Integrating Environmental and Climate Action into Development Co-operation

Austria

How are development programmes systematically integrating climate and environment objectives post-COVID‑19?

Political commitments, strategies and tools

Austria’s political commitments

Support to environmental objectives has been anchored as a key dimension of the Austrian Development Co‑operation at the highest level through the Austrian Act on Development Co-operation (2003). The act defines “preserving the environment and protecting natural resources that form the basis for sustainable development” as one of the three overall objectives of the Austrian Development Co-operation.  

This commitment is reflected in all strategic documents and policy documents, first and foremost the current Three-year Programme on Austrian Development Policy 2019-2021, which defines “protecting and preserving the environment” as one of five thematic priorities for this period. In addition, continuous mainstreaming of environment and climate action has been formulated as a guiding principle in the Three Year Programme. 

As an EU member state, Austria also supports the EU Green Deal and its external dimension.  

Targets

The Three-Year Programme on Austrian Development Policy 2019-2021 contains a commitment to “raising the ratio of environmental measures in programmable official development assistance to 45%. This commitment is tracked through the application of the general environment marker. The new Three-Year Programme 2022-2024, which is currently under development, will likely increase the share of environment and climate in programmable aid.

Various official development assistance (ODA) actors have also committed to specific targets within their operations:

• The Austrian Federal Ministry for European and International Affairs (MFA) has set a goal of 50% for environment in projects and programmes under the country and regional funding instruments for 2021, which will increase to 55% in 2022 and 60% from 2023 onwards.

• The Austrian Development Agency, as the implementing unit of the Austrian Development Co‑operation, tracks progress towards these goals and regularly reports on the status and trends towards the MFA and its own board.

• The Austrian Development Bank (OeEB) has a target of 40% of new commitments (over five years) for projects qualifying as international climate finance. These figures are continuously tracked and reported internally, as well as to external shareholders.

Rio Markers are applied for verification of compliance of project targets, and validation is undertaken by experts at the Austrian Development Agency, OECD and the United Nations Framework Convention on Climate Change (UNFCCC).

Strategies and policies for systematic integration

The Austrian Development Co-operation systematically integrates environmental and climate objectives in all strategies and policy documents. The MFA, which is in charge of development policy, systematically includes environment and climate in all geographical and thematic strategies and programme documents. Examples of this approach can be found in the country strategies for Ethiopia and Bhutan.

The 2009 Interministerial Strategic Guideline on Environment and Development in Austrian Development Co-operation sets out strategic goals and thematic priorities for Austrian development co-operation in the field of environment. The guideline is currently being updated, placing more emphasis on alignment with the Paris Agreement and on defining strategic goals in the areas of climate and environment.

Three other Austrian acts and strategies showcase how environment and climate objectives have been integrated:

• Austria’s Guidelines for International Climate Finance

• Austria’s Climate Finance Strategy and reports

• Strategy of the Development Bank of Austria.

The Austrian Federal Ministry of Finance (MoF) has a long-standing co-operation with international financial institutions (IFIs), like the World Bank Group and regional development banks and funds. As part of their global development mandate, IFIs make an important contribution to international climate and environment objectives. The MoF provides funding to these institutions and steers their activities via participation in various boards, councils, and steering committees, including in the field of environment and climate protection. In the context of this co-operation, the MoF is also a member of the Global Environment Facility, one of the largest financiers of global environmental projects. The MoF co-ordinates its position inter alia within its own constituencies and other like-minded constituencies in the different IFIs. In this context, co-ordinated approaches at the European level between member states as well as with relevant European institutions are of particular importance.

The OeEB also recognises and applies all policies and programmes listed above in the context of project implementation. All financing projects are assessed according to their environmental and social impact, prior to the engagement and during the monitoring phase.

Protection of the environment and natural resources and the social compatibility of the projects financed by the OeEB are fundamental principles that govern the actions. In addition to adherence to local and national environmental and social regulations of the respective country, the OeEB also strives for the adoption of international environmental, social, and human rights standards when financing projects.

