Islamic Development Bank

Some progress: The IsDB has made significant progress in promoting green finance and firmly established itself as a leader in Islamic finance approaches. The Bank’s Sustainable Finance Framework and leading role in the growth of the global sustainable sukuk market (including substantial issuance of dedicated green sukuk) are indicative of this. While the Bank has clearly made strong efforts to socialise its experience in this regard, concrete evidence of the Bank undertaking dedicated engagement with financial actors and regulators to green the system is limited. Moreover, beyond its leading work on sustainability sukuk, evidence of the Bank proactively seeking to develop and scale up its use of innovative financial instruments, particularly with regards to private finance mobilisation, remains sparse.

Unaligned: In the 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). The IsDB is the only MDB covered by E3G’s Matrix that (as per the latest available data) continues to provide more finance for fossil fuels than for clean energy. 

Some progress: The IsDB has developed comprehensive guidance on NBS integration across key sectors through its Climate Action Plan (2020–2025) and Guidance on the use of Nature-Based Solutions for Climate Change Adaptation. These documents set out comprehensive options for the application of NBS and provide detailed frameworks for implementation. However, the Bank lacks a systematic screening process for NBS opportunities in its pipeline, as well as specific targets and/or monitoring and reporting frameworks for their integration. The Bank’s strategic documentation does not substantively recognise biodiversity as a cross-cutting priority. However, the IsDB’s practical support for combatting desertification (such as during COP16) suggests recognition of its importance, even if dedicated approaches are yet to be developed. The Bank’s approaches to the agriculture sector and forestry fail to provide concrete coverage of the urgent need to halt deforestation.  Commitment to no deforestation for green finance lending but no evidence of commitments in areas of nature based solutions.

Some progress: The IsDB screens all planned projects against physical climate risks through a comprehensive internal climate risk management process. Transition risks are covered separately through application of the joint MDB Paris alignment methodology. The Bank’s Climate Action Plan outlines comprehensive support for targeted activities to support building resilience among clients, and strong levels of adaptation finance levels demonstrate the IsDB’s commitment to this area. Despite these progress markers, there is still scope to strengthen the Bank’s climate risk provisions through measures such as: extending coverage of its adaptation sector guidance notes to all sectors of lending, ensuring that transition risks are consistently screened for indirect operations, and clarifying how commitments to enhancing client climate resilience are implemented in practice.   

Some progress: While the IsDB’s Strategic Realignment 2023-2025 marked a significant foregrounding of climate action as a key part of the Bank’s overarching strategic approach, the subsequent 10-year Strategic Framework 2026–2035 is less comprehensive in its coverage of the topic. That said, alongside the dedicated Climate Change Policy (CCP) and Climate Change Action Plan 2020-2025 (CCAP), the Bank has a solid policy framework in place to pursue its headline climate commitments of Paris Agreement alignment and 35% in climate finance by 2025. However, aspects of the Bank’s strategic approach to climate change could be strengthened. The IsDB has not clearly communicated a timeline for full institutional Paris alignment (beyond new sovereign operations being aligned as of 1 January 2024). Nor has it accompanied publishing its core strategic documents with a publicly available results management framework, featuring further time-bound performance indicators specific to climate action. Moreover, a concrete and explicit minimum commitment to “do no harm” is not present across any of the core strategy documents. 

Some progress: The IsDB has developed a series of sector policy documents to orient its approach across key sectors of operations. The degree to which these comprehensively integrate both climate mitigation and adaptation varies across sectors. The Bank’s strategic approach to the urban (cities) sector stands out for its Paris-aligned integration of climate action through the combination of the Urban Sector Policy and Urban Sector Operational Strategy 2021-2025. In other sectors, integration of climate action is more mixed. For example, while the Water Sector Policy includes references to building structural resilience, it lacks any explicit consideration of climate mitigation approaches in the sector. Conversely the Energy Sector Policy’s coverage of climate change is predominantly focused on mitigation, with little consideration for critically important adaptation and resilience aspects of ensuring energy security. Both the Transport Sector Policy and Agriculture and Rural Development Sector Policy show awareness of the relevance of both climate mitigation and adaptation, but lack detailed implementation frameworks and up-to-date references to the Paris Agreement goals. 

Paris aligned: The IsDB has shown strong institutional leadership in proactively leveraging key areas of comparative advantage. For example, on the basis of its wholly Global South membership, the Bank champions South-South cooperation, such as through its strategic focus on regional integration and dedicated Reverse Linkage approach. Moreover, the IsDB is a global leader in Islamic finance, having spearheaded innovation, implementation, knowledge building, and information sharing in this field. To be considered a transformational climate leader, the IsDB should endeavour to more comprehensively connect its leading work in these areas with its efforts on climate change, as well as align more closely with best practice on key aspects of institutional climate mainstreaming, such as on its energy policy and transparency efforts. 

