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| Paris alignment | Reasoning |
|---|---|
| Some progress | The ADB excludes direct investment in new coal, as well as activities that might extend the lifetime of existing assets. The Bank is also actively promoting the early retirement of coal plants through the Energy Transition Mechanism. Upstream oil and gas are both fully excluded. However, downstream oil and both mid- and downstream gas projects are permitted to be supported, albeit in a “selective” manner and subject to restrictive conditions intended to verify the viability of renewable alternatives and avoid risks of carbon lock-in. The ADB screens all supply-side energy efficiency projects for the risk of contributing to lock-in of emissive stranded assets as part of applying the Joint MDB Paris Alignment Methodology. However, there is no evidence of any specific dedicated standards or exclusions on supply-side fossil energy efficiency projects. |
| Alignment and reasoning | |
| Coal policies | The ADB excludes direct investment in all new coal mining or coal-fired heat or power generation and associated facilities, as well as in activities that might extend the lifetime of existing assets. The Bank is also actively promoting the early retirement of coal plants through the Energy Transition Mechanism, which finances projects to retire coal power assets. However, a civil society investigation has revealed that the Bank continues to fund coal indirectly through its loans to financial intermediaries. |
| Upstream oil and gas policies | The ADB excludes all upstream oil and gas exploration and development projects. |
| Downstream oil and gas policies | The ADB excludes midstream oil activities but provides selective support for downstream activities in isolated, remote, or fragile contexts where renewable alternatives are not considered viable. Mid- and downstream gas activities can be financed under restrictive conditions, requiring consideration of renewable alternatives and being subject to stringent Paris alignment criteria to prevent carbon lock-in. |
| Supply-side energy efficiency | As part of applying the Joint MDB Paris Alignment Methodology, the ADB screens all projects for the risk of contributing to lock-in of emissive stranded assets. However, there is no evidence of any specific dedicated standards or exclusions on supply-side fossil energy efficiency projects. |
Coal
The ADB’s 2021 Energy policy confirms that it will not finance “new coal-based capacity for power and heat”. This exclusion covers coal mining, processing, storage, and transportation. Furthermore, the ADB will not make investments to “modernise, upgrade, or renovate coal facilities that will extend the life of existing coal-fired power and heating capacity”. Beyond this, the ADB commits to proactively “support the early retirement and decommissioning of coal resources”.
To that effect, at COP26 the ADB launched the Energy Transition Mechanism, a pioneering initiative aimed at supporting the early retirement of coal and other fossil fuel assets in Asia and the Pacific.[1] During COP28, the ADB announced its first deal under the ETM, in which Indonesia and the Bank have agreed a provisional deal to shut down a coal-fired plant seven years earlier than planned.
Despite the Bank’s pledge to exclude coal from its investment pipeline, a recent investigation by civil society organisations has revealed that the ADB has continued to support the construction of new coal power plants indirectly. Specifically, a loan provided to Indonesia’s state power company (PLN) to develop their business plan has no clause which prohibits the company from utilising the ADB’s financial support for new coal projects. Currently, PLN is planning a dozen new coal projects, including one of the biggest coal-fired plants in Southeast Asia. This calls into question the strength of the ADB’s coal exclusions in practice, given the evident scope for indirect support going towards coal projects.
Oil and gas
The 2021 Energy policy explicitly excludes all support to upstream or midstream oil projects, including oil exploration, drilling, or extraction activities. However, the policy states the ADB may support limited downstream projects. Specifically, the ADB may support projects involving petroleum-based systems only if (1) renewable alternatives are not considered viable; or (2) for isolated grids, remote areas, and in fragile situations where configurations without fossil fuel components are not viable.[2] In such cases, the ADB will also ensure a clear plan is in place to reduce fossil fuel dependence over time. The Bank will also continue providing guarantees and loans for oil-related trade finance in select cases until a coordinated multilateral approach aligned with the Paris Agreement is established.
The ADB similarly rules out support for any upstream gas exploration and drilling activities. However, it states that it will be “selective” in its support for midstream and downstream gas facilities, referring to gas as a “transition fuel”. Support for gas will be permitted if it meets the following conditions:
- No “other” low-carbon or zero-carbon technology is available to provide the same service at a comparable scale and cost.
- The project’s operating lifetime is consistent with the aim to achieve carbon neutrality by “about 2050”, and by a national time horizon set by DMCs that is consistent with their NDCs.
- The project also avoids long-term lock-in of carbon infrastructure and the associated risk of creating stranded assets.
- The project is economically viable considering the social cost of carbon.
Additionally, in setting out the safeguards for gas power generation projects, the energy policy states that this “will be conditional on evidence that the project employs high-efficiency and internationally best available technologies, reduces emissions by directly displacing other fossil fuel-based thermal power capacity, or results in a lower grid emission factor estimated as an average over its operational life”.
Research shows that current country mitigation ambition for 2030 targets (e.g. NDCs) are not in line with the level of action required to limit warming to 1.5 °C. As such, using national targets (e.g. NDCs) as a reference point for a given project’s alignment with the goals of the Paris Agreement can be misleading. Science-based 1.5 °C scenarios (e.g. the IEA Net-Zero scenario) can provide a more reliable trajectory for carbon neutrality by 2050 against which to assess project consistency.
Supply-side energy efficiency
According to the ADB’s Energy Policy, the Bank will promote increased supply-side efficiency, including both in generation and in transmission and distribution (T&D) networks, acknowledging that T&D losses and inefficiencies are a persistent problem among Developing Member Countries (DMCs). As part of applying the Joint MDB Paris Alignment Methodology, the ADB screens all projects for the risk of contributing to lock-in of emissive stranded assets. However, despite its recent update to the Energy Policy, there is no evidence of any dedicated standards or exclusions governing specifically supply-side fossil energy efficiency investments.
Recommendations:
- The ADB should strengthen its Energy Policy by incorporating explicit criteria for assessing and mitigating potential risks pertaining to locking in emissive infrastructure as a result of supply-side energy efficiency improvements to energy infrastructure. In particular, this should include strict dedicated safeguards relating to supply-side efficiency improvements to fossil fuel infrastructure, to ensure these contribute to shortening the lifetime of these assets rather than extending it.
- The ADB should strengthen its exclusion of coal financing to explicitly cover both direct and indirect financing. This would ensure that the Bank does not continue to risk indirectly financing projects misaligned with its climate goals and prevent perverse incentives relating to indirect fossil fuel financing. Practically, this could be implemented by explicitly prohibiting the use of ADB funds for coal-related projects in loan agreements with financial intermediaries.
- Given an already limited degree of investment in fossil fuels and stringent criteria for the limited mid- and downstream exceptions permitted, the ADB should consider establishing a timeline towards a full fossil fuel exclusion. As part of this, the Bank should consider joining leading peer institutions in the Clean Energy Transition Partnership, launched at COP26.
[1] See the “Promotion of green finance” and “Institutional leadership” metrics for further coverage of this leading initiative.
[2] Viability can be determined on economic, financial, and/or technical grounds.
Last Update: April 2025