Agence Française de Développement
This page is part of the E3G Public Bank Climate Tracker Matrix, our tool to help you assess the Paris alignment of public banks, MDBs and DFIs.
|Promotion of green finance||Paris aligned – AFD has proven to be an important pioneer in the development of methodologies, partnerships, and innovative financial instruments to promote the transition of financial actors such as banks, national institutions and regulators towards a green, sustainable financial system.|
|Fossil to non-fossil energy finance ratio and scaling up climate finance||Paris aligned – For every $1 AFD Group provided to fossil fuels, $25 went to renewables in the period 2018 -2020. There was no fossil financing in 2020.|
|Nature based solutions||Paris aligned – AFD is very active in international initiatives supporting the development of biodiversity standards and tools. Furthermore, AFD has a comprehensive exclusion list -which applies to the entire Group- related to biodiversity and critical habitats. Additionally, AFD has pledged a share of climate finance favourable to biodiversity from 15% in 2018 to 30% by 2025 and already exceeded its target 2025 target in 2021. This showcases AFD’s commitment to biodiversity finance. This continues to represent an area open to strong leadership among DFIs, and by raising this target further AFD has the potential to achieve a “transformational” rating.|
|Climate risk, resilience, and adaptation||Paris aligned – AFD has a comprehensive climate risk evaluation process in place. Furthermore, AFD provides a significant proportion of climate finance (33% in 2021) towards adaptation.|
|Overarching climate strategy||Paris aligned – AFD has a good climate strategy and climate is well integrated into the bank’s strategy. However, it does not yet have a public methodology for indirect finance Paris alignment. It is highly recommended this is published as soon as possible.|
|Integration of climate mitigation and resilience in key sectoral strategies||Paris aligned – Mitigation and resilience are well integrated in key sectoral strategies. Almost all strategies and frameworks center around ensuring climate co-benefits in projects related to mitigation and resilience.
|Institutional leadership||Transformational – AFD was amongst the first to commit to Paris alignment and has sought to support other DFIs and public banks to make and implement similar commitments.|
|Energy access and fuel poverty||Some progress – Although energy access is a focus area with monitored metrics there is no quantitative target associated with this segment. According to AFD, given that there are only a limited number of off-grid electrification projects, the multi-tier framework(MTF) for energy access is not systematically applied. Nonetheless, AFD internally applies some approaches -which are inspired by the MTF- both upstream and downstream of the projects, for example statistical analysis and demand assessment for the former and monitoring of results for the latter. It is recommended that this adapted MTF methodology is made available for transparency purposes.|
|Energy efficiency strategy, standards and investment||
Some progress – Energy efficiency is embedded in AFD’s taxonomy across sectors such as energy, industry, agriculture, water and sanitation. New infrastructure is built according to the highest energy efficiency standards. The same principles apply to indirect projects. It is worth highlighting the Programme for Energy Efficiency in Buildings (EEB) which aims at mainstreaming EEB in all sectors (health, education, social housing and tourism). However, in terms of public transport energy efficiency, gas and hybrid vehicles are still financed, and they are considered as having climate co-benefits provided that emission reductions are achieved and surpass the >5ktCO2/yr threshold due to modal shift (from individual vehicles). The latter is established through feasibility studies at the appraisal stage including, e.g., traffic change analysis and surveys with potential users.
It is recommended that for the vehicles financed a maximum absolute emission-intensity threshold is implemented and that the rationale behind it is made available. The latter should decrease progressively over time until phase-out is possible (considering the relevant contexts where AFD is active). At a country level, AFD should coordinate this recommendation with the relevant policy-based lending instruments and technical assistance support to the respective countries (through its various facilities) to establish a pathway toward electrification of the public transport system. In case AFD decides to not follow this recommendation, E3G invites AFD to publish its rationale to foster discussion across relevant stakeholders.
