Every year, central bankers, ministers of finance and development, business executives, and specialists in public policy gather in Washington, DC, to debate matters of international significance. Discussions and action plans at the IMF and World Bank Spring Meetings in April 2023 centred on financing an energy transition that is fair to emerging nations and proceeds quickly enough to meet the goals of the Paris Agreement. By 2030, $4–6 trillion in investments must be made every year to achieve these two objectives. The amount of current investment is in the billions, which is still insufficient to meet demand. Deep collaboration between the public and private sectors is necessary to close this gap, which is of the order of trillions in size and much more than governments are on course to accomplish. The WEF provides one extreme but insufficient example, stating that even if all multilateral development banks committed all their resources to the green transition, it would only amount to 4% of the capital required. On the contrary, just 1.4% of the estimated $410 trillion in private financial assets worldwide would meet the need for climate finance.[i]
A proposal made for the international lender by U.S. Treasury Secretary Janet Yellen and other leading financial figures has dominated discussions at the bank's annual spring conference. It urges the organisation that fights poverty to drastically widen their strategy and put more emphasis on the climate crisis. Some World Bank advocates claim that the planned reform is doomed if shareholders like the U.S. and EU do not provide appropriate funding, leaving employees forced to choose between focusing on climate change and the bank's core goal of ending poverty. Their proposed reform plan is largely based on pressuring the bank, an organisation with a nearly 80-year history and international operations, to maximise the use of its current assets. At the meetings, Yellen said, "We are responsibly stretching (the bank's) balance sheet to deliver up to an additional $50 billion of lending over the next decade." She has also urged the private sector to make large donations. The World Bank committee came to the conclusion that the bank, which committed $115 billion in financing during the previous fiscal year, primarily for development, must intensify its focus on reducing poverty while also addressing climate change by encouraging the use of renewable energy to reduce the greenhouse emissions brought on by fossil fuels. However, the bank calculated that by 2030, all nations and organisations would need to spend $2.4 trillion per year to address climate requirements in addition to global conflicts and pandemics.[ii]
With the IMF attempting to incorporate climate change into its operations, and the World Bank now reviewing its procedures over the course of a year in preparation for finalising the discussed refocusing of resources towards the climate crisis in the autumn, experts in climate policy are keen to see these organisations significantly boost the amount of money they lend for environmental causes. They anticipate that through increasing loans, private sector investment will be "blended" in, releasing trillions of dollars for climate projects in poor economies. To put it another way, global financial organisations would create a financing plan for sustainable energy initiatives that combines public and private funding. These investments would be structured with terms that put greater risk in the hands of foreign financial institutions to appeal to the private sector. The World Bank, for instance, might consent to accept the project's first loss. According to a report from the blended finance network Convergence, on average, $1 in public funding can result in $4 in private-sector investment.[iii]
Leaders from several nations most severely impacted by climate change expressed dissatisfaction with affluent nations during the spring meetings because these governments refused to either increase their own financial contributions or drastically alter the lending criteria for funds already available. When Barbados' Prime Minister Mia Mottley felt that discussions suggested that "people are not ready" or "people want to kick the ball down the road,” she said, "I get really enraged,". She spoke at sessions organised by the non-profit Rockefeller Foundation in conjunction with the World Bank meetings, where Mottley and some African leaders described the rising human and financial costs of natural disasters that are becoming more frequent as the climate warms. These included a record-breaking tropical storm that sat over southern Africa for days last month, killing hundreds, as well as the tens of thousands of deaths from years of unsuccessful rains in the Horn of Africa.[iv]
Before receiving a capital increase, the bank's focus on reducing the risk of private sector investment possibilities, according to Jon Sward of the Bretton Woods Project advocacy organisation, should be modified. He said that the new direction could undermine objectives “by creating a perverse incentive for the [World Bank] to invest in projects that produce large revenue returns as opposed to ones that are most needed to achieve development and climate goals”.[v]
"Given the World Bank's failure to deliver on the pandemic, debt, or climate under [outgoing president] David Malpass's leadership, it's understandable that countries are leery about giving the institution more money," Joe Thwaites, climate finance campaigner at the National Resources Defence Council, said.
He continued that the World Bank must demonstrate its legitimacy by "getting serious about reform and putting its existing capital to the best use," while other multilateral development banks and specialised trust funds "look more responsive to developing country needs."[vi]
[i] WEF- How global leaders can kickstart green investment at the World Bank Spring Meetings
[ii] Politico- The climate change debate dividing the World Bank
[iii] TIME- The World Bank and IMF Want to Rethink Climate Finance
[iv] AP News- slow start on World Bank reform angers climate-hit countries
[v] Climate Home News- Developing countries call for new government funds for World Bank
[vi] Ibid
Oscar is a recent graduate with a background in earth science. He is currently studying an MSc focussing on disaster responses, emergency planning and community resilience. His postgraduate research project will assess the link between climate crisis risk perception and attitudes to green energy projects. “Adapting to the climate crisis through the pursuit of net zero requires community engagement and understanding. Zero Carbon Academy’s goals closely align with this approach and I’m excited to have the opportunity to research and communicate a variety of topics relating to our environment and sustainability”.
