How can the World Bank improve its Paris alignment methodology?

The World Bank committed in December 2018, along with eight other multilateral development banks (MDBs), to a joint framework for aligning its activities with the goals of the Paris climate agreement. In March 2023, it provided a more detailed description of the criteria for how a project will be assessed for ‘Paris alignment’ for each of its financing instruments. These methodologies are welcome, but there remains much more work to do.

When the World Bank speaks in terms of ‘Paris alignment,’ this is not a colloquial description of its portfolio as ‘climate-friendly.’ To the Bank this means financing will support, or at least not undermine, the implementation of each client country’s nationally determined contribution (NDC). Unfortunately,  NDCs are generally unambitious. NDCs also do not necessarily involve targets to reduce a specific amount of greenhouse gas emissions (GHGs). For example, some NDCs aim to reduce the growth of GHGs compared to business-as-usual growth. Other NDCs may be even more indirect about climate benefit, such as by aiming to lower ‘energy intensity’ - how much energy is associated per unit of economic growth (i.e., Gross Domestic Product) - since much of that energy is created from burning fossil fuels. The Bank may therefore be 100% ’Paris-aligned,’ as it has committed to do beginning in July 2023, while still investing in projects with GHGs. This is made clear by recently published documents that describe the Bank’s so-called Paris alignment methodology. 

These documents show some progress in addressing climate impacts associated with development policy financing (DPFs), where we have advocated for increased transparency. The Bank also speaks of avoiding 'carbon lock-in,' which is vital to address long-term negative impacts from investments even once they are no longer in its portfolio. We are also pleased to see progress in moving forward with other elements of the Bank’s Climate Change Action Plan, including scaling up its climate finance and publishing Country Climate and Development Reports. Since the Bank also made a commitment that 35% of its portfolio will be dedicated to climate finance, Paris alignment will be most relevant for the other 65%. Ultimately, we welcome and take seriously the Bank’s commitment to align 100% of its investments with the climate agreement.

Despite some of the promising new measures contained within these documents, the Bank leaves open big gaps in its climate commitments. The Bank appears to be abdicating its own commitments to reduce GHGs caused by its financing, instead solely relying on each client country’s NDC. Since these documents are the first of more to come, including guidance on sectoral methodologies for aligning Bank investments with Paris, we still see an opportunity for the Bank to demonstrate it will be an MDB climate leader. But this will require methodologies to prioritize investments that are low or no-carbon and boost community resilience. 

Recommendations for the World Bank as it continues to develop its climate policies:

  1. Align with the success of the Paris Agreement, not its failure. The Bank continues to underscore a “core assumption” that “countries have flexibility in defining their own contributions to the overarching goal of the Paris Agreement.” The Bank’s reference to this core assumption appears intended to rationalize NDCs as the ceiling of the Bank’s ambition. However, if Bank climate commitments and practices are bound by what client countries are already willing to do, what is the point of the Bank making any commitments at all? More importantly, by tying up its climate ambition with NDCs, the Bank is positioning itself as a liability for Paris rather than an asset. The most important objective of the Paris Agreement is to avoid global temperature rise above a threshold climate scientists say is necessary to avoid global catastrophe. Aggregate NDCs cannot achieve the overarching objective of the Paris Agreement and thus a focus solely on NDCs means enabling the failure of Paris. For the Bank to align its portfolio with a successful Paris Agreement means focusing less on NDCs and more on the most up-to-date recommendations from the Intergovernmental Panel on Climate Change.
  2. Commit to a more comprehensive list of what is universally non-aligned. In the Bank’s documents, it describes that certain categories of investments will be considered “universally non-aligned” with Paris and will therefore not receive Bank support. However, the Bank’s initial universally non-aligned list is limited to investments in coal and peat, which means it may continue to make other investments not aligned with the overarching objective of Paris. By avoiding an explicit commitment to forgo such investments, the Bank is embracing the option of financial support for every other industrial-scale source of GHG emissions. The Bank should be transparent with a universally non-aligned list that includes all fossil fuels (production and use, whether for electricity or transportation), industrial-scale animal agriculture, and any investments that involve the destruction of massive carbon sinks like primary forests, wetlands and coastal vegetation. The Bank should also expand its no-go zones– places where it won’t finance projects, except for their protection.
  3. Clarify process and procedure for exceptions to commitments, including for each relevant project. The major loophole in current commitments is stated in footnote 6 in the document World Bank Paris Alignment Method for Investment Project Financing, "...even investments that are associated with relatively high GHG emissions may be deemed Paris-aligned if there are no technically feasible and economically viable lower-emission alternatives in the specific country and sector context…." The Bank must be rigorous in incorporating externalities into its alternatives analysis, and it must be context specific, transparent, and integrate broad stakeholder consultation. 
  4. Be more consultative and transparent. The Bank has not provided an opportunity for civil society to provide input into draft documents related to its climate change action plan, which civil society organizations have requested repeatedly – both verbally and in writing. This includes the Bank’s newly published documents on Paris alignment methodology. There is no commitment in the recently published documents for a regular review of methodology, nor of other opportunities for stakeholder engagement. In addition, while these documents reference disclosure of summary conclusions on how projects are Paris-aligned, the Bank should also commit to making underlying documentation behind these summaries available to all stakeholders.

See also:

Refreshing the World Bank Group for Climate Action

Civil Society expectations on Paris alignment for Multilateral Development Banks