From scenarios to action - developing science based financing guidelines

In recent years, financial institutions and their role in the transition towards global emission reduction targets have gained attention in the climate change debate. Initiatives like the energy efficiency finance institutions group (EEFIG) have highlighted the importance of financial institutions. The concrete operationalisation of this topic is however a major challenge. In our paper we will present the approach chosen by the German Development Bank (KfW), which was assisted by the authors in crafting a comprehensive and compatible strategy aligning with the Paris Agreement for KfW as part of its transition process. Based primarily on IEA’s Net Zero Emissions by 2050 scenario, financing guidelines for various sectors have been developed, which regulate new financing by the bank. These guidelines mainly use technical criteria for the individual financing to ensure that they are in line with a 1,5°C compatible transition pathway. As the guidelines consider the lifetime of the assets and not only the financing lifetime, the requirements in the sectors are ambitious and require the bank not to finance certain technologies at all. In our contribution, we present the underlying system of the KfW guidelines and provide an overview of currently implemented guidelines. Finally, we discuss the approach chosen in context to possible other approaches. KfW’s experience in implementing financing guidelines with a more focused technological approach demonstrates how guidelines can be developed to align with Paris Agreement objectives in the future. The approach differs from other efforts that typically take the form of either standardized frameworks or monitoring activities.