{"id":54447,"date":"2021-07-12T13:50:58","date_gmt":"2021-07-12T11:50:58","guid":{"rendered":"https:\/\/preprod.i4ce.org\/2021\/07\/12\/la-prochaine-etape-pour-les-institutions-financieres-aligner-lensemble-de-la-chaine-financiere\/"},"modified":"2023-03-06T11:08:49","modified_gmt":"2023-03-06T10:08:49","slug":"the-next-step-for-financial-institutions-aligning-the-entire-financial-chain-climate","status":"publish","type":"post","link":"https:\/\/staging.i4ce.org\/en\/the-next-step-for-financial-institutions-aligning-the-entire-financial-chain-climate\/","title":{"rendered":"The Next Step for Financial Institutions: Aligning the entire Financial Chain"},"content":{"rendered":"

A core goal of the Paris Agreement is \u201cmake finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.\u201d Since 2015, financial institutions of all types \u2013 from development banks to asset owners and pension funds \u2013 have committed to making their portfolios \u2018consistent\u2019 with the Paris Agreement.\u00a0<\/span>I<\/span>n practice,\u00a0<\/span>Financial Institutions<\/span>\u00a0are\u00a0<\/span>at times\u00a0<\/span>approach<\/span>ing<\/span>\u00a0alignment from different points of entry: either focusing on one hand \u201c<\/span><\/span>what\u201d\u00a0<\/span><\/span>or on the other hand \u201c<\/span><\/span>who\u201d\u00a0<\/span><\/span>is financed.\u00a0<\/span>In the run-up to COP26\u00a0<\/span>the Climate Action in Financial Institutions Initiative and UNEP FI have\u00a0<\/span>convened a group of\u00a0<\/span>Financial Institutions<\/span>\u00a0to take a step further to look at th<\/span>e<\/span>\u00a0alignment of the entire financial chain.<\/span><\/span>\u00a0<\/span><\/strong><\/p>\n

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Understanding of the Alignment of the Entire Financial Chain<\/b><\/span><\/h2>\n

After committing to align their portfolios with the Paris Agreement, financial institutions have\u00a0started\u00a0by\u00a0developing\u00a0approaches to\u00a0assess\u00a0the alignment of their\u00a0own portfolios.\u00a0However, understanding the alignment of\u00a0a\u00a0portfolio\u00a0requires that they look at the alignment of\u00a0different\u00a0\u201cparts\u201d\u00a0of the financial chain.<\/span>\u00a0<\/span><\/p>\n

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As\u00a0presented in Figure 1, some institutions started\u00a0with the \u2018what\u2019 or a \u2018use of proceeds\u2019 approach, focusing\u00a0on\u00a0the activities directly financed through\u00a0project finance and other asset classes with known use of proceeds, i.e. the individual projects or business activities.\u00a0This has often been the case for development banks and lenders to activities where direct use of proceeds is relatively easy to trace.<\/span>\u00a0<\/span><\/p>\n

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Other\u00a0Financial Institutions, have focused on the \u201cwho\u201d,\u00a0or the recipient counterparties or clients to which they are extending debt or purchasing an equity share.\u00a0In this case, alignment involves ascertaining whether the company or entity as a whole is aligned. This has\u00a0particularly\u00a0been the case of corporate lenders, institutional investors and asset owners\u00a0those involved in corporate and retail lending and finance, non \u2018pure player\u2019 equity.<\/span><\/p>\n

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Finally,\u00a0in some cases\u00a0Financial Institution\u00a0may also be assessing the alignment of\u00a0its partners \u2013 such as banks\u00a0\u00a0they are\u00a0\u00a0doing syndicated lending with or involved in intermediated finance or credit lines; or whether the\u00a0entities\u00a0that buying their \u2018green\u2019 bonds or from whom they are\u00a0securing financing from themselves are aligned.<\/span>\u00a0<\/span><\/p>\n

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Moving forward, many financial institutions recognize that to align they will need to look at both the \u201cwhat\u201d and \u201cwho\u201d and connecting the dots between these approaches.\u00a0<\/span><\/p>\n

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Different\u00a0<\/span>e<\/span>ntry\u00a0<\/span>p<\/span>oints, but\u00a0<\/span>many\u00a0<\/span>shared questions<\/span><\/span>\u00a0<\/span><\/strong><\/span><\/h2>\n

While financial institutions may start the alignment process with different areas of focus, they are often encountering similar questions as the discover that\u00a0<\/span>looking at\u00a0<\/span>one part of the financial chain can quickly lead to other parts of the chain.<\/span>\u00a0Furthermore,\u00a0<\/span><\/span>financial institutions are often facing similar<\/span><\/span><\/span>\u00a0<\/span><\/span><\/span>strategic and technical questions\u00a0<\/span><\/span>their<\/span><\/span><\/span>\u00a0<\/span>peer financial institutions<\/span>,\u00a0<\/span><\/span>as well as financial institutions<\/span><\/span><\/span>\u00a0in other parts of the financial system.<\/span><\/span><\/p>\n

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