Aligning Development Co-operation and Climate Action

Annex C. Methodology

This annex outlines the sources of evidence and approaches to analysis for this report.

Official development finance data

All development finance figures presented in this report are derived from officially reported data to the OECD, i.e. the Development Assistance Committee (DAC) Creditor Reporting System (CRS) data (extracted in July 2019) and climate-related development finance flows (extracted in June 2019) (OECD, 2019[1]); (OECD, 2019[2]). As outlined in Box 2.7 in Chapter 2, climate-related development finance cannot be equated to climate finance, as both represent different perspectives. Two methodologies that compose climate-related development finance are reported to the DAC: the Rio Marker Methodology and the Climate Components Methodology.

The Rio Marker Methodology

Applied to development finance by bilateral providers and non-bank multilateral institutions and programmes

• For each activity reported to the OECD, reporting countries and institutions indicate whether the activity targets mitigation, adaptation or both objectives as a “principal” or “significant” objective (OECD, 2018[3]).

• Activities marked as “principal” would not have been funded but for that policy objective. Activities marked as “significant” have other prime objectives, but have been formulated or adjusted to help meet the policy objective.

The Rio markers provide an indication of the degree of mainstreaming in development co-operation portfolios for environmental objectives. These include climate objectives, but still as a quantification for mainstreaming rather than finance that is climate-specific.

The Climate Components Methodology

Applied to development finance by multilateral development banks

• The methodology measures specific climate components committed to development operations that enable activities that mitigate or adapt to climate change in developing and emerging economies (European Bank for Reconstruction and Development, 2018[4]).

• For adaptation finance, the methodology attempts to capture the incremental cost of adaptation activities and is project- and location-specific in accounting for a response to climate vulnerabilities.

• For mitigation finance, estimates are based on a list of activities in sectors and subsectors that are deemed to support low-carbon development pathways.

• The components range from the full investment amount (e.g. for a standalone, energy-efficient street lighting project) to only a small fraction of a development project that relates specifically to climate change mitigation or adaptation objectives.

Climate components are reported as-is for climate finance to the United Nations Framework Convention on Climate Change. Rather than providing an indication of mainstreaming, this approach aims to provide a conservative account of finance, or financial components, that specifically support climate objectives.

Accounting for climate-related development finance

Description

This report estimates how much development co-operation as a whole is integrating climate objectives across activities. In support of this, the Rio Marker Methodology is applied to climate-related development finance reported under the Climate Components Methodology. Climate-related development finance is represented as a combination of (a) commitments reported under the Rio markers and (b) commitments reported using climate components but shown as the full investment amount of the underlying activity. This applies to each climate-related objective, i.e. adaptation, mitigation and cross-cutting.

Each climate-related objective is accounted for as follows:

• For activities marked with only a mitigation-related objective, the entire underlying commitment is attributed to climate-related development finance with a mitigation objective.

• For activities marked with only an adaptation-related objective, the entire underlying commitment is attributed to climate-related development finance with an adaptation objective.

• For activities marked with both a mitigation-related and an adaptation-related objective, the entire underlying commitment is attributed to climate-related development finance with a cross‑cutting objective.

This approach does not change climate-related development finance reported under the Rio markers, but does significantly increase the attribution of climate-related development finance from multilateral development banks.

Data limitations

Official development finance reported to the DAC and presented in this report as a combination of climate-related and non-climate-related activities is a qualitative indication of whether activities are consistent with the objectives of the Paris Agreement. When this approach is used as an estimate for this purpose, it is likely to overestimate the extent to which development finance is Paris-aligned. It is impossible to ensure that all climate-related activities sufficiently fulfil the characteristics of alignment. Moreover, in the context of insufficient nationally determined contributions and long-term low-emissions strategies, it is probable that a significant proportion of climate-related development finance also falls short of fulfilling Paris objectives.

Official development finance figures, both climate-related and non-climate-related, are shown as financial commitments and include the most recent activity-level data (2017) available when this report was being written. These financial commitments are attributed in full to the year they are signed. Amounts are presented in the form of two-year averages to smooth out potential fluctuations.

