OECD Review on Aligning Finance with Climate Goals

OECD Review on Aligning Finance with Climate Goals: Assessing Progress to Net Zero and Preventing Greenwashing

Foreword

Aligning finance with climate policy goals is crucial for achieving net-zero greenhouse gas emissions and enhancing resilience to climate change, as called for by Article 2.1c of the Paris Agreement. This review aims to provide robust evidence on three key areas:

1. How climate alignment of finance is assessed.
2. Current finance flows and stocks.
3. Role of financial sector policies and actions.

Key Findings

1. Current Approaches and Metrics to Assess Climate-Aligned Finance

• Scope and Aspects of Finance Covered: The review covers various aspects of finance, including different financial asset classes and financial portfolios and institutions.
• Climate Mitigation Alignment: Different methods are used to assess the alignment of finance with climate mitigation goals, including geographically granular GHG emissions pathways and mitigation strategies across scenarios.
• Progress Towards Climate Mitigation Alignment: Various approaches are discussed for comparing different financial portfolios and institutions.
• Climate Resilience Alignment: The review outlines methods to assess how finance aligns with climate resilience.

2. Existing Estimates on the Degree of Climate Alignment of Finance

• Real-Economy Investments: Estimates vary widely based on different methodologies and data sources.
• Financial Asset Classes: Detailed estimates are provided for various asset classes, including equity, debt, and infrastructure.
• Investors and Financial Institutions: Analysis is conducted for different categories of investors and financial institutions, highlighting disparities in alignment.
• Financial Jurisdictions: Insights are offered at the level of financial jurisdictions, showing varying degrees of alignment.

3. Emerging Evidence of the Role of Financial Policies and Actions

• Real-Economy Policies: Overview of policies that influence climate alignment in finance, such as carbon pricing and renewable energy incentives.
• Financial Sector Public Policies: Discussion on public policies that affect climate alignment, including regulatory frameworks and fiscal measures.
• Climate-Related Financial Sector Actions: Examination of actions taken by financial institutions to promote climate alignment, such as green bonds and sustainable investment strategies.

Lessons Learned and Recommendations

• Ensuring Environmental Integrity and Policy Relevance: Best practices are identified to ensure the environmental integrity and policy relevance of climate-alignment assessments.
• Better Assessment and Driving Climate Alignment: Specific actions are recommended to improve the assessment and drive climate alignment in finance, including enhanced data collection and more rigorous methodologies.

Figures

• Figure 2.1: Scope and aspects of finance covered in climate-alignment assessments.
• Figure 2.2: Dimensions of climate mitigation alignment assessment methodologies.
• Figure 2.3: Geographically granular GHG emissions pathways for China, France, South Africa, and the US.
• Figure 2.4: Mitigation strategies across scenarios.
• Figure 2.5: Stylised examples of different approaches to compare financial portfolios and institutions.

This comprehensive review provides valuable insights into the current state of aligning finance with climate goals and offers actionable recommendations for future improvements.