Aligning Policy-Based Finance with the Paris Agreement

The paper examines how multilateral development banks (MDBs) can align their policy-based operations (PBOs)—which provide unearmarked budget support in exchange for policy reforms—with the Paris Agreement. It finds that current risk screening and diagnostics are insufficient to prevent policy actions from creating path dependence in climate-vulnerable sectors or undermining long-term climate neutrality. While PBOs offer opportunities for domestic policy coordination and ambitious climate action, MDBs currently neglect to mainstream Nationally Determined Contributions (NDCs) into the development plans that inform their activities.

• Existing risk screening and diagnostic procedures for PBOs are inadequate for preventing policy actions from hindering a just transition to climate neutrality by 2050 or undermining macro-fiscal stability. Specifically, these actions can create path dependence in fossil fuels and agriculture, and current diagnostics fail to systematically assess institutional capacity for climate action or macro-fiscal exposure to climate risks.
• Social impact assessments currently used in PBOs do not account for the requirements of a just transition within sectors that are vulnerable to climate change.
• While PBOs provide a mechanism to harmonize development activities and support domestic policy coordination for climate action, MDBs often fail to integrate Nationally Determined Contributions (NDCs) into the development plans that guide their operations, and evidence of the benefits of climate-related reforms remains limited.
• Budget support via PBOs represents a significant portion of MDB commitments, accounting for US$139 billion (38 percent) between 2015 and 2020, with usage increasing to 30–60 percent during crises like COVID-19.

APA

World Resources Institute (n.d.). Aligning Policy-Based Finance with the Paris Agreement. https://www.wri.org/research/aligning-policy-based-finance-paris-agreement

Chicago

World Resources Institute. Aligning Policy-Based Finance with the Paris Agreement. n.d. https://www.wri.org/research/aligning-policy-based-finance-paris-agreement.

Wikipedia

{{cite report |author=World Resources Institute |title=Aligning Policy-Based Finance with the Paris Agreement |url=https://www.wri.org/research/aligning-policy-based-finance-paris-agreement |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{worldresourcesinstitutendaligning, author = {{World Resources Institute}}, title = {{Aligning Policy-Based Finance with the Paris Agreement}}, institution = {World Resources Institute}, url = {https://www.wri.org/research/aligning-policy-based-finance-paris-agreement}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }