IMF Staff Co-Publish Paper on Climate Alignment for the Financial Sector

IMF News, September 14, 2023

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Canonical URL: IMF Staff Co-Publish Paper on Climate Alignment for the Financial Sector

Press Release No. 23/313; published September 14, 2023.
Staff from the International Monetary Fund (IMF), World Bank, and the OECD, with input from BIS staff, published a report to compare methods for ensuring financial sector activities work for, not against, the Paris Agreement.
Aim: help policymakers, regulators, and private sector entities improve sustainable finance "alignment approaches" by identifying core design and implementation elements that could provide a minimum baseline of comparability across approaches.

Scaling up private finance for the transition to net zero requires providing investors with means to:
- identify low-carbon and transitional investments, and
- assess the impact of low-carbon investment strategies to reduce greenhouse gas emissions discharged in the real economy.
Common tools across alignment frameworks:
- taxonomies,
- scoring methodologies,
- disclosure, and
- transition-planning frameworks.
Shared features of these frameworks:
- science-based transparency,
- benchmarking for capital allocation purposes,
- transition planning and investment decision-making, and
- anti-greenwashing functions.

Many countries, especially emerging and developing economies, often lack:
- robust frameworks, and
- the data and indicators that would underpin such frameworks.
Where frameworks and data do exist, they are rarely interoperable, making it difficult for investors to compare climate-related risks and financing needs and opportunities across markets.
Lack of comparability and interoperability:
- exacerbates data inconsistencies,
- leads to market fragmentation and higher transaction costs, and
- impairs efforts to accurately assess whether financing contributes to, or undermines, the goals of the Paris Agreement, thus missing the alignment objective.

The report unpacks different alignment approaches to increase understanding of how and when they link together.
Provides technical suggestions on designing and implementing alignment approaches.
Offers technical guidance for policymakers on:
- identifying and prioritizing climate financing needs, including in hard-to-abate sectors.
Offers guidance for investors on:
- due diligence related to other environmental and social objectives, including climate consistency in supply chains.
Presents tools to improve the credibility, accountability, and uptake of transition planning for non-financial and financial corporates, covering:
- carbon-intensive activities and projects that need significant decarbonization or to be phased out.
Recommends combining backward- and forward-looking approaches to cover the whole-of-economy climate transition, including carbon-intensive sectors and EMDE-based issuers.

Lead author Charlotte Gardes-Landolfini (IMF): “Alignment approaches can inform the design (and reporting for accountability) of credible and comparable transition plans by investors or other firms upstream. Combining backward- and forward-looking approaches could also be conducive to covering the whole-of-economy climate transition, including carbon-intensive sectors and EMDE-based issuers, where much of the potential for financing of decarbonization processes remains untapped”.
Lead author Fiona Stewart (World Bank): “As a global public good, climate change mitigation requires an unprecedented level of cross-country policy cooperation and coordination. This paper will help scale up climate finance by contributing to the design of a transition finance framework applicable to emerging markets and developing economies.”
Media contact: PRESS OFFICER: Maria Candia Romano; Phone: +1 202 623-7100; Email: MEDIA@IMF.org; @IMFSpokesperson

Source: IMF press release dated September 14, 2023 (Press Release No. 23/313).