is actively seeking to position itself as the “Climate Bank of Asia and the Pacific”. In doing so, the ADB has shown leadership on the development of innovative financial tools to further climate action regionally. Notable examples include:
- The Energy Transition Mechanism (ETM): In 2021, the ADB announced it had started developing an ETM for decarbonisation of power generation. This is designed to leverage public and private investments to establish country-specific ETM funds aimed at retiring coal power assets earlier than would occur under current ownership. A key requirement of the ETM is host country commitment to the energy transition as a pre-condition for any deal. The ETM started with 3 countries – Indonesia, the Philippines, and Vietnam – and has since expanded to include Pakistan and Kazakhstan. Pre-feasibility studies for these pilot countries have been completed, and the ADB is now collaborating with governments to prepare an investment plan, or to initiate a full ETM feasibility study.[2] The ADB is also supporting Indonesia and Vietnam in their Just Energy Transition Partnerships (JETPs) and providing institutional support for the JETP secretariat in Indonesia.
- The Innovative Finance Facility for Climate in Asia and the Pacific (IF-CAP): Launched in 2023, IF-CAP is “the first leveraged guarantee mechanism for climate finance to ever be adopted by a multilateral development bank”. According to the ADB, IF-CAP partners will provide guarantees for parts of the ADB’s sovereign loan portfolios to enable the ADB to free up capital to increase lending for climate investments. The ADB has estimated that the initial ambition of USD 3 billion in guarantees could create up to USD 15 billion in new loans for much-needed climate projects. Although in early stages, the initiative has significant potential and evidences the Bank’s strong commitment to scaling up climate finance. Initial partners include Denmark, Japan, Republic of Korea, Sweden, the United Kingdom, and the United States.
- Use of results-based financing (RBF): The ADB introduced results-based financing for projects in 2013. In 2015, it disbursed its first results-based loan in the energy sector to the Indonesian state electricity corporation, for the upgrading of its national power and transmission system. The ADB’s pioneering practice in this area has encouraged other development partners, such as the African Development Bank (AfDB) and the European Bank for Reconstruction and Development (EBRD)African Development Bank (AfDB) and the European Bank for Reconstruction and Development (EBRD), to learn from the ADB’s experience with results-based lending operations. This included collaborating on the ADB’s review of their results-based lending, subsequently informing their own policies to pilot test RBF.
Beyond developing innovative solutions for climate finance, the Bank is also a leading actor in ocean protection, having launched a USD 5 billion Action Plan for Healthy Oceans and Sustainable Blue Economies in May 2019. This plan addresses the social and economic needs of member countries in the region, including infrastructure investment and developing the “blue economy”.[3]
Despite this evidence of the ADB having shown institutional leadership on climate issues for a sustained period of time, the Bank’s approach to Paris alignment risks falling behind that of peer institutions. The Bank uses the Joint MDB Methodology to operationalise the full alignment of its sovereign operations with the Paris Agreement since 1 July 2023. However, this methodology has several key shortcomings. The ADB has not published a Paris alignment methodology specific to its own operations (as has been done by peer institutions, such as notably the Inter-American Development Bank (IDB) and the World Bank Group (WBG)), despite having an internal “Guidance Note on Implementing Operations’ Alignment with the Paris Agreement”. Similarly, while the ADB is said to have started monitoring and reporting on “Paris-aligned” and “non-aligned” finance flows, this reporting does not appear to be publicly available. This is particularly concerning given the Bank is still explicitly permitting “non-aligned” projects to be approved, potentially undermining the credibility of its Paris alignment commitment.[4]
Recommendations:
- In its drive to become the “Climate Bank of Asia and the Pacific”, the Bank should increase its efforts to disseminate its own learnings and facilitate exchange on best practice approaches, in areas such as scaling up private sector climate finance, green bonds, and wider climate mainstreaming. This could be realised through leveraging the ADB’s position as a special member of the ADFIAP. In this vein, the Bank should develop a targeted technical assistance program on Paris alignment for financial intermediaries and local institutions. Drawing inspiration from initiatives (such as that from the IDB & ALIDE), these efforts could work to strengthen the local financial ecosystem’s capacity to support climate action.
- To enhance transparency and foster the exchange of best practices, the ADB should consider publicly releasing its “Guidance Note on Implementing Operations’ Alignment with the Paris Agreement”, as well as its monitoring of “Paris-aligned” and “non-aligned” finance flows.
[1] Specifically, it had committed to increase its climate investments up to USD 6 billion annually by 2020 and reached this financing target in 2019. The new target, set in the CCAP 2023–2030, commits the ADB to a cumulative USD 100 billion in climate finance over 2019–2030.
[2] During COP28, the ADB announced its first deal under the ETM with Indonesia, agreeing a provisional deal to shut down a coal-fired plant seven years ahead of schedule.
[3] See the “Nature based solutions” metric for more information.
[4] See the “Climate and overarching strategy” metric for more details.
Last Update: April 2025