Yellen Targets Curbs on Development Bank Support for Fossil Fuel

U.S. Treasury Secretary Janet Yellen signaled she’ll prod multilateral development banks to rein in their lending for fossil fuels, part of a global effort to make the financial system greener.

Yellen said she will convene the heads of such institutions “to articulate our expectations that the MDBs align their portfolios with the Paris Agreement and net-zero goals as urgently as possible,” according to the text of a speech she was set to deliver at an international climate conference in Venice, Italy.

The remarks reflect an effort by finance ministers and central bankers around the world to push lending institutions to support goals for slashing greenhouse-gas emissions and stop money flowing into projects that add to pollution.

While the money development banks lend is small, those funds unlock much bigger money flows from commercial lenders -- especially in developing nations. Green groups in recent years have targeted efforts on curtailing the support of development banks for fossil fuels, seeing that as a way to dry up funding for projects that pollute.

Since the beginning of the pandemic, development banks have extended $12 billion to clean energy projects and $3 billion to ones for polluting fuels like oil and natural gas, the International Institute for Sustainable Development said in March. For the first time ever in the research group’s rankings, no money went to support coal.

Many institutions, notably the Asian Development Bank, have said they will stop lending to coal projects. But most will support natural gas, the cleanest of the fossil fuels. Scientists say the world must reduce emissions from all of those sources of energy to zero by the middle of the century to prevent dangerous levels of warming in the atmosphere.

Yellen also expects development banks will “discourage new investments in fossil fuel-based power generation except where other options are not possible.”

The conference followed a Group of 20 meeting for finance ministers and central bankers in Venice, which focused in part on climate efforts. In the G-20’s communique on Saturday, officials also urged MDBs to “step up their efforts to pursue alignment with the Paris Agreement” on climate change, which calls for all nations to reduce emissions.

European officials also pushed to include in the statement a call for net-zero carbon emissions by 2050 but were thwarted by several countries that are more reliant on fossil fuels, according to people familiar with the negotiations who asked not to be named because the discussions were private.

©2021 Bloomberg L.P.

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