Aligning Financial Intermediary Investments with the Paris Agreement

The paper argues that while DFIs have focused on aligning direct project financing, they must also address 'indirect' investments via financial intermediaries to meet global climate goals. It proposes a four-pillar framework—mitigation, adaptation, governance, and transparency—implemented in two phases over a maximum of five years. The framework suggests sector-specific exclusion lists, physical climate risk screenings, institutional climate governance, and TCFD-aligned reporting. It also recommends a risk-tailored approach to investment instruments, suggesting that general purpose loans and equity be restricted to FIs already meeting alignment criteria, while special purpose vehicles (SPVs) can be used for clients committed to the principle of alignment but lacking immediate capacity.

• DFIs have historically focused Paris alignment processes on direct financing, leaving a significant gap in indirect investments through financial intermediaries (FIs). For some institutions, this represents a majority of commitments; for example, more than 60 percent of International Finance Corporation (IFC) commitments are channeled through intermediaries.
• The proposed alignment framework is based on four pillars: mitigation, adaptation, governance, and transparency. Mitigation and adaptation are addressed at the subproject level, while governance and transparency are addressed at the institutional level.
• A phased implementation approach is recommended to accommodate varying FI capacities. Phase 1 requires immediate compliance for DFI-funded subprojects, while Phase 2 requires the FI to apply alignment systems to its entire investment portfolio within a predefined period, proposed as a maximum of five years for 2021 investments.
• Mitigation alignment requires a tiered approach based on sector emissions: FIs must immediately exclude all new coal-related investments; use exclusion lists for readily decarbonizable sectors (e.g., power, transport); and apply best available technology (BAT) standards or sustainability certifications for sectors that cannot be readily decarbonized (e.g., steel, cement, agriculture).
• Adaptation alignment requires FIs to screen subprojects for physical climate risks. In Phase 1, FIs categorize projects as high, medium, or low risk; high and medium risk projects then require comprehensive risk assessments to incorporate resilience into project design.
• Institutional governance requirements include a high-level commitment to Paris alignment from senior management or the board, the establishment of a climate finance target, and the employment of at least one climate expert or team to assess projects.
• Transparency requirements involve annual reporting on portfolio sectoral breakdowns and disaggregate data on subprojects financed with DFI funds. By Phase 2, FIs should disclose climate-related risks and opportunities according to the Task Force on Climate-Related Financial Disclosures (TCFD) guidelines.
• The document recommends a risk-based approach to financial instruments: general purpose loans and equity should only be provided to FIs that already satisfy Phase 1 criteria and commit to Phase 2. For FIs committed to the principle of alignment but lacking capacity, DFIs should use Paris-aligned special purpose vehicles (SPVs) to prevent 'leakage' of funds to misaligned activities.

APA

Fuchs, S., Kachi, A., Sidner, L., & Westphal, M. (2021). Aligning Financial Intermediary Investments with the Paris Agreement. World Resources Institute. https://files.wri.org/d8/s3fs-public/2021-06/aligning-financial-intermediary-investments-paris-agreement.pdf?VersionId=1eDxt_id2a45lVqizNCH1EdoyAKj1en0

Chicago

Fuchs, Sophie, Aki Kachi, Lauren Sidner, and Michael Westphal. Aligning Financial Intermediary Investments with the Paris Agreement. World Resources Institute, 2021. https://files.wri.org/d8/s3fs-public/2021-06/aligning-financial-intermediary-investments-paris-agreement.pdf?VersionId=1eDxt_id2a45lVqizNCH1EdoyAKj1en0.

Wikipedia

{{cite report |last1=Fuchs |first1=Sophie |last2=Kachi |first2=Aki |last3=Sidner |first3=Lauren |last4=Westphal |first4=Michael |title=Aligning Financial Intermediary Investments with the Paris Agreement |publisher=World Resources Institute |date=June 2021 |url=https://files.wri.org/d8/s3fs-public/2021-06/aligning-financial-intermediary-investments-paris-agreement.pdf?VersionId=1eDxt_id2a45lVqizNCH1EdoyAKj1en0 |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{fuchs2021aligning, author = {Fuchs, Sophie and Kachi, Aki and Sidner, Lauren and Westphal, Michael}, title = {{Aligning Financial Intermediary Investments with the Paris Agreement}}, institution = {World Resources Institute}, year = {2021}, month = jun, url = {https://files.wri.org/d8/s3fs-public/2021-06/aligning-financial-intermediary-investments-paris-agreement.pdf?VersionId=1eDxt_id2a45lVqizNCH1EdoyAKj1en0}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }