As a new president takes over, the pressure is on to drastically change the Bank and force it to focus on fighting climate change
by Claude Forthomme – Senior Editor
July 19, 2023
The climate problems at the World Bank are a Trump legacy. When he appointed David Malpass, a supporter of his notorious environmental policies, to run the Bank in 2019, everything changed.
Up to that point, the Bank had pursued a climate finance policy “supporting green, resilient and inclusive development”, first with a Climate Change Action Plan (CCAP) covering the 2016-2020 period and delivering $109 billion in climate finance, followed by an updated plan for 2021-2025; and announcing in 2017 that it would stop financing fossil fuels projects after 2019.
With Malpass basically ignoring climate change, all this wasn’t enough and some of it – like stopping fossil fuels investments – did not come to pass.
Yet, despite all this, the World Bank today is still the largest multilateral provider of climate finance, accounting for 56 percent of the total flow from all multilateral development banks. But there is no doubt that its climate policies are below par: while it recently raised its climate finance target to 35% of total commitments (and even claims to have exceeded this target by $ 1 billion in 2022), this compares poorly with the 50% targets of both the Asian Infrastructure Investment Bank and the European Investment Bank.
Worse, the World Bank continues to fund oil and gas projects despite its announcement at the One Planet Summit in 2017 that it would stop doing so after 2019. Between 2016 and 2020, the World Bank Group provided over $12 billion in direct finance for fossil fuel projects in 38 countries:
And the cherry on the cake: Up to 40% of the World Bank’s reported climate-related spending is impossible to account for. According to an Oxfam report “Unaccountable Accounting” published in October 2022, after auditing the Bank’s reported $17.2 billion climate finance FY2020 portfolio, it found that figure to be off by as much as $7 billion.
The Malpass scandal and Banga’s arrival
Things came to a head after David Malpass had repeatedly avoided answering at Climate Week NYC 2022 whether he believed fossil fuels were a primary cause of global warming, finally saying: “I don’t even know. I’m not a scientist.” That statement was too much for the White House and the Bank’s board of governors, and Malpass announced in February 2023 that he would leave a year early to “pursue new challenges”.
On June 2nd this year, US President Biden’s nominee, Ajay Banga began his five-year term as World Bank Group President. An Indian-born American business executive, Banga was vice chairman of the US investment firm General Atlantic, and before that CEO of Mastercard where he famously developed the Mastercard Foundation, which grew from a “startup” with just 3 employees to one of the largest foundations in the world, with current commitments of approximately US$4.4 billion.
In 2020, Ajay Banga launched the Priceless Planet Coalition, a group of about 100 firms that make corporate investments to preserve the environment, and launched Mastercard’s pledge to plant 100 million trees.
With all this, the new bank president appears uniquely equipped to address climate change. But he will surely need all his experience and wits as he is coming to an institution literally under fire. Perhaps among all the critics, the two that made the most waves on social media were Jake Hess and Shauna Aminath.
Hess is a researcher at the World Bank in Washington DC, who published last year a widely-read opinion piece in the Guardian, pointing to “scandals and backdoor support for fossil fuels blight” and overall weakened credibility following a recent attempt at covering-up data manipulation by senior officials.
Aminath is the environment minister for the Maldives, a country famously on the frontline of climate change; she told reporters at the World Bank annual meeting in October 2022, “The World Bank needs a fundamental shift in how this [climate change] is addressed. Finance is not going to the countries that need it most.”
But the last word must go to U.S. Treasury Secretary Janet Yellen. On the one hand, when Banga was appointed, she noted how “His efforts have helped bring 500 million unbanked people into the digital economy, deploy private capital into climate solutions, and expand economic opportunity through the Partnership for Central America.”
On the other hand, at the World Bank Steering Committee in April this year, she clarified her expectations, calling for “the evolution of the World Bank” in response to global challenges such as climate change – though, to be fair, she also mentioned other crises the bank should address, such as future pandemics.
So, no question, the heat is on.
Latest “j’accuse” against the Bank: Moore’s article on Foreign Affairs
A particularly strong “j’accuse” has just landed on the Bank’s doorstep on July 18, with the publication of a devastating article on Foreign Affairs, aptly titled The World Bank Is Failing on Climate Change. This is, of course, not the first time in its long history that the Bank has faced strident criticism: Overtime, it has been accused of many shortcomings, from imposing coercive conditions on its loans to developing countries to failing to institute sufficient environmental safeguards in its projects and properly consult civil society in the countries where it operates.