|Fossil fuel exclusion policies||Paris aligned – AFD is a front-runner in terms of its fossil fuel exclusions as it has already phased out coal and upstream oil and gas. In terms of downstream oil and gas policies, fossil fuel electricity generation is excluded except for hybrid plants in remote mini-grids.|
|Greenhouse gas accounting and reduction||
Some progress – AFD monitors the GHG emissions of a wide range of sectors. It publishes an estimate of the aggregated absolute (and relative) emissions (as well as the specific mitigation contribution, i.e. avoided emissions) of its annual approvals (including scopes 1, 2 and 3 when significant). Additionally, AFD has made available on its website an interactive map of all its projects with corresponding information sheets. However, these do not consistently include GHG impacts on a project-to-project basis. As such E3G recommends this good practice is further enhanced by making publicly available the information on ex-ante and ex-post GHG emissions produced by all the Bank’s investments on a project-to-project basis. In the case of projects where baselines are used it is recommended AFD follows the European Investment Bank’s (EIB) guidance to guarantee the baseline is fit-for-purpose.
Furthermore, E3G recommends that AFD implements a portfolio level target as this will allow the attachment of its process of 100% alignment to the Paris Agreement to a specific trajectory and it will enable the corresponding steering of its portfolio. This tool could initially take the form of internal targets and monitoring which should be made public within a predetermined timeline. In case AFD decides against the recommendation to establish a portfolio level target, E3G invites AFD to engage in a discussion with other DFIs, MDBs and civil society organizations (CSOs) regarding its rationale.
|Shadow carbon pricing||Some progress – AFD has considered both the benefits and drawbacks of utilising a shadow carbon price (SCP) policy. As a result, it currently accounts for carbon pricing in relevant economic studies as one of the factors which inform the decision-making process. In justifying this selective usage of a SCP, AFD explained that sometimes a SCP – and an over-reliance on carbon footprints – as tools for evaluating a project can lead to sub-optimal conclusions. The key reasons states were that it i) depends on a subjective definition of the boundaries and baseline of the project; ii) offers a static view of the project; iii) is a time-consuming exercise. Consequently, AFD suggests focusing on trajectories is a more appropriate approach. However, E3G continues to recommend the implementation of SCP, as a tool to be used effectively alongside other measures, rather than as a ‘solve-all’ approach. An effective SCP can be implemented flexibly using with a price range that can be tailored to relevant contexts.|
|Country level work||Some progress – AFD does a good job in balancing its climate interventions across the different countries it operates in. According to AFD’s staff, all country strategies (CIPs) must comply with AFD’s Strategic Plan (2017-2022). However, given that it is still unclear how CIPs are designed and how these interact with the internal country climate factsheets (which inform the analysis of projects and policy dialogue with national authorities, and the development of geographic strategies) it is recommended that the corresponding methodology is made public. This is particularly important as AFD differentiates across regions in terms of its climate considerations.|
|Technical assistance for implementing Paris goals||Paris aligned – AFD has set up leading technical assistance (TA) programmes to help implement the Paris Agreement. This assessment is contingent on the soon-to-be published exclusion list showing no unaligned TA can occur. If necessary, this metric will be updated once this document is available.|
|Transparency of climate finance data||
Some progress – The AFD receives details of each subproject financed by an intermediary. Accordingly, sub-projects are systematically checked internally by the task team leaders or by a verification consultant and –if required- by the climate and nature team. These sub-projects are evaluated against AFD’s taxonomy and the common principles for climate finance adaptation and mitigation.
During COP27, AFD released its position paper: “Paris alignment of operations with financial institutions” where it outlines its current verification methodology for intermediary finance. E3G welcomes the publication of this approach and encourages AFD to continue the conversation by sharing the feedback it receives from other institutions, as well as the lessons learnt collected so far under the initial “Pro-Climate trial” applied to some its client banks aiming to support their transformation and the reinforcement of their strategic and operational framework in order to better integrate climate change.
