Transparency of climate finance

Methodology

The transparency of climate finance information and project data is important for the accountability of institutions – and indeed is important in general too. Analysis of project-level data can help produce a common understanding of the effectiveness of an institution’s investment. Investments through financial intermediaries is important and will be assessed. E3G will also begin assessing whether the MDBs are reporting against the Task Force on Climate-Related Financial Disclosures (TCFD) and what exactly is disclosed. To be ‘Paris-Aligned’ an institution must have good performance on all sub-criteria.  

This is a key part of operationalising the commitment made by the MDBs at COP24 to “[build] on the joint efforts on climate finance tracking and collaboration on mitigation and adaptation issues, we will further develop tools and methods for characterising, monitoring and reporting on the results of our Paris-alignment activities. Where possible, we will collaborate to harmonise our respective approaches” (Building Block 5 – Reporting). Their high-level statement published in September 2019 further stated that they would develop a “new transparency framework to report on both the impact of each MDB’s activities and how these are helping clients meet and exceed commitments they have made, to be presented at COP25. This framework will be informed by consultations with multiple stakeholders, with the objective of broadening its use across the financial sector, beyond MDBs”. 

Project level data

All of the MDBs in this study report to the OECD’s climate-related development finance database, which includes information at the project level. The MDBs also jointly report their aggregate climate finance in annual reports in 2017 and 2018. However, as detailed by the OECD, the total level of climate finance is often smaller in their database than in the MDB joint reports due to the scope applied to the climate finance. For example, the OECD database only details finance towards ODA eligible countries. This therefore excludes a large portion of the climate financing undertaken by the European Investment Bank, which is active within the EU.

E3G recommends that all MDBs release the project level data that underlies the joint MDB reports as this will contain the most comparable information on MDB climate financing. Only the Asian Development Bank and Inter-American Development Bank currently do this in spreadsheet format, whilst the EIB and World Bank do so in PDF format. The OECD database is still a useful source of information at this stage, as it is the only reliable source of project level data from all the MDBs in the same format.

Financial intermediary transparency

Whilst this chapter will focus primarily on the transparency of climate finance data reported by institutions, we will also look at the transparency around financial intermediary sub-projects. Providing climate finance through financial intermediaries is increasing in some DFIs and is therefore important to be able to interrogate where this lending is going. Ideally, the location, sector and description of all subprojects financed using investment from a development finance institution should be accessible in a centralised database. Where this is not possible in a country due to commercial confidentiality, this should be explicitly stated.

The transparency of projects beyond specific climate projects is also important to consider. Broader transparency indexes exist, such as the Aid Transparency Index, which provides comparison between institutions. The Aid Transparency Index (ATI) is a secondary source which assesses how transparent donor organisations are about their aid activities. The ATI uses 39 indicators grouped into weighted categories, covering commitments to aid transparency, and publication of information at the organisational and activity level.  The Asian Development Bank and IDA are the top two performing institutions, out of 45 in total. The IDB and AfDB both also rank as ‘very good’ on the index. The EBRD ranks as ‘good’, whilst the EIB and IFC rank as ‘fair’. The AIIB and IBRD are not included in the index.

Task Force on Climate-Related Financial Disclosures (TCFD)

The Task Force on Climate-Related Financial Disclosures was formed to develop a framework that provided “reliable information on financial institutions’ exposure to climate-related risks and opportunities”. Disclosure focuses on four areas: Governance, strategy, risk management and metrics & targets. It recommends assessing both physical climate risk and climate transition risk.

Some public banks have started reporting in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). It is important MDBs do TCFD reporting for three reasons. 

• Development banks are public institutions with a large portfolio of historical lending, TCFD reporting is intended to identify climate risk within a portfolio and detail how this risk will be managed going forward. Portfolio reviews are something that has been missing from climate related disclosure by the public banks previously.
• Public banks have a large network within their member countries, particularly in the financial sector. They are in a position where they are able to encourage their clients and recipient governments to adopt the recommendations of the TCFD. Furthermore, the MDBs in particular are developing their own in-house assessments of climate risk (both physical and transition). This information and data should be made public to ensure that it can be used by other TCFD participants in their member countries.
• It allows for a comparison of the governance and strategies the MDBs are using to address climate risk in their lending.

This section makes an assessment if something is disclosed. The areas of assessment have been created by looking at what is disclosed in current MDB TCFD reports and then combining this to create what a ‘best practice’ disclosure would look like and comparing each development bank against this best practice. 

Evolution of this indicator 

There may be limitations in data which could limit the scope to which these assessments could be conducted more widely. Furthermore, as a wider range of disclosure initiatives are used these will need to be considered. For example, as MDBs start to integrate Paris alignment within their strategies and report on their levels of Paris alignment, this will be included in this metric. This could cover the levels of individual or joint reporting on levels of Paris alignment at the banks assessed. 

Another area that could be included in the future is the application of shadow carbon pricing within institutions. Often the full workings are not published for a project, which can raise questions around how baselines are calculated.

General recommendations for all institutions:  

• We recommend that all MDBs consider disclosing their operations against a version of EU Sustainable Finance Taxonomy, once that is available and it has been adapted for use in their regions. 
• E3G recommends the full disclosure of sub-projects that receive financing through financial intermediaries. All banks should publish more information on financial intermediary sub-projects. The institutions should collaborate on principles for doing so, similar to the MDBs-IDFC Common Principles on mitigation climate finance agreed in 2015 for tracking climate finance. 
• All banks should report the same level of detail to the OECD, IDFC and other similar databases. 
• MDBs and IDFC should publish a joint database of project-level information. This would be a transformational step because it would allow comparison of multilateral and bilateral development finance institutions.  This could also potentially in the future be extended to national public banks and Export Credit Agencies.