Non-fossil to fossil energy ratio and scaling up climate investment in all sectors

Non-fossil to fossil energy ratios

Data from the Public Finance for Energy Database suggests that in the fiscal period 2019–2022, for every USD 1 the IsDB provided to fossil fuels, USD 0.2 went to clean energy, USD 0.28 to transmission and distribution (that typically cannot be attributed to any specific energy type) and USD 0.01 to other energy projects (such as, but not necessarily including, biomass, nuclear or mixed energy).[1]

These figures reflect a similar distribution of the IsDB’s energy finance relative to the preceding four-year fiscal period (FY2015–FY2018). During this period, for every USD 1 provided to fossil fuels, USD 0.11 went to clean energy, USD 0.13 went to transmission and distribution and USD 0.01 went to other energy projects.

In gross terms (and across all the above categories), IsDB’s total energy sector lending was significantly higher in FY2015–2018 (USD 15.9 billion) as opposed to in FY2019–2022 (USD 3.3 billion). This was driven primarily by significantly higher fossil fuel lending in 2016 (USD 3.4 billion) and 2017 (USD 4.1 billion). Since then, annual energy sector lending has been significantly lower (and less variable), on the basis of annual fossil fuel lending in the range of USD 93 million to USD 1 billion.

The IsDB is a firmly demand-led multilateral lender, financing projects on the request of its member countries (subject to the Bank’s sectors of operation, policies, and safeguards). This is illustrated by the first guiding principle of the Bank’s 2023-2025 Strategic Realignment being “responsiveness to member country needs”, ensuring that project selection will respond to expressed development priorities of member countries.   

Notably, the IsDB’s ratio of clean energy lending relative to fossil finance is significantly below that of peer institutions.[2] It is the only MDB covered by E3G’s Public Bank Climate Tracker Matrix that (as per the latest available data) continues to provide more finance for fossil fuels than to clean energy. 

Climate finance

The IsDB’s Climate Change Action Plan (CCAP) 2020-2025 sets out the Bank’s commitment for 35% of its total operations to be climate finance by 2025. The Bank exceeded this target as of 2023, with climate finance accounting for 46% of the IsDB’s total operations. This reflects a significant and third successive year-on-year increase from 2022 (33%), 2021 (31%), and 2020 (15%), when the target was introduced.[3]

Over the course of this commitment, the proportion of climate finance dedicated towards adaptation has varied considerably, from a high of 65% in 2020, to 37% in 2021, 54% in 2022, and 30% in 2023.

In absolute terms, total IsDB climate finance grew considerably during this period, from USD 261 million in 2020[4] to USD 2.1 billion in 2023.

Recommendations:

• As part of the forthcoming Green and Sustainability Strategy 2026-2030, the IsDB should adopt a revised set of climate finance targets, reflecting renewed ambition in light of the Bank’s strong performance against its existing target. This should include an increased target for the relative level of climate finance as a proportion of total operations, as well as a target for the absolute value of climate finance delivered over the course of the strategy, building on current annual levels.  
• As the only MDB covered by E3G’s Public Bank Climate Tracker Matrix that (as per the latest available data) continues to provide more finance for fossil fuels than to clean energy, the IsDB should seek to develop an “IsDB long-term strategy” for phasing out fossil financing in accordance with the decarbonisation and climate-positive growth trajectories of member countries and in line with the goals of the Paris Agreement. Such a strategy would incorporate the IsDB’s enduring commitment to responsiveness to member country needs, while simultaneously recognising the Bank’s potentially transformative role in supporting member countries with defining pathways for climate-positive growth and accelerating a just energy transition underpinned by global consensus.

[1] OCI’s Public Finance for Energy Database covers lending data up to and including 2022. The IsDB has provided figures to suggest that of USD 1.2 billion in total energy lending in 2023, USD 182 million was for non-fossil energy, with this increasing to USD 650 million (of USD 918 million total) in 2024.

[2] Including (but not only) regional institutions such as the African Development Bank, which between 2019–2022, for every USD 1 provided to fossil fuels, provided USD 3.19 to clean energy.

[3] Noting that 2020 levels were likely significantly impacted by the IsDB’s COVID-19 response and recovery efforts.

[4] Noting that 2020 levels were likely significantly impacted by the IsDB’s COVID-19 response and recovery efforts. Indicatively, in 2019 total climate finance reached USD 466 million.