Developing a collective framework for operationalising Article 2.1(c): lessons from six case studies

The third long-term goal of the Paris Agreement - Article 2.1(c) – that seeks to align finance flows with low-emission, climate-resilient development pathways is central to achieving the first two long-term goals of limiting global warming to 1.5°C pre-industrial levels and adapting to climate change. Despite its centrality, there is limited information and little guidance on how to achieve this goal, and no agreement on scope. This presents a risk to timely and equitable progress towards the climate consistency of finance flows, and therefore also to the Paris Agreement’s long-term mitigation and adaptation goals.

By reviewing existing frameworks and lessons from six case studies that flexibly assess the Paris alignment of finance flows in Belize, Colombia, Germany, Indonesia, Rwanda and Switzerland, this synthesis paper identifies five key elements that can be used to develop a flexible and systematic framework. Such a framework would help Parties make informed decisions on practical actions for context-specific implementation of Article 2.1(c) in a manner that delivers collective and equitable progress.

Read this report from the Finance Working Group of the independent Global Stocktake (iGST) consortium for more behind these key insights.

Key Insights

There are three groups of frameworks that can assess progress towards Article 2.1.c. The first are ‘climate-positive’ frameworks used to track public and private finance flows that support Paris-aligned development pathways above those made under Article 9 of the Paris Agreement; the second are ‘climate-negative’ frameworks, which incentivise the alignment of finance flows by identifying Paris misalignment; and, the third are ‘enabling frameworks’ that consider whether conditions (for example, regulatory environments) are conducive to attract Paris-aligned capital. All of these have advantages and disadvantages.
The six country case studies on Article 2.1(c) relying on an enabling framework of financial policy and regulation, fiscal policy, public investment and information instruments, found challenges in data availability and representativeness, a gap between promises and implementation, a difficulty in applying the framework in less-developed financial market settings, and challenges in identifying if fiscal policy measures and public finance were Paris aligned or not.
Five options for the ongoing design of nationally led enabling frameworks emerge from this study. Adopting these would improve the application and usability of enabling policy frameworks, especially in emerging markets and developing economies, and thereby accelerate national-level reporting against Article 2.1(c) in this crucial year for the official Global Stocktake.