Why is climate change central to the World Bank's mission and how should it respond?

In its rapid response to COVID-19, the World Bank has shown that it recognizes how this health crisis impacts its goals of reducing poverty and boosting prosperity. We look at how the climate crisis intersects with these goals and how it can use its climate response to achieve them.

The World Bank has clearly defined its mission as achieving two critical goals: ending extreme poverty and boosting shared prosperity. Climate change poses a threat to achieving both of these goals, or as the Bank itself calls it, represents “a threat multiplier, with the potential to push millions into poverty in the coming years and undo hard-won development gains.” The Bank must take effective climate actions to address these intersecting threats.

Climate change causes poverty, while climate action reduces poverty. The World Bank has shown that the negative impacts of climate change are more likely to hit those already poor, and to harm them in multiple ways, including through losses to household budgets, food access, and assets (housing, usable land). These losses increase the risk of conflict, hunger, and poverty itself. The Bank also noted that climate change will intensify in coming years, further threatening efforts at poverty reduction. In sum, if the world doesn’t address climate change, it cannot end extreme poverty. However, programs that expand resilience to climate impacts — a leading source of economic shocks — help people sustain and improve their livelihoods. Additionally, programs to reduce carbon intensity and promote green growth can boost economic performance, by up to $26 trillion in global benefits to 2030. In Indonesia, meeting its GHG emissions reduction target of 43% by 2030 will increase GDP while reducing extreme poverty and deaths.

Climate action is at the core of sustainability. Sustainable Development Goal 13 calls for urgent action to combat climate change and its impacts, which, as the UN notes, is intrinsically linked to all 16 of the other goals. Climate change “is disrupting national economies and affecting lives, costing people, communities and countries dearly today and even more tomorrow….[but] affordable, scalable solutions are now available to enable countries to leapfrog to cleaner, more resilient economies.” Climate action is not only an environmental cause: done effectively, it offers an intersectional path for addressing poverty, inequality, and vulnerability all at the same time. 

The good news for the World Bank is that fighting climate change is not a distraction from its core mission, it is rather an essential part of its core mission. Failure to address climate change can lead to failure in the Bank’s poverty-fighting mission: inaction is especially costly to developing countries. Moreover, given that climate change is global, and requires global solutions, the World Bank is well-placed to play a leading role in this effort. Thus, in the wake of the pandemic, “Actions towards economic recovery should... create more sustainable economies that mitigate rather than drive the climate crisis. They should also address poverty and inequality, respect human rights and reduce our vulnerability to future pandemics.” Here are six proposed steps the Bank can take to make its COVID-19 response genuinely sustainable: 

1. Start upstream. To mitigate rather than contribute to the climate crisis, the Bank needs to start with its own overall goals, to become 100 percent aligned with the Paris climate agreement. This alignment needs to be translated through to the country level, by supporting Paris-aligned Nationally Determined Contributions (NDCs) among its client countries, and by supporting those not yet aligned to become so, as the Bank itself has acknowledged. The NDC framework enables countries to address climate impacts most important in the national context, including helping the most vulnerable. This alignment should also be reflected in the Bank’s Country Partnership Frameworks and in its sector strategies, starting with a new energy strategy to replace its current outdated one from 2013.

2. Mainstream, using metrics and checklists. The Bank can achieve its goals more effectively through standardized processes that ensure every project fights both poverty and climate change. One example is the “sustainability checklist” it designed in April to help guide design of post-COVID-19 recovery projects. This is a good start — provided it is broadly applied, and complemented both by relevant inputs from stakeholders and an exclusion list or policy such as EIB’s that excludes lending for fossil fuels, applied both to projects and budget support. Another key is to integrate climate metrics (measures of carbon intensity/energy efficiency or GHG sequestration, and of resilience). These will promote a “default” in project design that is low carbon and resilient, rather than applied only to “climate” projects.

3. Support progressive carbon pricing. If there is a single policy that can transform national economies to meet climate goals, it is making climate polluters pay, either through an upstream tax on fossil fuels, or a cap with auctioned permits. Some fear that this will harm energy access, but this can be easily remedied by rebates to consumers (“carbon dividends”) to confirm that poorer consumers get more than they pay in increased energy prices. The Bank is already doing good work through several carbon pricing initiatives; this should be mainstreamed, so it is applied in all countries where it works, and with greater emphasis on progressivity.      

4. Focus on the poor and vulnerable. If the goal is to help the poor and vulnerable, and climate change is most impacting the poor and vulnerable, then climate programs must target the poor and vulnerable. For Bank economists, this means recognizing that poverty itself can be the binding constraint on development, so cash transfers to the poor (funded by eliminating fossil fuel subsidies, or raising fuel taxes) can be an effective solution. For the Bank climate team, this means prioritizing efforts based on global maps of vulnerability.

5. Engage and empower stakeholders. Stakeholder engagement is a bedrock of effective development programs, and this applies to climate as well. Stakeholder engagement in climate programs should include using locally led approaches to promote solutions that respond to local needs, and applying more flexible processes such as the Bank’s Small Recipient–Executed Grants Funding Guidelines, so funding can flow more easily to local governments, NGOs, and communities. 

6. Build synergies. A final element is to recognize, and act on, the intersectionality of climate change and other challenges, such as recovery from the economic impacts of Covid-19. Building back better must avoid maladaptation and maximize co-benefits. Programs that provide improved cookstoves and training in their maintenance can improve health, empower women, and reduce deforestation all at the same time. Nature-based solutions to climate change that improve the tenure security of Indigenous Peoples and other forest-dependent communities can mitigate climate change, conserve biodiversity, and promote human rights. 

The Bank’s best path to achieve its twin goals is through rights-based approaches that recognize and act at the intersection of poverty and climate change.

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