The International Monetary Fund (IMF), the World Bank, and the OECD have collaborated to release a new report on climate-aligned finance.
The IMF is an international organisation that aims to foster economic stability, the World Bank focuses on poverty alleviation through loans, and the OECD is an intergovernmental economic organisation working to stimulate economic progress and world trade.
The primary reason for this partnership is to offer actionable methods to ensure that the financial sector’s activities align with the objectives of the Paris Agreement. This report aims to aid policymakers, regulators, and private-sector entities in enhancing their sustainable finance ‘alignment approaches’.
The IMF primarily offers financial assistance and policy advice to its member countries, usually in the form of short-term loans aimed at stabilising economies. The World Bank primarily provides long-term loans and grants to help countries build infrastructure and reduce poverty. The OECD works to shape policies that foster prosperity, equality, and sustainability, providing a platform for governments to discuss and coordinate policies that solve common problems.
The report highlights the need for scaling up private finance to support the transition to net zero. It discusses the various tools and frameworks, like taxonomies, scoring methodologies, and disclosure, employed to achieve this. The report particularly addresses the lack of robust frameworks in emerging and developing economies, aiming to make climate-related financial data more interoperable and consistent across regions.
One significant aspect of the report is its focus on addressing market fragmentation and higher transaction costs, which have been attributed to data inconsistencies. It aims to improve comparability and interoperability among various countries and financial markets.
IMF Lead author Charlotte Gardes-Landolfini said, “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 decarbonisation processes remains untapped”.
World Bank Lead author Fiona Stewart said, “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”.
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