Green Lending or Banking as Usual?

Photo credit: Flickr user arvidbr

Emergency spending for developing countries provides an opportunity to deliver green investments.

Last Saturday, the World Bank group announced tens of billions of dollars in emergency funding for developing countries struggling with the economic crisis.

More than US $55 billion will be mobilized over the next three years for infrastructure projects worldwide, with a particular focus on Africa. Of this total, $45 billion will be lending by the World Bank through its new Infrastructure Recovery and Assets platform (INFRA), and $10 billion by the International Financial Corporation (IFC) through its new Infrastructure Crisis Facility (ICF).

According to the Bank, “the INFRA platform and the ICF will have particular focus on green investments and will support governments that want to use infrastructure investments to advance the green agenda and not lose the momentum on environmental achievements in developing countries.” However, this statement does not elaborate on the kinds of infrastructure projects that would qualify.

While the inclusion of green investments to INFRA and ICF is an improvement from previous World Bank infrastructure policies, it is essential that these investments advance low carbon development. In the past, these efforts have fallen short of initial ambition, resulting in minimal improvements over business as usual. The bank should use this significant opportunity to support low carbon, clean energy infrastructure and clean development projects rather then taking a “banking as usual” approach.

As the new financing is deployed, WRI will be closely monitoring and analyzing INFRA and ICF projects for green components and will hold the World Bank Group accountable for following through on the commitment to green infrastructure investments. We will also be monitoring the deployment of funding under these new financial instruments to ensure that the World Bank Group upholds the current application of environmental and social safeguard policies, including disclosure policies.

Over the weekend, the World Bank Group also announced several additional emergency financing initiatives to help the world’s poorest countries. These included a World Bank Vulnerability Financing Facility, which includes the existing Global Food Crisis Response Program and a new Rapid Social Response Program; and a new IFC Microfinance Enhancement Facility to help poor borrowers.

These initiatives are welcomed, but the World Bank Group must carefully manage them to ensure that countries that take advantage of them don’t sink deeper into debt. Many low-income countries are facing twin crises which threaten their development: economic disaster and the growing threat of climate change impacts on their vulnerable populations. In the months ahead, developed countries must not only follow through on their new financing commitments, but ensure that these provide both short term relief and a foundation for long-term sustainable development.