A focus area of the OeEB’s strategy “Financing our shared future” is the crosscutting target climate mainstreaming and climate finance. Specific emphasis is set on renewable energy. The OeEB sets a focus on Sustainable Development Goal (SDG) 7 “affordable and clean energy” and SDG 13 “climate action” in its strategy, aiming to target its main contribution in these areas, with a strong focus on renewable energy and energy efficiency. The OeEB has become the largest Austrian provider of climate finance in developing countries. More than 40% of the OeEB's portfolio is dedicated to projects that include climate-change objectives, as based on the Rio Climate Markers.

Key provisions and pillars

The current Three-Year Programme on Austrian Development Policy 2019-2021 defines “protecting and preserving the environment” as one of five thematic priorities for this period. This priority covers actions on climate change, biodiversity and ecosystems, as well as resource efficiency and sustainable consumption and production.

The Strategic Guidelines of the Federal Ministry of Finance for International Financial Institutions name “sustainable energy and climate protection” as one of four priority areas for the programmatic co-operation with IFIs. Various programmes, such as the International Bank for Reconstruction and Development (IBRD) Climate Support Facility; the International Finance Corporation (IFC) Europe and Central Asia (ECA) Climate-Smart Finance Facilitation Program; and the European Bank for Reconstruction and Development (EBRD) City Regeneration and Environment (CREATE) Fund Programme, to name just a few, are supported under this priority area.

A focus area of the OeEB’s strategy is the crosscutting target climate mainstreaming and climate finance. The OeEB is also committed to mainstreaming climate protection and will also endeavour to support technologies that emit as little carbon dioxide as possible, as part of projects that do not explicitly target climate protection.

OeEB further signed the EDFI Statement on Climate and Energy Finance. Measures include:

• European Development Finance Institutions (EDFIs) will align all new financing with the objectives of the Paris Agreement by 2022 and will transition Austria’s investment portfolios to net-zero greenhouse gas (GHG) emissions by 2050 at the latest.

• EDFIs will exclude new coal and fuel oil financing and will limit other fossil fuel financing to Paris-aligned projects until generally excluding them by 2030 at the latest.

• EDFIs will build on its members’ track record in climate finance and the mobilisation of private sector finance by holding themselves to ambitious individual targets and by reporting publicly on progress.

• EDFIs will invest strategically and provide assistance to clients to support the development of Paris-aligned projects, and to promote green growth, climate adaptation and resilience, nature-based solutions, access to green energy and a just transition to a low-carbon economy.

• EDFIs will make climate-related financial disclosures in line with high international standards, specifically adopting the recommendations of the Task Force on Climate-related Financial Disclosures.

• EDFIs will embed climate action and climate risk management at every level of Austria’s institutions.

Box 1. Creditor reporting system’s environmental and climate markers

Figure 1. Austria’s integration of climate objectives

Note: “Other environmental markers” include biodiversity, environment and desertification that do not overlap with mitigation and adaptation. Biodiversity-related ODA is integrated in the columns, as well as presented separately for better visibility.

Source: OECD (2021), Creditor Reporting System (database), https://stats.oecd.org/Index.aspx?DataSetCode=crs1

Operational tools for systematic integration

Actors working in development co-operation have adopted various tools to mainstream climate and environment into their operations.

The Austrian Development Agency (ADA) has adopted the following tools and guidelines:

• A comprehensive Environmental, Gender and Social Impact Management System, which supports the alignment with environmental and climate objectives and avoidance of negative impacts, and includes a checklist.

• A set of guidance documents and issue briefs on specific environmental and climate issues, e.g. on environment and climate in the context of the coronavirus (COVID-19) response has been developed.

• In the context of the co-operation with IFIs, the MoF applies the Strategic Guidelines of the Federal Ministry of Finance for International Financial Institutions.

