Standalone climate strategy and integration of climate in overarching strategy

Explanation

Overarching strategy

The Strategic and Capital Framework (SCP) 2021–2025, published in 2020, sets out the Bank’s strategic aspirations. It outlines the Bank’s overarching goal as “to preserve and accelerate transition in its countries of operation through the overlapping and differentiated crisis and recovery phases in response to the COVID-19 crisis and to continue tackling deep-rooted broader challenges, including environmental, demographics and technological transformation”.

To achieve this, the Bank sets three cross-cutting themes to focus on:

• supporting the transition to a green, low-carbon economy
• promoting equality of opportunity
• accelerating the digital transition.

The green transition priority areas of work are based on the Green Economy Transition (GET) 2.1 approach, and include:

• The implementation of an operational framework to align with the principles of international climate agreements, including principally the Paris Agreement. While no date is mentioned for this, the Board of Governors established in 2021 that the EBRD should align all its activities with the Paris Agreement by end-2022.
• Enhanced country and policy work, which includes strengthening policy-based assistance, including support for the development and implementation of Nationally Determined Contributions (NDCs) and Long-Term Strategies (LTSs) and the piloting of policy initiatives.
• Defining thematic interventions to address major issues in climate mitigation and adaptation and other environmental challenges in a targeted manner to optimise the additionality of the Bank’s interventions.

In terms of targets, the SCP reiterates the target set by the GET 2.1 approach, including the goals to raise the share of green finance to at least 50% and reduce net CO₂e emissions by 25–45 million tonnes by the end of 2025.

However, the SCP does not offer an explicit commitment to align the Bank’s roadmap with the 1.5 °C temperature goal. Rather, it frames the strategy in the context of “the needs to achieve the goals of international agreement to limit global average temperatures to well below 2 °C”. This is also the phrasing used in the Bank’s commitment to Paris alignment by end-2022.  

The rolling three-year Strategy Implementation Plan (SIP) 2024–2026 takes stock of progress made with regard to SCP targets and sets out targeted action areas for upcoming years building on progress made. Key priorities with regard to the green economy goal for 2024–2026 are listed as:  

• developing and operationalising country sector platforms
• developing instruments to finance adaptation and nature
• creating green and sustainability-linked capital markets
• greening the financial markets
• expanding renewable energy markets
• enhancing the Green Cities programme and sustainable municipal lending
• increasing support for carbon markets.

Climate mitigation and adaptation action is therefore comprehensively integrated within the EBRD’s overarching strategy and implementation plan. There is strong evidence of the Bank’s actions matching and increasing its ambition in its SIP, which is highly encouraging. This includes reaching the 50% green commitments target, and new targets including the development of and operationalisation of country sector platforms, developing instruments to finance adaptation and nature, and enhancing the Green Cities programme. However, to be transformational, the Bank should explicitly commit to pursuing the 1.5 °C degrees temperature goal rather than “well below 2 °C”. This should include an established 1.5-°C-alignment roadmap which integrates corresponding deep decarbonisation and systemic resilience objectives to implement this. This roadmap should be tailored to the Bank’s operations and context-sensitive to its areas of operation, especially considering the expansion to Sub-Saharan Africa. Moreover, the EBRD should include explicit references to the application of the “do no harm principle” throughout its operations.

Standalone climate strategy

Green Economy Transition 2.1

In 2020, the EBRD published its Green Economy Transition (GET) 2.1 approach for the 2021–2025 period. The document’s first objective is to align all EBRD activities with international climate agreements, including in particular the Paris Agreement. This is the first of the three work axes that structure GET 2.1. The second is strengthening policy engagement for the development of long-term low-carbon strategies and the greening of financial systems. The third is scaling up investment through innovation in a number of specific environmental and climate change mitigation and adaptation thematic areas.

GET 2.1 sets two headline quantified targets. The first is to reach a green finance share of more than 50% by 2025 (up from its previous target of 40% by 2020). The second is to achieve a cumulative net GHG emissions reduction of 25–40 million tonnes of CO₂e over 2021–2025 (up from 11.2 million tonnes CO₂e achieved over 2016–2020).

GET 2.1 introduces a series of thematic areas to enable enhanced effectiveness and efficiency though focused business development and the build-up of operational expertise: energy efficiency, climate adaptation and resilience, green financial systems, energy systems, industrial decarbonisation, sustainable food systems, natural capital, cities and environmental infrastructure, sustainable connectivity and green buildings. GET 2.1 also offers a welcome analysis of opportunities and challenges related to transition goals throughout the Bank’s geographical areas of operation and their contexts, enabling the Bank to offer context-specific support.

GET 2.1 further introduces a “Transition Impact (TI) methodology”, which rates projects according to their “green quality”. It also includes an enhanced set of indicators and thresholds to support evolving and incremental disclosure requirements. These tools identify sector-specific features and provide incentives (including higher “green quality” ratings) to develop GET projects in “difficult” sectors such as property and agribusiness (no exhaustive list is given). The TI criteria include factors such as policy engagement, innovation, scale of impact, and efficiency of impact. The TI rating methodology is to be regularly assessed and revised when necessary.

The “do no harm” principle is noted as an imperative and an integral part of the EBRD’s mandate. However, this is only mentioned as part of section of text introducing the previous GET 1.0 track record and is not explicitly integrated throughout the GET 2.1 document. The EBRD should strive to embed the “do no harm” principle in the GET’s upcoming review and should consider going beyond “do no harm” and adopt the more ambitious “do good beyond no harm”.

EBRD Climate Adaptation Action Plan

The EBRD launched its Climate Adaptation Action Plan 2023–2025 at COP27 in 2022, a strong indication of the Bank’s recognition of climate adaptation and resilience as a critical area for support. The document’s objectives are aligned with the Paris Agreement goals. The document aims to present a plan to catalyse further ambition in terms of investment and policy activity over the implementation period. This is to be done around three axes:

• accelerated mainstreaming and policy integration
• partnership and capacity building for enhanced impact
• proactive business development and private sector mobilisation.

The plan includes a host of commitments regarding the targeted sectoral priorities, enhancement of processes, scale-up of climate adaptation-related investment programmes, and increased cooperation with stakeholders and PDB peers. However, it falls short of providing any quantified targets, especially considering the EBRD continues to lag in the share of its green finance going to adaptation (5.3% of total climate financing in 2023).

To note that the EBRD Approach to Nature published at COP28 in 2023, also contributes to achieve the institutional climate objectives.[1]

Recommendations: 

• The review of the SCP and the GET should include an explicit commitment to alignment with the 1.5 °C temperature goal, accompanied by a roadmap incorporating the deep decarbonisation and systemic resilience commitments necessary to achieve this goal.
• The review of the SCP and the GET should include a more explicit integration of the “do no harm” principle and how this is being applied throughout operations. The EBRD should also consider adopting the more ambitious “do good beyond no harm” principle to further encourage the climate-positive investments necessary given the current stage of the climate crisis.
• The EBRD should disclose the current (and subsequent updates to the) rating methodology underlying its transition impact methodology tool so as to enhance transparency and accountability.

[1] For more details, see the Nature based solutions metric.