Providers are required to follow a number of accounting protocols when reporting to the DAC, which governs the allocation and presentation of these resource flows. Most applicable to this report are the accounting measures for sector and purpose code classification and cross-cutting climate objectives. Providers are limited to reporting under only one sector and purpose code per project to avoid the risk of double counting. While many activities are liable to apply across multiple areas, this report examines sectors and purpose codes as the best available indication of the type of activities being supported in recipient countries. When accounting for cross-cutting climate objectives (i.e. climate change adaptation and mitigation), the entire amount of development finance is attributed equally to both objectives. While this allows for equal representation of each objective in these instances, it does not accurately reflect projects that overwhelmingly contribute to one objective over the other. Development finance presented in this report as “climate change mitigation” or “climate change adaptation” is marked with only one of these respective objectives, while those marked with both are shown as a separate “cross-cutting” category.

Providers included by type

Bilateral

• Australia

• Austria

• Azerbaijan

• Belgium

• Bulgaria

• Canada

• Croatia

• Cyprus

• Czech Republic

• Denmark

• Estonia

• European Union Institutions

• Finland

• France

• Germany

• Greece

• Hungary

• Iceland

• Ireland

• Israel

• Italy

• Japan

• Kazakhstan

• Korea

• Kuwait

• Latvia

• Liechtenstein

• Lithuania

• Luxembourg

• Malta

• Netherlands

• New Zealand

• Norway

• Poland

• Portugal

• Romania

• Russia

• Saudi Arabia

• Slovak Republic

• Slovenia

• Spain

• Sweden

• Switzerland

• Chinese Taipei

• Thailand

• Timor-Leste

• Turkey

• United Arab Emirates

• United Kingdom

• United States

Multilateral

• Adaptation Fund

• African Development Bank

• African Development Fund

• Arab Bank for Economic Development in Africa

• Arab Fund for Economic and Social Development (AFESD)

• Asian Development Bank

• Asian Infrastructure Investment Bank

• Caribbean Development Bank

• Center of Excellence in Finance

• Central Emergency Response Fund

• Climate Investment Funds

• Council of Europe Development Bank

• Development Bank of Latin America

• European Bank for Reconstruction and Development

• Food and Agriculture Organization

• Gavi, the Vaccine Alliance

• Global Environment Facility

• Global Fund

• Global Green Growth Institute

• Green Climate Fund

• IDB Invest

• IFAD

• IMF (Concessional Trust Funds)

• Inter-American Development Bank

• International Atomic Energy Agency

• International Bank for Reconstruction and Development

• International Development Association

• International Finance Corporation

• International Labour Organization

• Islamic Development Bank

• Montreal Protocol

• Nordic Development Fund

• OPEC Fund for International Development

• OSCE

• UN Peacebuilding Fund

• UNAIDS

• UNDP

• UNECE

• UNEP

• UNFPA

• UNHCR

• UNICEF

• UNRWA

• WFP

• World Health Organization

• World Tourism Organization

Survey

Over the course of March and April 2019, the OECD conducted a survey of 22 development co‑operation providers including governments and multilateral actors. The survey asked participants about policies, strategies, capacity, operations and finance, and examined co-operation within countries as well as systemic issues with regard to Paris alignment. Participants’ associated literature, such as strategies and policies relevant to Paris alignment, augmented the survey responses.

Literature and desk reviews

A review of existing international literature complemented informal consultations on Paris alignment to inform this report. In addition, a desk review of development co-operation providers’ published mandates was conducted in July 2019, to complement the survey. These mandates were accessed from OECD peer reviews of DAC members (OECD, 2019[5]) and from the official websites of donors and agencies. This review focused primarily on development agencies and banking institutions that are DAC members, and identified the frequency that climate and/or environment was explicitly included in their mandates.

Expert guidance

Guidance was provided for this report by the OECD DAC; the DAC Network on Environment and Development Co-operation (ENVIRONET); and two advisory groups, the High-Level Advisory Group (Annex A) and the Informal Expert Group (Annex B).