What You Need to Know About World Bank Group Alignment with the Paris Agreement

The World Bank Group is aligning its financing with the Paris Agreement goals on climate change. This is important, as it keeps us focused on containing the warming of the earth to well below 2 degrees, and preferably 1.5 degrees Celsius, while achieving sustainable development and ending poverty. What does this mean and what will it take to achieve it? We asked Jennifer Sara, Global Director of the World Bank’s Climate Change Group; and Stephane Guimbert, Director of Operations Policy & Country Services to explain.

Briefly, what does “Paris alignment” mean for the Bank Group?

In 2015, countries around the world came together and agreed to a landmark agreement to tackle the climate crisis. The goal of the Paris Agreement itself is to:

• Hold “the increase in the global average temperature to well below 2°C above pre-industrial levels” and pursue efforts “to limit the temperature increase to 1.5°C above pre-industrial levels”;
• To “increase the ability to adapt to the adverse impacts of climate change and foster climate resilience”; and,
• To make “finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”.

For the Bank Group, the world’s largest lender for development and climate, aligning our financing with the Paris Agreement will mean every investment we make can reduce climate impacts, support low-carbon pathways and help avoid carbon lock in.

Going beyond Paris Alignment, the Bank Group is also taking steps to strengthen our impact. So far, we have only been telling part of the climate story: focusing on how much money we are putting in to fight climate change. We now plan to tell the bigger story that really captures the impacts of our investments. We know that our projects reduce emissions, deliver cleaner air, better water quality, and improved health for people. But just how much of a difference is that climate finance making? How is it contributing to development paths that bring the world to net zero emissions and keep people safe from climate impacts? By tracking this systematically,  we are aiming to have impact at scale.

For the Bank Group, the world’s largest lender for development and climate, aligning our financing with the Paris Agreement will mean every investment we make can reduce climate impacts, support low-carbon pathways and help avoid carbon lock in.

When does Paris alignment take effect?

On July 1, 2023, all new operations – that is, projects and other assistance, that go to our Board will be expected to demonstrate how they meet our Paris Alignment commitment. We announced plans for Paris alignment in our Climate Change Action Plan (2021-2025). For the World Bank (IBRD/IDA), 100% of our operations will be aligned from July 1, 2023. For the Bank Group’s private sector arms, International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) 85% of new operations will be aligned starting July 1, 2023, and 100% of operations by July 1, 2025.

Why is the World Bank Group aligning its financing with the Paris Agreement now?

Aligning our financing with the Paris Agreement marks a key step in creating a world free from poverty on a livable planet.

Decades ago, we recognized climate change as a threat to development and began integrating climate considerations into projects and programs. Last year, we delivered a record-breaking $31.7 billion in climate finance to support countries with mitigation and adaptation. In addition to direct climate finance, we have supported efforts to phase out fossil fuels, we have developed new diagnostics to support country-level climate action, and we have issued innovative sustainability bonds.

Paris Alignment is the next step in integrating climate and development to deliver better outcomes for our clients.

Aligning our financing with the Paris Agreement marks a key step in creating a world free from poverty on a livable planet.

What will be different when the Bank Group is Paris aligned?

It’s important to see Paris Alignment as an enabling framework. This effort is not just about one-off investments to reduce emissions or boost adaptation; rather it is about countries shifting to more resilient development pathways that avoid locking in a carbon-intensive economy. This approach requires a holistic view of a country’s economy, its long-term development plans, its climate commitments, and potential climate risks. And it will enable us to systematically evaluate our operations and move from greening individual projects toward greening entire economies.

In practice, putting in place this approach means that 100% of our operations will be vetted to manage and reduce climate risks of a project and to demonstrate that our financing supports the lower-carbon options where technically and economically feasible. Simply put: this is climate and development in action.

How does the Bank Group’s Paris Alignment connect with country level climate action?

In fact, the climate commitments that countries set for themselves (such as their Nationally Determined Contributions (NDCs), Long Term Strategies (LTSs) and National Adaptation Plans) will provide the foundation for how we assess projects for Paris Alignment. But we also recognize that current targets are not adequate to limit dangerous climate change, so we are also supporting countries make their NDCs and LTSs more ambitious.

In addition to NDCs and LTSs, our analysis will also pull together a more comprehensive picture by drawing from our own Climate Country and Development Reports, the best available data at the time of assessment, as well as relevant modeling and analytics, and methodologies by instrument and sector.

What is the World Bank Group doing to make Paris Alignment happen?

We have been advancing efforts on a number of fronts. Our technical experts have developed practical guidance that suits the Bank’s financial instruments as well as across the sectors that the Bank Group invests in. The guidance has been road tested by teams across the institution, staff being trained every month, in preparation for the start date. We have also made these documents public and have held ongoing engagements on them with external partners. We are also engaging clients as part of our Paris Alignment journey.

We have trained staff on how to screen, manage, and reduce climate risks and demonstrate Paris Alignment in project documentation ahead of the start date for the commitment formally kicking in. That’s because, as of today: July 1, 2023, over 400 projects that are in our pipeline for FY24 will be assessed for Paris Alignment – so staff need to know exactly what this entails and how to demonstrate Paris Alignment for projects. And throughout, we have worked closely with other MDBs to translate the Paris Agreement into common principles that apply to our business lines.

Paris Alignment is a step on our climate journey. It complements our efforts to enhance the tracking inputs while also capturing the impacts that our operations have on communities facing the climate challenge.