Guidance for climate-friendly investment

two engineers (a women and a man) in a windfarmClick to enlarge
Investments in renewable energy can be significant for climate action.
Source: goodluz / Fotolia.com

Capital investments which target the energy, transport and building sectors can help to limit the rise in Earth’s temperatures to less than 2 degrees. A new UBA study proposes the criteria by which public financial institutions like development banks should proceed and identifies which projects should no longer be funded.

Our economies will have to drastically reduce their greenhouse gas emissions and become less and less dependent on fossil fuels if we want to reach the climate protection goals agreed in Paris. This requires worldwide investments in low-carbon assets and projects. The overarching goal is to limit global warming to less than 2 degrees in order to prevent threats and hazards posed by climate change to man and the environment. A study by the German Environment Agency (UBA) has now developed criteria for climate-friendly investment in the energy, building and transport sectors and also identifies which types of project should no longer be financed. President Maria Krautzberger of the German Environment Agency says: "Sustainable and climate-friendly design of global investment and financial flows is one of the aims of the Paris Climate Agreement. Our guidance is meant to provide orientation for future investments.“

The Developing criteria to align investments with 2°C-compatible pathways study is aimed at public financial institutions and development banks in particular. These institutions already accounted for one third of global climate finance in 2014. Because development banks often already adhere to sustainable and climate-friendly criteria, they can play a key role in 2°C-compatible investment and finance.

The study demonstrates that several technologies and projects are fully 2°C-compatible. These include most renewable energy projects, whereas other projects such as new coal-fired power plants are clearly incompatible. Gas-fired power plants are potentially compatible with the 2-degree limit provided they are compatible with national decarbonisation strategies which lead to net-zero emissions by 2050.

Energy efficiency projects are considered 2°C-compatible when the increase in efficiency is significant. Example: buildings with an energy demand ranging between 10 kilowatt hours per square metre (kWh/m2) and 150 kWh/m2 are considered climate-friendly. In the transport infrastructure sector, the positive list of projects includes rail networks and waterways.

The study also explicitly addresses projects which are difficult to classify, for example investments in gas-fired power plants or transport infrastructure. In some cases, it is not yet possible to establish any globally valid criteria for 2°C compatibility because there are not yet any consistent reduction pathways, and assumptions and considerations concerning technologies, sustainability factors and individual national contexts must be taken into consideration. The study nevertheless examines in detail some practical measures and solutions for these cases.