Authored by Scott M. Moore, Director of China Programs and Strategic Initiatives at the University of Pennsylvania and the author of China’s Next Act: How Sustainability and Technology Are Reshaping China’s Rise and the World’s Future, this latest attack is more than a laundry list of shortcomings. It is also constructive and provides some hefty recommendations on how to shift bank operations and focus on climate challenges.
Coming from a former World Bank insider – Moore previously served the Bank as a Water Resources Management Specialist – one may assume he has a fair knowledge of how the bank is actually run and what it would take to turn it around. So it’s worth examining closely the strategy he suggests.
Moore’s four steps to turn the World Bank into a climate finance behemoth
Moore has called on the Bank to not only mobilize the necessary funds to help developing countries tackle climate change, but to actually “re-invent” itself, implying that this is entirely feasible. That in fact, something like this was done once before in 1968, when Robert Mc Namara took the Bank over, successfully transforming it “from a small, staid organization focused on postwar reconstruction in Europe into the world’s leading institution for international development.”
The challenge, as Moore notes, is enormous: By the Bank’s own numbers, some 130 million people are headed into poverty within a decade because of climate change.
And climate finance needs are unmet: Experts estimate they could hit $500 billion annually by 2050, a scale that “dwarfs the $31.7 billion the Bank raised for climate purposes in 2022”.
For Moore, the World Bank “should not simply do more with more: it must do fewer things better, and that means focusing first and foremost on climate change.” And he adds: “In concrete terms, this means that the bank’s lending for climate finance should be greatly increased as a proportion of its overall activity—it should be closer to 90 percent.”
To do this, he contends, the Bank can be “fixed” in four steps.
1st step: To make “fighting climate change the crux of the bank’s mission” entails “strengthening its partnership with the Green Climate Fund (GCF) and other bodies dedicated to raising climate finance” – this undoubtedly makes sense as they “serve distinct but complementary functions; the GCF aims primarily to mobilize private sector financing, and the World Bank plays a key role in providing public climate financing.”
2nd step: To “devise rigorous protocols to measure and classify investments that are directly related to fighting climate change” – this would be a very important step for the Bank to take, and necessary in light of the Oxfam report findings that the Bank’s reporting on climate investments is inaccurate.
3rd step: To “maximize the amount of funding that can be channeled to climate finance by seeking additional resources from governments and by redeploying the bank’s existing capital” – this too makes sense as a number of serious studies suggest this can be done without endangering the bank’s credit rating.
4th step: This is the most controversial suggestion: that the Bank should move “from project-based interventions to transformational, sector-wide lending” covering “entire regions”.
What Moore is saying here is that the Bank should stop its country-specific lending programs, a model “meant to position the bank to be responsive to each country’s needs” but that has “also often resulted in a piecemeal approach to development”.
Instead, a regional and sector-wide approach, Moore argues, “would identify the most important and far-reaching investments in entire regions rather than individual countries and would aim to transform entire industries, energy systems, and community infrastructure, rather than build individual structures or fund site-specific interventions.” (bolding added)
From my own experience (disclosure, I have worked in the UN system, as an FAO evaluation expert of programmes and projects for 20 years, including addressing institutional issues), such a measure would change operations so radically that it would tear apart the institutional structure of the Bank.
Beyond potentially impairing bank functions, this approach would make the delivery of project outputs and services financed by the bank extremely difficult and risky.
Consider that the bank, in order to launch its projects, would need to dialogue not just with countries (and national governments) but also with regional authorities and organizations (for example AU in Africa, ASEAN in Asia, etc.).
So support from such regional organizations would be required to actually reach the ultimate beneficiaries on the ground, in every country concerned by the project. This inevitably will entail delays and place the World Bank far away from local people and communities. Yet theirfull participation is fundamental because people’s understanding of climate challenges and commitment to the project is key to achieving success. For anyone with doubts about the role citizens play in climate projects, this video is enlightening:
How easy will it be to “fix” the World Bank?
Not easy, because it is also a political issue at the top. As Moore himself admits in his conclusion: “U.S. leadership will be critical in undertaking these reforms. Although the World Bank has always operated as a multilateral institution, the United States, as the bank’s largest shareholder, retains decisive influence in how it operates.”
And not just the United States – also all the countries present on the Bank’s board of governors. But it will be interesting to see how this plays out under Ajay Banga’s guidance. It is sure to be the first hurdle he will need to clear.
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This article was originally published on IMPAKTER. Read the original article.