- AFD should implement a methodology for indirect finance in coordination with the joint MDB work on this topic. During COP27, AFD released its position paper: “Paris alignment of operations with financial institutions” where it briefly outlines its current verification methodology for intermediary finance, both for earmarked and non-earmarked funds. Furthermore, AFD established its long-term vision by advocating for DFIs and other Public Banks to move from a project-based approach towards a system-wide one with regards to intermediary finance. This vision is operationalised through improvement across two mutually dependent components: 1. Operation appraisal rules (i.e. the “intervention criteria component”); and 2. Support (at the project, counterparty, and system levels) for climate-related design, strategies and policies (i.e. the “impact component”). The former will in future likely include Transition Plan requirements and inform the broader “Pro-Climate” approach to intermediary finance intended to be in fully in place by 2025. It is critical that AFD ensures Transition Plans are supported by a robust framework and monitoring mechanism, to verify the consistency with relevant temperature scenarios. Quantifiable and timebound performance indicators should form a part of this. E3G welcomes the publication of this approach and encourages AFD to continue the conversation with the feedback it will receive from other institutions, including lessons learnt so far under pilot “pro-climate approach” applied to some its client banks aiming to support their transformation and the reinforcement of their strategic and operational framework in order to better integrate climate change.
To further enhance this approach, E3G recommends the progressive inclusion of conditionality within intermediary transitional loans (tailor-made to the relevant context), which should be aligned with Paris-compatible temperature scenarios at the country level. Moreover, a greater integration of environmental and systemic climate risks into the approach toward Transition Plans, such as through introducing carbon lock-in analysis, would be highly beneficial. As AFD rightfully mentions- it is indispensable for these plans to be underpinned by the required technical assistance. Although the initial focus of this initiative will exclusively focus on financial institutions, AFD should leverage the remarkable knowledge and know-how of its country-level facilities, for example, LTS, NDC and 2050, to support the countries where it operates in the creation of sectoral and technological pathways which should then become the credible benchmark for the creation of the transition entity-based plans. Relatedly, it should be noted that since 2017/2018 Proparco has been assessing the risk of misalignment of direct operations. Since 2021, Proparco extended this analysis to its non-earmarked intermediated finance with the Paris Agreement. This is a good practice which AFD should replicate across the Group to promote the transparent disclosure of climate risk for all its intermediaries’ portfolios.
- AFD should establish a portfolio level target as a key component of its goal to align fully with the Paris Agreement. This tool could initially take the form of internal targets and monitoring which should be made public within a predetermined timeline. This tool would be complementary to AFD’s good practice of publishing the aggregated absolute (and relative) emissions (as well as the specific mitigation contribution, i.e., avoided emissions) of its annual approvals (including scopes 1, 2 and 3 when significant). It is worth mentioning AFD has made available on its website an interactive map of all its projects with corresponding information sheets. However, these do not consistently include GHG impacts on a project-to-project basis. As such E3G recommends this good practice is further enhanced by making publicly available the information on ex-ante and ex-post GHG emissions produced by all the Bank’s investments on a project-to-project basis. Furthermore, in the case of projects where baselines are used it is recommended AFD follows the European Investment Bank’s (EIB) guidance to guarantee the baseline is fit-for-purpose. In case AFD decides against the recommendation to establish a portfolio level target, E3G invites AFD to engage in a discussion with other DFIs, MDBs and civil society organizations (CSOs) regarding its rationale.
- AFD should consider the implementation of a shadow carbon price (SCP). However, this should not be thought of as a ‘solve-all’ approach – rather as a tool to be used most effectively alongside other measures. In this way, AFD should adopt a similar framework to the High Commission of Carbon (HCC) pricing which includes a range of SCP prices which are flexible and responsive to both contextual considerations and updated scientific input. Accordingly, while the process of categorisation should be transparent, it would be possible to apply a different SCP depending on the country-context being considered. The corresponding methodology should be made public. In case AFD decides to not follow suit with the establishment of a SCP, E3G suggests AFD publishes its rationale in a statement or position paper, to foster discussion across other public banks, DFIs and MDBs.
For every $1 AFD Group provides to fossil fuels, $25.4 went to clean energy and $5.6 went to Transmission & Distribution between 2018-2020. This is the highest ratio E3G has seen for the Public Banks it has assessed, which is excellent. Most importantly, there was no fossil financing in 2020.
AFD has also sought to spread its best practice elsewhere. It has used its presidency of the IDFC, an association of DFIs, to support other financial institutions in their Paris alignment processes.
In 2020 AFD also created the Finance in Common (FiC) coalition and summit, which brings together the 500 public banks from all over the world on how to approach global issues and where the regional associations of DFIs all committed to Paris alignment.