Some progress: Increasing access to modern energy services is a core policy pillar of the IsDB’s Energy Sector Policy. There is clear evidence of this strategic-level prioritisation being operationalised, such as through the Bank hosting the Middle East hub of the SEforAll Initiative, and contributing to the Mission 300 initiative. However, the Bank has not explicitly adopted a well-defined, consistent minimum definition (or framework) for energy access across its operations and lacks specific (portfolio) targets to orient its interventions. Moreover, there is no evidence of public monitoring and reporting to track the Bank’s contribution to energy access progress. 

Some progress: The IsDB’s Energy Sector Policy designates energy efficiency as one of four core policy pillars, recognising the need to manage energy intensity and maintain the rate of energy consumption growth at levels compatible with sustainable development through targeted energy efficiency improvements. While an energy efficiency first principle has not been adopted, energy efficiency has been clearly integrated in the Bank’s strategies across key sectors (e.g. energy, transport, and urban development). There remains scope for strengthening the IsDB’s approach, such as through explicit adoption of the Avoid-Shift-Improve framework, establishing clear minimum energy efficiency standards to be applied across all building interventions, and ensuring that activities financed through financial intermediaries maintain a clear set of minimum standards consistent across sectors. 

Unaligned: The IsDB has not formally adopted any exclusions across its full portfolio on support for fossil fuel operations. Notably, the Bank’s Climate Change Policy (CCP) explicitly rules out the establishment of an exclusion list in the context of fossil fuels. As part of applying the Joint MDB methodological principles for Paris alignment for all new sovereign operations, the Bank will not finance certain coal operations (covering mining of thermal coal and electricity generation from coal), and will apply conditions that may prevent certain oil and gas projects from being financed in practice. While the Bank’s Energy Policy suggests that support for supply-side fossil energy efficiency improvements would be considered, there is no evidence that any accompanying dedicated safeguards have been established by the Bank to guard against contributing to stranded asset and carbon lock-in risk. 

Some progress: The IsDB’s internal staff handbook on project-level GHG accounting and reporting suggests a thorough and detailed system has been developed for facilitating consistent project-level GHG assessment across all direct investments. That said, there are still areas where further detail would be beneficial – particularly on ex post monitoring processes, public reporting, and coverage of indirect investments. Moreover, there are few details (either in relevant internal documentation or publicly) to suggest the Bank either currently undertakes or plans to institute aggregated portfolio-level accounting and reporting.

Unaligned: There is no publicly available information to suggest that IsDB is using a shadow carbon price (SCP) mechanism as part of its project evaluation processes, nor information as to plans for its implementation in the near future. Despite this, E3G maintains that a SCP can be a valuable addition to the Bank’s decision-making process.

Paris aligned: The IsDB’s country level engagement has traditionally been structured through dedicated “Member Country Partnership Strategies”. Since 2023, these have been complemented by three-year “Country Engagement Frameworks” rolled out across member countries. The Bank has developed an internal guidance note on Paris Agreement alignment during the country planning phase. This note serves as a comprehensive reference tool to ensure that country strategies systematically integrate climate considerations and support the development of a pipeline of Paris-aligned operations. It provides extensive detail on the roles and responsibilities of relevant stakeholders and clearly refers to the IsDB’s role as both supporting member countries (MCs) in achieving existing national climate change objectives and raising the level of future ambition. Beyond this strategic approach, there is also evidence of the Bank undertaking cross-cutting analysis of climate action at the country level.

Some progress: The IsDB provides extensive policy-level technical assistance through activities such as the Climate Action Enhancement Package (CAEP), the interconnected Technical Cooperation Programme and Reverse Linkage approach, and an array of other initiatives focused on providing technical and capacity building support to member countries. Support is primarily oriented around NDC implementation. However, there is limited evidence as to how alignment with the temperature goals of the Paris Agreement is verified, as well as how the Bank’s commitment to provide support for “updating and improving” NDCs is operationalised in practice. There is also relatively little indication of the Bank having an extensive climate-related technical assistance offer targeted at supporting non-sovereign clients, such as financial intermediaries, despite some evidence of standalone efforts (such as to support the role of Islamic financial institutions in climate action).

Some progress: Although the IsDB reports aggregated climate finance figures as part of the Joint Report on MDB Climate Finance and the Bank’s own Annual Reports, its public project database remains nonoperational. At the portfolio level, organisational management information, such as monitoring and reporting frameworks and impact evaluation, are not widely publicly available. Operations financed through financial intermediaries also do not require any disclosure of sub-projects financed, posing a potential risk regarding the alignment of end-use of proceeds with the Bank’s climate goals. As a result of the above (among other aspects) the IsDB is ranked last on both its sovereign (out of 9) and non-sovereign (out of 21) portfolio in the 2023 DFI Transparency Index.