• For other tools for specific issues like climate risk assessment, the ADA draws on tools developed by other donors or on guidelines developed by the DAC Environet.

The OeEB has also adopted the following tools and guidelines:

• If necessary, the OeEB creates a catalogue of measures in the form of an action plan, which then becomes a binding condition as part of the loan agreement. Adherence to environmental and social standards is verified at regular intervals over the course of the project. See also EDFI Principles for Responsible Financing.

• As a fundamental benchmark, the OeEB observes the ecological and social standards agreed upon by the EDFI, the Association of European Development Finance Institutions. These include:

  • The Performance Standards on Social and Environmental Sustainability developed by World Bank subsidiary IFC, which have become the established market benchmark.

  • The Environmental, Health and Safety Guidelines of the World Bank Group.

  • The international conventions of ILO (International Labour Organization).

• A Joint Impact Model, a publicly available model, which enables the quantification of indirect jobs, value added, and GHG emissions related to investments of financial institutions.

• Consideration of climate risks and the start of climate reporting according to the TCFD (Task Force on Climate-related Financial Disclosures) recommendations, which can be found for the first time in this sustainability report.

Monitoring, evaluation and learning frameworks

The ADA’s Environmental, Gender and Social Impact Management (EGSIM) system is geared to cater the whole project cycle and contains specific references to monitoring, evaluation and learning (MEL). For instance, the status of recommendations from the EGSIM is by default included in the semi-annual status reports by its country offices. Terms of reference (ToRs) for evaluations in general practice include evaluation questions on how crosscutting issues and any recommendations from assessments have been addressed.

For OeEB, the above-mentioned methodologies are applied from the beginning of the screening of each project. This implies that depending on the stage of the analysis of a project – initial screening, first due diligence, signing, implementation, etc., the respectively applicable analyses will be carried out. In light of the growing importance of integrating environment and climate objectives into all project phases and operational processes, the OeEB has since the start of the strategy cycle continuously increased its institutional learning framework, incorporated new analytical tools, advanced its data-processing facilities, deepened its knowledge base and improved data collection.

How are development programmes supporting country-owned transitions to environmentally sustainable, low-emissions and climate-resilient development pathways?

Supporting national transition plans that are commensurate with international objectives

In the context of its bilateral programmes with partner countries, the Austrian Development Co-operation provides support to the development and implementation of national transition strategies, including through support to integrating environment and climate into sectoral plans and at the local level. One important entry point is support to countries’ own systems and tools for environmental mainstreaming and Environmental Impact Assessment/Strategic Environmental Assessment (EIA/SEA) procedures.

In the context of co-operation with IFIs, the MoF supports the efforts by various IFIs to implement national transition strategies.

The OeEB does not directly engage in support for partner countries in the above-mentioned context.

Examples of projects to support national transition plans

Austria provides support to the Global Network of Regional Sustainable Energy Centers (GN-SEC) and various Regional Centres for Energy Efficiency and Renewable Energy who support Regional Economic Communities/Organisations and their member countries in formulating their transition strategies.

Implementing the transition to environmentally sustainable, low-emissions and climate-resilient development pathways

The Strategic Guideline on Environment and Development in Austrian Development Policy (2009) defines principles that guide Austria’s response to the complex interconnections and challenges of environmental protection in development co-operation This includes, among others, harnessing synergies between environmental protection and poverty reduction, preventing adverse environmental impacts and maximising beneficial ones and adopting integrated, multi-sector approaches, wherever possible. In addition, the guideline identifies four thematic priorities for Austrian engagement on environment and climate:

• sustainable natural resource management, combating desertification and preserving biodiversity

• sustainable chemicals and waste management

• climate protection

• water and sanitation.

Nationally Determined Contributions (NDCs), the SDGs and other country-owned strategies provide important reference documents for the Austrian Development Co-operation. Austria particularly works at the local level and supports transition and adaption at local levels.

