The multilateral development banks (MDBs) - a key source of finance for developing countries - have considerably reduced investment in the renewable energy sector, adversely impacting the global fight against climate change, said a report released on Monday.  

More than 500 million U.S. dollars' worth of financing was reduced for solar, wind and related projects between 2017 and 2018. The investment came down from 9.20 to 8.65 billion U.S. dollars, utilizing only 29 percent of the climate mitigation budget. 

Previously, banks used nearly 33 percent of the budget to boost renewable energy production, a report by Christian Aid and the Big Shift Global campaign revealed. 

These banks provide loans and grants to countries for building large infrastructure projects, which include funds for highways, power plants, port facilities, and dams. They also fund social projects to boost healthcare and education initiatives. 

"It is absurd that the very banks which exist to tackle poverty are fueling the climate crisis by funding fossil fuels and actually cutting the amount they invest in renewables," said Dr. Kat Kramer, author of the report. 

Globally, efforts are being made to phase out fossil fuel - coal, oil, natural gas - in order to reduce the emissions of heat-trapping greenhouse gases responsible for global warming. Under the Paris Agreement 2015, a consensus was made to switch over to renewable energy, including solar, wind, geothermal and hydropower, to generate power for energy guzzlers like industries, buildings and the transportation sector. 

Last year, the MDBs agreed to align their operations with the Paris Agreement. They also announced support to achieve the United Nations Sustainable Development Goals (SDG) and the Sustainable Energy for All objectives. But there is a clear gap between these ambitions and the policies and financing strategy adopted by the MDBs, the report said. 

"Rather than cutting renewables funding we need to see development banks ramping it up, otherwise it's questionable if they are fit for the purpose," Kramer added. 

'Litmus test for European Investment Bank'

The report comes close on the heels of the European Investment Bank (EIB) top officials meeting on Tuesday to stop funding fossil fuel projects from next year.

"I think this is going to be the litmus test," Green EU lawmaker Bas Eckhout told Reuters. "For a climate-neutral economy by 2050, you need to make sure your energy infrastructure is zero-carbon."

The report ranks EIB last on the list of MDBs on phasing out fossil fuels. But, it would jump to the top, if it announces to cease funds to fossil fuel-related projects, the report said. 

However, concerns have also been raised over the inability of the Asian Infrastructure Investment Bank (AIIB) and the Asian Development Bank (ADB) to stop investment in coal. In contrast, the World Bank withdrew from its last coal-fired power plant in its portfolio in Kosovo in October 2018, setting the standard for no further coal investment.

Surprisingly, the best performer is the African Development Bank on the front of energy access. The bank has set quantitative on- and off-grid targets. It's the only bank that tracks household access to clean cooking.

The report also raises grave concerns over banks' heavily investing in gas-related projects. The Intergovernmental Panel on Climate Change (IPCC) also found that such reliance on gas and fired plants would be a deterrent in limiting global temperature rise to 1.5 degrees Celsius.

"Gas should not be seen as a bridging fuel to a decarbonized future. Investing millions in gas infrastructure will mean we have outdated and polluting technology decades from now when we need to be ridding ourselves of fossil fuels," Kramer added.