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Will Climate Finance Mean a New Path for the World Bank?

The World Bank must systematically address issues of environmental and social sustainability in its mainstream investments.

This post originally appeared on the World Bank blog "Development in a Changing Climate."

In Copenhagen, donor countries pledged to raise US$30 billion in “fast start funds” and an additional US$100 billion a year by 2020 to invest in reducing emissions and adapting to the impacts of climate change. Though the commitments are clear, the delivery is uncertain. By the June UNFCCC meetings in Bonn, countries will need to start drafting a set of decisions on the financial architecture to manage and distribute these climate funds.

By embarking on several climate change initiatives, including an assessment of progress in implementing the Strategic Framework on Development and Climate Change (SFDCC) and the revision of its Energy Strategy, the World Bank has positioned itself to play a role in the management of new climate funds. The Bank already hosts several climate related trust funds, including the Climate Investment Funds. It is the trustee of the Global Environment Facility (GEF), and its largest implementing agency. The question is whether the Bank should be entrusted with an even larger role in the future of climate finance. If it is going to gain the political support necessary to make this happen, the World Bank must systematically address issues of environmental and social sustainability in its mainstream investments.

Poverty Eradication and Low Carbon Development

The Bank must overcome the mindset that there are inevitable tradeoffs between addressing climate change and facilitating pro-poor development. In fact, the best route to poverty eradication is low carbon development.

The main challenge for the Bank will be to respond to the needs of developing countries while still promoting scalable investments in low carbon development. In order to do this, the Bank must overcome the mindset that there are inevitable tradeoffs between addressing climate change (and other environmental challenges) and facilitating pro-poor development. In fact, the best route to poverty eradication is low carbon development. Fortunately, there are numerous project and policy interventions that provide synergies between the low-carbon and the development agendas. Helping countries capture those synergies should be the guiding principle of the Bank’s climate work and its future energy sector strategy.

The ongoing energy strategy review offers the Bank a major opportunity to demonstrate leadership and a commitment to change. In 2008, WRI research showed that 60% of financing for the energy sector did not take climate change into account. Also, in 2010 the World Resources Institute released another survey that shows only a limited number of World Bank and other MDB (electricity sector only) loans consistently support sustainable energy investments in developing countries. The Bank now says that 60% of its country assistance strategies consider climate change. Does this signal real change?

A Greater Voice for Developing Countries?

The second challenge will be for the World Bank to embrace changes in its governance structures and procedures in order to give a greater voice to developing countries. This should be done in a manner that ensures efficiency, effectiveness and accountability, but more importantly result in better environment and development outcomes. The key principles to guide the Bank should be:

  • Recognition of common but differentiated responsibilities between countries, taking into account national circumstances and the needs of those who are most vulnerable.
  • Country ownership of plans that are rooted in development objectives. These plans should be developed with the participation of civil society and non-state actors.
  • Provision of incremental financing and technology and financial support to help developing countries leapfrog into low carbon or zero carbon trajectories.

The ability to balance climate change and sustainability objectives with poverty and development objectives is no mean feat. With greater power comes responsibility and developing countries need to demonstrate equal support to climate-friendly approaches. Several are already starting to do a significant part of their share in addressing climate change and are in fact willing to cover part of the costs. A new approach is perhaps overdue in that we explore more ways of “blending” various forms of financing, such as multilateral, bilateral, private, and trust fund monies, in order to help meet the incremental financing required for countries to transition towards low carbon development.

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