Principles for Mainstreaming Climate Action in Financial Institutions

Launched on the sidelines of COP21 (2015), the Climate Action in Financial Institutions Initiative enable financial institutions to make climate change considerations a core component of how they conduct business. They imply a shift from incremental financing of climate activities to ensuring that climate change – risk and opportunity – is a fundamental consideration through which financial institutions deploy capital.

The Initiative focuses on sharing expertise, knowledge and practices among Supporting Institutions – and with the broader business and financial community. Specifically, the work of the initiative includes three activities: knowledge sharing within the financial community, dissemination of emerging practices and lessons learned, and collaboration on areas of common interest like the development of new/innovative approaches where few currently exist.

The Principles provide a pathway for financial institutions to systematically integrate climate change considerations across their strategies, programs and operations, in order to deliver more sustainable short-term and long-term results – developmentally and financially. Institutions adopting them recognize that addressing climate change and mobilizing finance requires simultaneously (i) seeking out and scaling up low-carbon opportunities, and (ii) addressing risks posed by climate change along with environmental and social risks.

Voluntary Principles for Mainstreaming Climate Action

Supporting Institutions distill these five Principles into four Work Streams:

• Climate risks: approaches, tools, methodologies – facilitates knowledge sharing between Supporting Institutions on climate-related risk management. This workstream looks at three key areas of questions to develop common understanding of climate risk-related issues; shared definitions; and experience on developing metrics to assess this issue quantitatively and qualitatively.
• Mapping reporting initiatives and understanding implementation challenges – identifies and examines the most commonly used reporting initiatives related to climate investments, including methodologies to track and report climate finance flows, comprising mitigation and adaptation finance; the impact of climate investments, primarily associated greenhouse gas emissions; and the nature of green bonds proceeds and their expected environmental impact. This workstream has direct and important relevance to the accounting of financial contributions to the implementation of Nationally-Determined Contributions (NDCs).
• City-level climate smart approaches and financial instruments – focuses on knowledge sharing and on the development of innovative city-level climate smart approaches and financial instruments, covering not only mitigation, but also the development and scaling up of public and private sector investment in climate-resilient urban infrastructure. Under this workstream, Institutions collaborate on the vertical integration of Nationally Determined Contributions (NDCs) at the city and subnational level; municipal technical assistance and financing; strengthening city- and subnational- capacity for resilience; and subnational climate-focused financial instruments and products.
• Spreading a climate strategy into a whole organization facilitates practical exchanges on the drivers that ensure commitment and support from dedicated and operational teams once climate objectives and/or a dedicated strategy has been adopted. It aims to ensure that top-down strategies disseminate through the management structure and the different business lines and teams across an institution, allowing for an integrated and organizational approach.

The Initiative has already created a wide resource center for knowledge sharing and case-studies targeting each of the specific Principles within each workstream.