Last year, in response to calls from shareholders, the World Bank communicated that it would evolve to become “fit-for-purpose to respond to the most pressing needs of people and the planet.” The Bank seeks to deliver “impact at scale for client countries.” President Ajay Banga has spearheaded an overhaul of how the Bank reports out the impact it delivers through the corporate scorecard to focus less on spending and more on “outcomes and evidence.” This is all welcome considering that MDBs are the largest source of climate finance whereas the effectiveness of Bank spending on reducing global climate pollution has never been clear.
Reducing climate pollution is an accounting exercise. For that accounting to be credible, the method for measuring greenhouse emissions must be transparent and rigorous - qualities ultimately missing from the 2015 “International Financial Institution Framework for a Harmonised Approach to Greenhouse Gas Accounting.” The framework lacks important details, such as how to account for Greenhouse gas (GHG) emissions that would occur after exiting an investment. It is a four page document in which fundamental components of accounting transparency are merely suggestions. For instance, IFIs “may choose” to report on “baselines, absolute emissions, portfolio-wide relative emissions, lifetime GHG emissions.” The World Bank, up until this point, reports none of this.
In the old corporate scorecard, the Bank reports ‘net greenhouse gas emissions reductions’ which is the average impact of IFC, MIGA, and IBRD/IDA investments. Disclosure of background analysis would greatly improve the usefulness of this indicator, most importantly because it is ‘net,’ not absolute reductions. There are myriad reasons absolute GHGs could have increased. For example, augmenting carbon sinks or purchasing carbon credits may ‘offset’ additional GHGs. Second, the indicator implies reductions from a certain baseline level of GHGs. As the corporate scorecard notes, mitigation is a reduction from “the emissions of a baseline (counterfactual) scenario.”
Mitigation baselines lose their usefulness when they are unclear or fickle. The disappointing results of the 2009 climate negotiations are a cautionary tale that involves shifting baselines and trust. Ahead of COP15 in Copenhagen, countries agreed and planned to announce 2020 targets for GHG reductions. These targets were supposed to be wrapped into a legally binding agreement that included climate finance commitments, but the agreement ultimately did not happen at COP15. One reason is that many countries lost faith in other negotiators. Until 2009, every country with GHG reduction targets was using the same baseline - emissions in 1990. However, prior to the COP, the United States decided to change its baseline to 2005, with little acknowledgement of the significant rise in US pollution between 1990 and 2005 that the new US accounting seemed to zero out on paper. It also made it more difficult to assess the comparability of efforts, and now that the largest historical emitter changed its baseline, universal baselines no longer seemed to matter. Even a previous year’s emissions as a baseline became optional. Some countries announced ‘greenhouse gas intensity’ targets or reductions from ‘business as usual,’ in which the baseline is typical levels of GHGs associated with a unit of economic growth. China’s 2020 target, for example, was to reduce CO2 emissions by 40-45% per unit of GDP based on 2005 levels.
The Bank’s ‘counterfactual’ baselines are similar to GHG intensity-based mitigation, where the line between innovative GHG reductions and tricky accounting is easily blurred. GHG intensity targets are not useless, but the complexity and numerous caveats makes transparency all the more necessary in order for them to be credible. Unfortunately, the Bank does not disclose its analyses behind climate counterfactuals and has not demonstrated the greatest rigor or transparency in measuring the GHG footprint of its investments.
As donor country governments are putting pressure on the Bank to do more on climate, its mitigation achievements remain uncertain. This could be reconciled with greater transparency to show that Bank GHG accounting is sufficiently rigorous. If the Bank and other MDBs are going to report spending more on climate finance than any other public source, they must demonstrate leadership and do much more than the bare minimum on GHG accounting and reporting. To prove this, all MDBs must:
- Announce and demonstrate full compliance with even the optional aspects of GHG accounting and reporting in the International Financial Institution (IFI) Framework for a Harmonised Approach to Greenhouse Gas Accounting and other internationally agreed GHG accounting standards for IFIs.
- Close accountability gaps in the IFI framework by:
- Announcing a mitigation target for portfolios and reporting annually on progress, such as in the corporate scorecard.
- Incorporating greater realism and urgency into accounting and reporting, such as by incorporating the full short-term warming effect of non-CO2 GHGs like methane into impact analysis. Diluting the warming effect over a 100-year time horizon is irresponsible given mitigation targets of 2050 and earlier.
- Disaggregating GHG reductions from augmentation of carbon sinks, particularly given that climate impacts are expected to include more loss of carbon sinks.
- Fully disclosing project-level GHG accounting, including publication of all analyses used to assess mitigation, including counterfactuals as well as in alternatives assessments under the Paris alignment methodology.
- Reporting annually on absolute GHG reductions for each investment with mitigation co-benefits. Incorporate the full life cycle of GHGs associated with investments, even after exiting those investments.