In July, an independent report commissioned by the G20 put forward recommendations for how the MDBs can augment their lending to address multiple crises while maintaining credit quality. The specific focus on climate was reinforced in the Sharm el-Sheikh Implementation Plan from COP 27. The Plan encourages MDBs to “...[deploy] a full suite of instruments, from grants to guarantees and non-debt instruments, taking into account debt burdens… with a view to substantially increasing climate finance.”
Additionally, in September, Barbados hosted a conference on climate finance where Prime Minister Mia Mottley laid out the so-called Bridgetown Agenda for Reform of the Global Financial Architecture. Implementing the G20 report’s recommendations are one piece of Bridgetown, a laudable proposal to radically scale up the quantity of climate finance from all sources.
In October, several World Bank shareholders, including the US and Germany, called on the Bank to produce a roadmap by the end of the year on how it can evolve, referring again to the G20 report’s recommendations. During COP27, Bank president Malpass directed management to respond to this call from shareholders, which was followed by a proposal from management to the Board in December 2022. In this proposal, the Bank proposes evolving the Bank’s mission and vision to address global challenges, adapting the Bank’s operating model to integrate these challenges and increase client demand, and expanding the Bank’s financial capacity through “balance sheet optimization.” Since December, the Bank has facilitated workshops with executive directors to hone the details of these “building blocks.” In addition, the Bank has said it will include “a consultative process” regarding its mission and vision with external stakeholders like civil society organizations, and it has subsequently released a consultations outreach plan.
In advance of the Spring meetings, the Bank released the document entitled “Evolution of the World Bank Group - a Report to Governors,” for discussion at the Development Committee meeting on April 12th. In this document, the Bank outlines what has been agreed with WBG Executive Directors, as well as proposed items for further development. Most of the measures aim to increase the amount of financing available to Bank clients. For example, the Bank will reduce the minimum equity-to-loan ratio for middle-income country lending from 20% to 19%, which is expected to free up about $4 billion annually in additional financing. The Bank will increase the limit for shareholder guarantees and is proposing to remove the statutory limit on individual country borrowing. Bank management is proposing few measures to improve the quality of its financing, other than what better analysis might help, for example by improving country diagnostics. It is not apparent that any measures would result in better investing in climate mitigation and resilience, even if such measures would be in keeping with the Bank's proposal to enhance its mission statement. We would be pleased if the Bank were to add the underlined phrase to its mission as management has proposed: to end extreme poverty and boost shared prosperity by fostering sustainable, resilient, and inclusive development.
Although there is a lot of detail to come, and the Bank sees the discussion continuing until the annual meetings in October, it is possible to provide fundamental recommendations based on what we have seen and heard up until now. The Bank has provided a consultation portal where stakeholders can provide input through July 31, 2023.
Recommendations for the WBG evolution roadmap, content and next steps:
- Prioritize transparency and accountability. The Bank should provide specific opportunities for stakeholders and project-affected communities to contribute to discussions and plans around how the Bank will evolve at institutional, country and project level. New and expanded climate investments are more likely to be effective if they are developed in partnership with communities. To this end, the G20 report recommended, “[c]reate an enabling environment for reform through greater transparency and information, [m]ore accessible and comparable data and analysis.” As the Bank’s portfolio grows and changes, greater transparency, including clear metrics for both local and global benefits, will help to protect communities from unintended impacts. So too will compliance with existing safeguard policies and development of new measures that address evolving risks.
- Detail how any evolution process will be aligned with Paris. The evolution roadmap should be a way forward for radically augmenting climate finance. Bank discussions of its evolution and Paris alignment should not be happening in silos, so it is surprising and concerning that the two Bank documents released until now make little mention of aligning with Paris, and do not address specifics for how its climate change action plan will evolve. The Bank cannot reconcile the adequacy of climate finance without clarifying how the impact of its finance will be measured and demonstrated with targets and timelines - in particular by gigatons of greenhouse gas emissions reduced (mitigation co-benefits) and resource-loss from climate impacts prevented (adaptation co-benefits).
- Reorient private sector lending. The Bank should employ its private sector finance (from both IFC and MIGA) to move away from existing industrial, carbon-emitting models and toward investments to demonstrate the viability of, and to scale up, low- or no-carbon production methods. Rather than underwriting business as usual investments, public financing should assist in incubating climate-smart technologies and growing markets reliant on those technologies. For example, IFC and MIGA should reorient support away from industrial animal agriculture and fossil fuels and toward sustainable agriculture, renewable energy, and electric vehicle infrastructure.
See also:
How Can the World Bank Improve its Paris alignment methodology?