Standalone climate strategy and integration of climate in overarching strategy

Explanation

Overarching strategy

Climate change remains a cross-cutting issue in the Institutional Strategy approved in June 2019 to achieve the bank’s three strategic priorities: social inclusion and equality, productivity and innovation, and regional economic integration.

The Corporate Results Framework states that IDB “has established a target that 65% of new projects approved  over  the  2020-2023  period  should  support  climate  change  mitigation and/or adaptation, up from 53% from 2016 to 2018.” This is high compared to other MDBs. The IDB further details that “these indicators are complemented with results indicators to track the amount of GHGs reduced through IDB financing and, for the first time, track the number of beneficiaries of enhanced disaster and climate change resilience, among others.”

Both strategies refer to the Paris Agreement, but stop short of a commitment to a roadmap or acknowledgement of the do-no-harm principle.

Standalone climate strategy

In the IDB Group Climate Change Action Plan 2021 – 2025, climate change is described as threatening “the achievement of social and economic results across Latin American and Caribbean (LAC). As part of the bank’s strategy to tackle climate change, and also in response to the uncertainty around the COVID-19 crisis, IDB focuses on demand driven approaches, while engaging with country partners through climate specialists. However, as a result, IDB does not increase its targets for climate finance beyond the already committed 30% of annual lending in the former Climate Change Action Plan. Here, the bank misses an opportunity to link demand-driven partner engagement with ambitious supply-side quotas for project lending. It also implies that IDB will fall behind other MDBs that are putting forward more ambitious goals, most notably EIB and EBRD.

Following the COP24 announcement of the MDBs to align with the Paris Agreement, the new action plan is centred around the six-building blocks structure of the Joint MDB alignment process. While the plan does outline action areas for the implementation of the building blocks in the IDB context, it does not go as far as detailing specific reforms across the institution that would be needed for a thorough alignment. The IDB has announced that it will align all projects with the Paris agreement from 2023 onwards.

Based on this methodology, the IDB will develop two frameworks (decarbonisation and resilience, respectively) to screen the Bank’s operations for Paris alignment in a country context. These will be fully employed by 2023. Subsequently, the bank also intends to extend the assessment to financial intermediaries.

Decarbonisation:

In line with the joint MDB methodology, the bank will screen its portfolio and make project decisions based on:

(i) a list of activities considered to be always aligned regardless of country context;

(ii) a list of activities known to be systematically inconsistent (e.g., upstream fossil fuel exploration); and

(iii) a questioning framework to assess remaining activities in the context of country pathways and the latest climate science.

Resilience:

In line with the joint MDB methodology, the bank will screen its portfolio and make project decisions based on:

(i) establishment of a climate-risk and vulnerability context;

(ii) definition of climate-resilience measures; and

(iii) assessment of inconsistency of the project with the national/broad context for climate resilience.

The IDB applies this methodology in a three-phases approach with five consecutive steps, with a goal “to have 100% of projects with moderate or high disaster and climate change risk analyse risks to identify resilience actions by 2023.”

The Climate Change Action Plan also outlines sectoral challenges, but stops short to link this to sector-specific targets for IDB.

IDB Invest, part of the IDB Group, published its first TCFD disclosure in March 2020 as part of its annual report 2019.