Global lenders under pressure to stop financing fossil fuel projects

Environmental lobby groups urge development banks to align lending with Paris Agreement as Madrid climate change talks continue

Major multilateral development banks, including the African Development Bank, World Bank and Asian Development Bank, are under increasing pressure to stop funding fossil fuel projects to combat climate change.

In a letter to the institutions ahead of the conclusion of climate talks in Madrid, Spain, this week, global environmental lobby groups including Big Shift

Global, African Coalition for Sustainable Energy and Access, Pan African Climate Justice Alliance and 350.org, said the multilateral development banks (MDBs) have an urgent responsibility to align their lending with the Paris Agreement.

The agreement set global climate change targets in 2015 and sought to intensify the actions and investments needed by countries and all stakeholders for a sustainable, low-carbon future. “Doing so will require ending support for all fossil fuels by the end of 2020, rapidly scaling up investments in renewables and energy access, and transparent reporting on finance levels and portfolio emissions,” the groups said.

Financial institutions, including banks and insurance houses, are worried about the effect of climate change on their stability.

For instance, changing weather patterns, which include frequent storms and droughts, have complicated the insurance industry’s risk assessments and led to an increase in premiums, particularly in the agricultural sector. Meanwhile, banks are under pressure not to finance operations seen as contributing to climate change.

The groups said in their letter that while MDBs have made commitments to align their financing with the objectives of the Paris Agreement, there has not been enough progress.

“Signs of the unfolding climate crisis have become increasingly evident since the joint MDB pledge was first made, and the MDBs must scale up their ambition at COP25 [climate talks] in Madrid accordingly,” the lobby groups said.

They said the banks must end all assistance for oil, gas and coal projects after 2020, rapidly scale up investment in renewables and energy efficiency, and increase clean energy access finance by public finance institutions by 2020 to help attain universal energy access by 2030.

Furthermore, they called on the MDBs to devote at least 40% of finance by 2020 and at least 50% by 2025 to assist countries, especially in Africa, in accelerating their chosen low-carbon development pathways.

Meanwhile, the World Bank on Tuesday unveiled a plan to provide technical assistance to countries to design, pilot and implement carbon pricing and market instruments.

According to the bank, carbon pricing is an instrument that captures the external costs of greenhouse gas (GHG) emissions the costs borne by the public, such as damage to crops, health-care costs from droughts, and loss of property from flooding and ties them to their sources through a price.

Its programme will support the direct implementation of carbon pricing in at least 10 developing countries and help a further 20 countries get ready to do so.