As an EU member, Austria supports the European Green Deal and its external dimension. In particular, its co-operation with the Western Balkans, the Green Agenda for the Western Balkans and the Sofia Declaration signed by the Heads of States of all six Western Balkan countries, provide an important reference point for future Austrian co-operation.

The OeEB has signed the EDFI Principles for Responsible Financing Policy Statements, which reflect the approach of EDFIs in the context of transition, environmental sustainability, climate resilience and consistency with low-emissions development pathways towards net-zero. This demonstrates the aim of having a positive impact, the endeavour to ensure respect for human rights, and environmental and social sustainability. The core headings include responsible finance (e.g. recognise that activities may be associated with negative environmental, social and human rights impacts for local communities and therefore require Austria’s investee companies, as applicable, to mitigate these risks and work towards relevant international norms and standards); and impact management (support investee companies’ impact on SDGs; support the Paris Climate Agreement and the achievement of national contributions by directing financial flows consistent with pathways towards low and reduced GHG emissions and climate-resilient development; and participate in climate finance tracking and collaboration on climate-related issues). EDFI has also adopted the Operating Principles for Impact Management.

The OeEB is committed to mainstreaming climate protection and will also endeavour to support technologies that emit as little carbon dioxide as possible, as part of projects that do not explicitly target climate protection. The OeEB has a target of 40% of new commitments (over five years) for projects qualifying as international climate finance.

Support for sustainable, quality infrastructure

In the context of co-operation with IFIs, the MoF is placing great attention on supporting sustainable, quality infrastructure in all IFIs in which Austria is shareholder. 

Examples of projects in support of environmentally sustainable, low-emissions and climate-resilient transitions 

Austrian support in the energy sector is geared towards contributing to supporting transitions to environmentally sustainable, low-emissions and climate-resilient development pathways.  

• One example in the context of co-operation with IFIs is the MoF’s contribution to the IBRD Climate Support Facility. In this context, and among other objectives, the MoF supports the IBRD in addressing fiscal policy and regulatory reform needs in the countries of the Western Balkan region, with the aim of putting the economy on a more sustainable and resilient growth path, while ensuring social inclusion (“just transition”). 

• The Climaproof project aims to enhance environmental performance and the climate proofing of infrastructure investments in the Western Balkan Region from an EU integration perspective. 

• Poverty Environment Action for the SDGs. 

  Examples from OeEB include: 

• OeEB promotes Sustainable Banking Initiative (oe-eb.at).

• OeEB finances environmental and social risk management trainings for Bangladeshi banks (oe-eb.at).

• Study – Status Quo of the Renewable Energy Sector in Montenegro (oe-eb.at).

• Hydro Information and Planning System (oe-eb.at). 

How are development programmes supporting SIDS to achieve sustainable development?

Responding to the particular needs of SIDS

Examples of projects in support of SIDS’ sustainable development

One example in the context of co-operation with IFIs is the MoF’s support of the Global Environment Facility, which has provided support to Small Island Developing States (SIDS) for 30 years, particularly in the areas of climate change adaptation, climate change mitigation and biodiversity. A second example is the support of the Asian Development Fund, which has a special focus on SIDS and to which Austria is a longstanding contributor.

The Austrian Development Co-operation supports the Pacific and the Caribbean Centers for Renewable Energy and Energy Efficiency (PCREEE and CCREEE) and on specific renewable energy and energy efficiency solutions to SIDS. One specific activity supported was the development of an online capacity building programme on sustainable energy for SIDS.

Supporting SIDS’ access to finance

Both PCREEE and CCREEE have programmes and activities that support their member states in accessing finance and addressing barriers and bottlenecks to the upscaling of proven solutions. A Project Preparation Facility (PPF) has been initiated that addresses the technical barriers impacting the development of sustainable energy projects. The PPF provides member states with project development support through advisory services, technical assistance and project developer-financier matchmaking.