The Islamic Development Bank made a big declaration when, at a development finance event in Addis Ababa, Ethiopia organized by the UN, it announced a 15 year, $150 billion commitment to financing related to the Sustainable Development Goals. The commitment follows investment of $80 billion towards the Millennium Development Goals which ran from 2000 to 2015. The result is a doubling in the commitment in nominal terms.
Despite an announcement coming in Addis Ababa of the financing amount, the IDB has been clear in its embrace of both the sustainable development goals and a climate change deal. IDB President Dr. Ahmad Mohamed Ali concluded his message in the most recent year’s Annual Report to single out the most important items coming in 2015 being the “conclusion of new international agreements […] on sustainable development goals (SDGs), [a] climate change deal to reduce carbon emissions, and global trade.”
The two goals are interrelated in many ways because of the impact that climate change will have disproportionately on lower-income countries and the lower-income populations within countries. Since the IDB’s member countries are by-and-large developing countries, the impact of a focus on the SDGs and on the benefits that could come from a climate change deal that results in reduction in global emissions.
The impact that climate change will have on IDB member countries, and the degree to which it could outweigh otherwise successful interventions towards the sustainable development goals, makes IDB’s role in the process especially critical. Its programs should be measured not just in their direct impact on a specific, identifiable population, such as the people living near a road constructed with IDB funding. That road construction may have a specific and identifiable net positive contribution to the GDP in the area around it through direct construction costs and, at least temporarily, reducing congestion (and thus time spent unproductively sitting in traffic).
But, in the long-term many studies find that road capacity increases lead to more miles driven and thus a net increase in emissions with limited or even no decrease in congestion. In general, research finds that increasing road capacity by 100 miles in urban areas leads to an increase in 60 – 100 miles of additional vehicle miles traveled (VMT). Thus, even without accounting for the greenhouse gases emitted during road construction and maintenance, there could be an unaccounted for cost that shows up in costs related to the effect of the contribution of that increased emissions on climate change. The increasing carbon emissions as capacity increases may attract more traffic as it allows the existing traffic to travel more quickly.
In the example above, there should be consideration for both the financial returns from a project as well as its total impact, not just the economic impact. There is a framework for incorporating environmental, social and governance (ESG) factors developed by many of the signatories to the UN Principles for Responsible Investment that is being used specifically in the context of infrastructure.
These could be applied within the Islamic Development Bank either on purely financial grounds (incorporating non-financial ESG factors to identify risks that don’t show up in traditional financial analysis) or could be adopted more holistically in by “ensur[ing] that ESG issues are integrated into the mission and goals of Islamic financial institutions and changes in values and norms to ones that embed the notion of maqasid in the broader sense”. (Ahmed, Mohieldin, Verbeek and Aboulmagd, 2015) But regardless of how they are incorporated into the IDB’s methodology, it is important in establishing the Bank’s leadership on these issues within the broader support for a climate change deal and SDGs where it has highlighted its commitment.