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Agence Française de Développement and climate leadership

New bank in E3G’s Public Bank Climate Tracker Matrix

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Agence Française de Développement
Headquarters of the Agence Française de Développement in Paris, France. Photo via Google street view.

E3G analysed the Agence Française de Développement (AFD) based on the 15 metrics of E3G’s Public Bank Climate Tracker Matrix. The final result of this assessment shows AFD to be well on the way to becoming 100% aligned with the Paris Agreement, performing exceptionally well on a wide range of metrics. In particular, AFD has the highest ratio of non-fossil energy finance amongst all Public Banks E3G has assessed.

As the climate crisis intensifies, public banks have a critical role to play in unlocking the necessary finance for the transition to a decarbonised and climate-safe world. This urgent call for action has become the centre of heated discussions at COP27, where different financial groups are reporting on their progress to align their financial flows with the Paris Agreement. In this context, the role of Development Finance Institutions cannot be understated.

The AFD Group is a key financier of climate protection measures around the world, with total assets of €54 billion. At COP27, the AFD Group has facilitated a multitude of discussions and released policy thought leadership pieces to foster exchange. 

But to what extent is the Group on the right track to align all its activities with the Paris Agreement?

A leader in alignment with the Paris Agreement

Amid slow progress, Agence Française de Développement has been a front-runner among Public Bank (PBs) and a leader in the implementation of climate policies and initiatives since the inception of the Paris Agreement. Furthermore, beyond consistently striving to mainstream its alignment with the Paris Agreement it has also promoted the achievement of sustainable development goals.

A clear example is its trail-blazing Sustainable Development Analysis and Opinion Mechanism which integrates the mitigation, adaptation and natural capital dimensions. Additionally, AFD has played an instrumental role in helping other Development Finance Institutions (DFIs) begin their process of alignment with the Paris Agreement through its role within the International Development Finance Club (IDFC) and through its involvement in the Finance in Common Initiative.

Moreover, its energy lending policy and fossil fuel exclusion policies are some of the best among all Multilateral Development Banks (MDBs) and DFIs that E3G has assessed. The same applies to its technical assistance work, supporting countries developing their Long-Term Strategies (LTS) and Nationally Determined Contributions (NDCs) through various facilities. Finally, AFD’s COP27 position paper on intermediary finance shows development financial institutions and other public banks can leverage their policy-based lending, technical assistance facilities and lending capacities to lead the delivery of the Paris Agreement.

Areas for improvement

However, Agence Française de Développement’s remarkable path to reach 100% alignment with the Paris Agreement is not yet complete. There remains progress to be made. These are E3G’s headline recommendations for the AFD:

  1. AFD should implement a methodology for indirect finance, in coordination with the joint MDB work on this topic. It is critical that AFD includes transition plan requirements as a part of its system-wide approach to intermediary finance. Moreover, it must support these through a robust framework and monitoring mechanism, to verify consistency with relevant temperature scenarios. To further enhance this approach, AFD should progressively include conditionality within intermediary transitional loans. These should be tailored to contexts, supported by technical assistance, and aligned with Paris-compatible temperature scenarios at the country level. Furthermore, AFD should extend Proparco’s assessment of the risk of Paris-misaligned intermediated finance through the whole Group.
  2. AFD should establish a portfolio-level target as a key component of its goal of full alignment with the Paris Agreement. This tool would complement the current practice of publishing emissions and mitigation contributions of annually approved projects. Considering the contexts where AFD is active this tool could initially take the form of internal targets with a timeline for publication. Moreover, AFD should consistently supplement its existing project-level public information offering by including ex-ante and ex-post GHG emissions in project information sheets.
  3. AFD should consider the implementation of a shadow carbon price (SCP) as a complement to other measures. This should be flexible by using a framework based on the High Commission of Carbon (HCC) recommendation, to ensure responsiveness to contextual considerations and updated scientific input. The AFD should make public any resultant process of categorisation or selective implementation.

Find the assessment here to know more about Agence Française de Développement’s alignment with the Paris Agreement and what E3G´s recommendations are.

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