New Guidance on Finance Sector Alignment with Paris, SDGs

A new report aims to help policymakers and regulators ensure progress in the alignment of financial flows with climate and sustainability targets, while allowing for differences in approach across jurisdictions. The report – published by the International Monetary Fund, the World Bank and the Organisation for Economic Co-operation and Development – assessed different “alignment approaches”, referring to the frameworks used to ensure global capital flows contribute to the goals of the Paris Agreement and the UN Sustainable Development Goals. Alignment approaches use tools such as taxonomies, scoring methodologies, disclosure frameworks, and transition-planning guidance. The report noted a diverse array of methodologies, objectives, and governance structures underpinning them, and different ways to apply the approaches. This could lead to market fragmentation problems, it said, increased transaction costs, data inconsistencies, and lack of market confidence, ultimately prevent the financial sector from providing needed financing. The report identified core design and implementation elements that could provide a minimum baseline of comparability across alignment approaches. It found that taxonomies may be more useful when prioritising by sector, particularly those with high carbon intensity or exposure to transition risks and where funding gaps exist. It also recommended that alignment approaches should include all parts of the global economy, particularly SMEs, women, and vulnerable groups. The report also said alignment approaches should be appropriate for emerging markets and developing economies.

 

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