
Development finance institutions (DFIs) play a key role in achieving the Paris Agreement’s goal of aligning financial flows with low-emission, climate-resilient development pathways. Many DFIs have committed to aligning their investments with the objectives of the Paris Agreement.
To date, their efforts have primarily focused on direct project financing, although most DFIs channel substantial portions of their finance through financial intermediaries. To be fully Paris-aligned, DFIs must also align these “indirect” investments.
Germanwatch, the NewClimate Institute and the World Resources Institute propose a phased approach for aligning indirect investments that includes both
1) subproject-level criteria reflecting mitigation and adaptation requirements and
2) institutional-level criteria related to climate governance and transparency in financial intermediaries.
Ultimately, DFIs are responsible for ensuring that their intermediated investments are aligned with climate goals. We give recommendations for how DFIs can align these investments through institutional changes and a risk-tailored approach to choosing investment instruments.