Integration of climate mitigation and resilience in key sectoral strategies

Explanation

The IDB Group’s sectoral policy is primarily governed by dedicated sector framework documents (SFDs) covering strategic priorities and actions in each sector. In terms of climate mainstreaming, as of 2023 these documents are now also complemented by dedicated sectoral notes as part of IDB’s Paris Alignment Implementation Approach (PAIA). These notes provide technical guidance specific to the energy, manufacturing, buildings, digital economy, water and sanitation, transportation, and agri-food systems sectors, as well as on operations with financial institutions.

Developing dedicated sectoral notes for Paris alignment of operations, specific to the Bank’s own operations, represents best practice among MDBs. Moreover, the notes set out innovative, leading concepts such as that of “climate transition gaps” (where obstacles to a country’s climate transition are systematically identified and inform country dialogue) and refer explicitly to the 1.5 °C mitigation goal of the Paris agreement.[1]

Energy

The IDB’s 2018 Energy Sector Framework builds on the previous edition of this document from 2015. The updated 2018 version has a dedicated “energy sustainability” section covering climate change considerations and the challenges associated with them. Although both climate mitigation and adaptation are mentioned across the document, only mitigation options are widely discussed. This is typically in the context of decarbonisation technologies such as smart grids, electricity storage, hydropower plants and renewable energies.

However, the document stops short of discussing stronger measures around fossil fuels. Instead, the IDB pledges to “promote demand and supply […] of renewable energy production and cleaner fossil fuels such as natural gas to help reduce GHG emissions”.

In terms of energy efficiency, the Bank commits to improving power generation efficiency (across energy sources). While this is welcome, it would be beneficial for the SFD to more clearly identify the relative prioritisation of these measures. Transition-proofing investments, through alignment with decarbonisation trajectories and guarding against potential lock-in, should be a primary consideration. Investments in energy efficiency improvements for non-renewable power generation should only be considered once they have been deemed compatible with decarbonisation trajectories and screened for stranded asset risk. 

Transport

The IDB 2020 Transport Sector Framework Document (SFD) defines four categories of transportation operations: (1) road, port, airport, and rail infrastructure; (2) logistics services and road, maritime, fluvial, air, and rail services; (3) sector institutions and regulations; and (4) technology (hard and soft, including information and communications). There is reference to the need for the fundamental principle of “Avoid–Shift–Improve” to govern investment in the transportation system in Latin America and the Caribbean (LAC) and act as a guiding principle across transport sector operations.

Throughout the SFD, there is an emphasis on the importance of both climate mitigation and adaptation. It proposes measures to improve the environmental and social sustainability of infrastructure, and advocates for the inclusion of climate change criteria as part of the project cycle. For example: “1. Including adaptation parameters such as the adoption of resilient construction methods and materials; 2. evaluating extreme climate vulnerability (Blue Spot Analysis) for asset management and the identification and prioritisation of interventions to ensure the resilience of the transportation network; and 3. updating national infrastructure design guidelines and adopting technical standards that ensure climate change resilient transportation infrastructure”.

The SFD suggests that cities in the LAC region should strengthen the interlinkage between mobility and land-use intervention through a more comprehensive urban planning approach, to enhance resilience to natural disasters.

On the mitigation front, the SFD promotes the need to: “promote decarbonization and reductions in local emissions from urban and interurban mobility, based on actions to encourage greater energy efficiency in vehicles and transportation operations, the use of clean technologies, and the promotion of active mobility, among other things”. Moreover, the SFD commits to contributing to rationalising “inefficient fossil fuel subsidies that encourage wasteful consumption” (in the context of the relevant Sustainable Development Goal 12.B).

The Paris Agreement is clearly referenced in the SFD. However, there is no mention of how to approach investments in airports or aviation from the perspective of climate change and the Paris Agreement. This is an important omission due to the induced emissions stemming from these investments. In the case of the IDB this is made even more important by the fact it currently does not always include scope 3 emissions throughout its GHG accounting practices – only when “deemed relevant”.[2]

Water

The IDB 2021 Water and Sanitation Sector Framework Document (SFD) mentions the need to integrate climate change adaptation and mitigation into the sector policy agenda and project design. The SFD places heaviest focus on the adoption of measures that “increase the resilience of service and infrastructure to risks of drought, floods, and rising sea levels”. In this way, the document pledges that the Bank “will promote the development of early warning systems and contingency plans to protect against extreme events, as well as institutional strengthening actions in the following areas:

1. The management of hydrometeorological, water quality, and climate data that support integrated water resource management.
2. Identification and analysis of disaster and climate change risks.
3. Platforms for the dissemination of climate change management knowledge and coordination with other sectors.
4. The use of innovative methods to support decision-making and planning with respect to water resources.”

The SFD discusses the use of innovative tools and incentives to crowd in resilience investments (e.g., climate funds, water funds, nature based solutions, results-based financing, thematic bonds).

