Building on an analysis of how the Paris Agreement has reframed climate action from a focus on the near-term incremental increase of adaptation and mitigation actions to emphasize the long-term transformation of economies and societies, I4CE’s framework for alignment specifies three dimensions for action:
- A Comprehensive Scope of Action: institutions should seek to directly or indirectly support low-GHG climate-resilient development across all business areas – and take into account impacts on broader systems and value chains.
- A Long-Term Time Horizon to Guide Impact: institutions should prioritize actions that are consistent with both near-term climate objectives and long-term goals and do not lead to lock-in or mal-adaptation.
- An Ambitious Scale of Contribution: institutions should seek to contribute to the ambitious goals of the Agreement through activities that:
- Do No Harm: all activities should neither hinder nor be counterproductive to the achievement of climate objectives and should be consistent with long-term national sustainable and low-GHG, climate-resilient development pathways;
- Support Paris-Consistent Climate Co-Benefits: whenever possible, institutions should prioritize activities with direct or indirect mitigation and adaptation co-benefits that are consistent with the national attainment of the long-term goals of the Paris Agreement;
- Foster Transformative Outcomes: whenever possible, institutions should prioritize activities with ‘transformative outcomes’ that reduce the barriers to and support the large-scale, systemic and structural changes needed for the transition of economic, social and natural systems across and within national economies.
Furthermore, Paris alignment should take into account national contexts and support shared pathways or ‘visions’ of how long-term climate goals could be met nationally and internationally.
Moving from theory to practice, the paper applies the framework to the case of financial institutions to help understand the implications of aligning with the Paris Agreement and integrating these considerations at the strategic and operational levels.
Mandated by the International Development Finance Club (IDFC) and the European Climate Foundation, Climate Policy Initiative (CPI) and the Institute for Climate Economics (I4CE) conducted a research project in two parts:
- Part 1, led by I4CE, establishes a theoretical and conceptual basis for alignment, analyzing and describing the emerging interpretations of the definitions, principles, and approaches across the financial community, and builds on the experience of the Climate Action in Financial Institutions Initiative.
- Part 2, led by CPI, identifies the changes the Paris Agreement implies for the role of Development Finance Institutions (DFIs) – specifically members of the IDFC – and how they may implement these changes through a targeted set of activities.