How can the World Bank align its portfolio with the Paris Climate Agreement?

Aligning the World Bank’s portfolio with the Paris Agreement on climate must be demonstrated with measurable targets and timelines for reducing its climate footprint.

The Bank has acknowledged that as the impacts from climate change increase, so will the difficulty and cost of eradicating poverty. Without addressing the climate crisis, the Bank will be unable to achieve its twin goals of eradicating extreme poverty and boosting shared prosperity. With its second Climate Change Action Plan (CCAP), released in 2021, the World Bank announced that it will align its entire portfolio with the aims of the Paris Climate Agreement. Unfortunately, the commitments laid out in the CCAP are far from adequate.

During the annual meetings, civil society organizations shared a robust set of actions the Bank should take to demonstrate it is serious about helping to tackle the climate crisis. These can be organized around three themes:

  1. Define Paris alignment as appropriate for an MDB.

    Commit to sustainable development in every country context. In the CCAP the Bank notes that “peaking of GHG emissions will take longer for developing countries,” and refers to the international legal principle of ‘common but differentiated responsibilities and respective capabilities (CBDR).’ However, CBDR does not justify the World Bank doing less on climate. Quite the opposite, because of its responsibility and capability, the World Bank is obligated to facilitate GHG peaking sooner. The Bank’s obligation to help client countries develop sustainably and adapt to the climate crisis existed before Paris was signed.

    Go beyond NDCs. In the CCAP and other communications, the Bank describes Paris alignment as if it were mainly a matter of supporting individual country commitments, specifically nationally determined commitments (NDCs) and long term strategies (LTSs). However, aggregate NDCs and LTSs are not aligned with the aim of Paris to keep global warming below 1.5 degrees Celsius. The Bank must have its own institutional climate commitments, such as those described below. The Bank’s climate commitments should be both ambitious and focused on the overall purpose of the Paris agreement.

  2. Be explicit and thorough in the commitment to end investments in fossil fuels.

    Include transportation. The CCAP included no specific commitments to decarbonize transport-related investments, although the Bank has emphasized the importance of tackling this sector as it represents nearly a quarter of human-caused CO2 from energy use. BIC research found that only 1% of World Bank financing in the transport sector involved support for zero emissions vehicles (ZEVs).

    Include all lending instruments. The Bank’s stated commitments do not appear to apply to Development Policy Finance (DPF), or budget support. In recent years, DPFs comprise nearly a third of the Bank’s public sector portfolio, with gross disbursements on par with investment project financing for middle-income countries. Much of the Bank’s recent fossil fuel investments have been DPFs, illustrated in part by civil society organizations’ (CSO) research on Bank financing showing billions of dollars supporting coal between 2013 and 2020 and fossil fuels generally since 2015. The Bank needs to explicitly clarify how it intends to align DPF with Paris.

    Clarify policy exceptions and procedures for demonstrating there are no viable alternatives to low-emissions investments. The Bank states that fossil gas investments may be entertained as long as they do not undermine NDCs, but as stated above, NDCs cannot be a guidepost for strong climate policy. The Bank should be pioneering investments in renewable energy and zero-emissions transportation. By policy, the Bank should not invest in stationary or mobile fossil projects, and should be clear and transparent about how decisions are made around any exceptions.

  3. Announce and implement specific targets for mitigation and adaptation.

    Commit to metrics that demonstrate the impacts of investments.  In the CCAP, the Bank discusses essential actions for the five sectors responsible for 90% of global emissions: energy; agriculture, food, water, and land; transportation; cities; and manufacturing. The Bank should commit to timelines and targets on climate mitigation and adaptation in order to demonstrate progress on each of these sectors. In order for accurate readings by outside observers, however, the Bank can be more transparent about its internal metrics. This way, the Bank can display its own capacity to incentivize adequate climate commitments not expressly tied to NDCs.

    Establish regional climate benchmarks that aim higher than the NDCs. For example, climate-friendly development in the energy, heating, and transportation sector requires a regional, national, and global approach to supporting electric grid stability, energy access, and electric vehicle infrastructure. The Bank already discusses regional approaches to climate solutions, for example in the Sahel, which may not be effectively defined and implemented country by country. It should propose goals and timelines for achieving these solutions.

    Report annually on portfolio-wide GHG footprint, and commit to GHG neutrality by 2025 or sooner. The Bank says in the CCAP that it will disclose GHGs associated with its portfolio, something the Inter-American Development Bank does already, but this disclosure will be limited. The most troubling caveat is that GHGs will only be measured and disclosed “where Bank methodologies exist.” It is incumbent on the Bank to actually develop such methodologies or draw them from others’ best practice.

We will be able to see that the Bank is making progress on Paris alignment when it commits to targets and timelines. The Bank must prioritize shifting its investment portfolio in order to achieve the Paris goal of keeping global warming below 1.5 degrees Celsius. World Bank leadership has stated time and again the critical importance of the 1.5 degree target in meeting its twin goals. It is long past time for the Bank to do the hard work of fully decarbonizing its portfolio across all sectors and lending modalities.