The SFD outlines the role of solid waste as a source of GHG emissions from the water sector, noting that waste disposal sites are the third largest anthropogenic source of methane. Accordingly, it recognises the potential to mitigate emissions from this sector through the reuse of sludge and the collection, treatment and disposal of solid waste and wastewater.

Cities

The IDB 2020 Urban Development and Housing Framework takes an integrated approach to mitigation and adaptation, and recognises the multi-sectoral nature of cities and housing policy. The framework document recommends policies and programmes for cities to: “reduce environmental degradation and boost climate change mitigation and resiliency by reducing air, water, soil, and noise pollution, incorporating the net-zero emission goal in urban areas, and promoting disaster and climate change resilience”.

The SFD outlines several measures to reduce pollution and pursue increased climate mitigation and resilience, including: (1) incorporating a net zero emissions goal in urban plans; (2) promoting disaster and climate change resilience; (3) tackling knowledge gaps; and (4) better coordination among relevant stakeholders to reduce air, water, soil and noise pollution.

Agriculture

The IDB 2024 Agriculture Sector Framework Document (SFD) addresses three main challenges: (1) improving food security; (2) increasing agricultural income and climate change resilience; and (3) contributing to environmental sustainability.[3] Climate change’s impact on agricultural productivity is recognised as a cross-cutting factor affecting each of these challenges, with improved climate resilience (through adaptation) benefitting all three areas. The SFD also references the IDB Group’s Paris alignment commitment, and the Bank’s role in supporting countries in their Nationally Determined Contributions (NDCs).

Climate change is explicitly noted as threatening food stability and security. The SFD highlights the need to increase food production “without increasing Greenhouse Gas (GHG) emissions, causing deforestation or otherwise degrading natural resources”. Agriculture is recognised as a major contributor to climate change, biodiversity loss, and pollution in LAC, with land use changes driving deforestation and the Agriculture, Forests and other Land Use (AFOLU) sector leading in regional emissions. Furthermore, environmental sustainability is framed as essential for sectoral productivity and profitability. The SFD is also explicitly linked to SDG 13 (to take urgent action to combat climate change and its impacts), noting that interventions in the sector can “contribute to both adaptation and mitigation goals”.

The SFD also outlines regional institutional barriers to the development and implementation of agro-environmental policies, including: (1) the persistent influence of a “Green Revolution” paradigm focused on yield maximisation; (2) scarcity of information and data on nature-positive agricultural practices; (3) fragmented institutional frameworks and inter-ministerial coordination difficulties; and (4) a political economy context favoring entrenched traditional approaches. Notably, the SFD also explicitly refers to the prevalence of agricultural subsidies that can potentially contribute to environmental harm (although it stops short of detailing any specifically targeted policy support for redirecting these).

Seven lines of action are set out to tackle the three identified core challenges including specific lines to “increase income and climate resilience” and “promote agricultural environmental sustainability”. Several broad actions under each line guide the IDB Group’s interventions in the agriculture sector. , committing to “reducing deforestation and biodiversity loss caused by the expansion of the agricultural frontier”, rather than eliminating it.

Relevantly, under the cross-cutting action line to maintain a relevant knowledge agenda, the IDB Group also commits to “Support the inclusion of the agriculture sector in long-term, low-emissions and climate-resilient development strategies and the updates of NDCs”.

The agriculture SFD recognises “unsustainable agricultural practices” as the key contributor to regional biodiversity loss. The IDB 2018 Environment and Biodiversity Sector Framework Document establishes a clear link between agriculture and the destruction of natural capital. Further information can be found under the “Nature based solutions” metric.

Recommendations: 

• The IDB should make its methodology for developing sectoral intervention frameworks publicly available for transparency purposes.
• Energy: The SFD should be clearly anchored in a maximum 2 °C (and ideally 1.5 °C) pathway for the IDB’s energy portfolio. This would ensure an appropriately phased approach (befitting the energy transition context across the IDB’s countries of operation) to moving away from fossil fuel financing and towards supporting renewables. Along with the energy sector note of the IDB PAIA, this would work to ensure projects avoid risk of lock-in and stranded emissive assets, and support the fundamental goal of a just transition.
• Agriculture: The SFD should make explicit reference to “eliminating” (beyond “reducing”) agricultural commodity-driven deforestation from the IDB Group’s investment and credit approvals.
• Transport: The SFD should make clear how to approach investments in airports or aviation from the perspective of climate change and the Paris Agreement. The IDB’s Paris alignment methodology currently notes that projects in the aviation sector will require further assessment but does not provide any further guidance.

[1] For a more detailed analysis of the strengths and shortcomings of the IDB’s PAIA, please see the following article.

[2] See the “Greenhouse gas accounting and reduction” metric for further details on this.

[3] The 2024 Agriculture Sector Framework Document was shared by the IDB with E3G having become publicly available. However, it has not yet replaced the 2019 version in key places across the Bank’s website.