Aligning policy-based finance with the Paris Agreement

The study suggested an approach for Paris alignment by conceptualizing the “do no significant harm” principle and exploring how MDBs can maximize ambition for climate action in PBOs. Recognizing that the amount and type of budget support influences the selection of reforms, it consider PBOs to be Paris-aligned if their policy actions are compatible with the following: Do not undermine a just transition to climate neutrality by increasing macroeconomic, fiscal, or social exposure to climate risks, wherever possible, support and promote long-term macroeconomic fiscal resilience to climate risks and a just transition to climate neutrality. For this study 29 MDB staff were interviewed and used a multipronged research approach. Based on an extensive desk review, they generalized an MDB framework for aligning the PBO process with the Paris Agreement in Section 2. In Section 3, we outline considerations for Paris alignment by examining policy actions in three policy areas that reported the largest volumes of MDB budget support in 2018-20. It applied two case studies in each policy area to identify gaps in Paris alignment, which informs the findings and recommendations in Section 4.