The US and Germany are leading calls from shareholders in the World Bank for an overhaul of its business model to boost action on climate change at this week’s annual meetings.
The bank, a leading provider of loans and grants to poorer nations, has come under increasing pressure to provide greater financial support to developing countries to help their economies grow while coping with the consequences of climate change.
Germany is the latest to join those countries pushing for reforms and is expected to propose a series of actions to make the bank better able to deal with global crises including climate change.
The World Bank’s leadership has come under fire for lagging in its efforts, with a renewed attack on its Trump-appointed president, David Malpass, in recent weeks after he refused to say whether he believed in human-caused climate change. He later clarified that he did.
“We are in a climate crisis. We expect more from the bank. We also expect more from David Malpass; he is heading this institution which is key to saving the planet,” said one senior German official. “The question is can we make better use of the bank’s balance sheet?”
Measures the bank could take include incentivising action on climate change with better borrowing terms and using its money to de-risk clean energy investments in developing nations.
Svenja Schulze, the German federal minister for economic co-operation and development as well as Germany’s representative on the World Bank’s board of governors, also said the bank “must get fitter for the great challenges of the future”.
The bank’s current model was primarily based on the demands of individual countries, she said, and this model needed to be adapted in a time of global crises.
US Treasury secretary Janet Yellen last week called on the bank to develop an “evolution road map by December”, and said that “deeper work” should begin by the spring, effectively setting it a deadline.
According to two senior development officials, Yellen and the US administration have stepped up their pressure on the World Bank and other multilateral development banks (MDBs) this year. The US is the bank’s largest shareholder and traditionally appoints its president.
Yellen suggested the development banks broadly should make greater use of concessional finance, including grants, to fund investments where the benefits are shared globally, and specifically to middle-income countries to help them shift their economies away from coal.
Development banks could lend to sub-sovereign entities, such as green city initiatives, she said, and should adopt stronger targets for mobilising private finance. A broader array of instruments, including insurance products and guarantees, could be used.
The proposals for how the bank should change come ahead of the COP27 UN climate summit in early November, where the thorny subject of international climate finance is expected to dominate debate.
As a result, the issue has risen sharply up the global policy agenda. Mia Mottley, the prime minister of Barbados, has become the most high-profile advocate of efforts by smaller, less wealthy nations to secure funds related to climate change.
Mottley put forward several suggestions to be enacted by the World Bank and IMF, including the redistribution of $100bn in special drawing rights and the new issuance of long-term, low-interest debt instruments to help finance clean energy projects.
Some policymakers are increasingly in favour of the banks using more of their funds to guarantee investments by acting as first investors and de-risking projects that could then attract private investors.
International financial institutions “must overhaul their business model and approach to risk” and “intensify” their efforts to leverage private sector finance, said the UN secretary-general António Guterres recently.
MDBs should “go into countries and sectors that commercial entities are unwilling to finance”, said Ivo Mulder, head of the climate finance unit at the UN Environment Programme.
Guaranteeing projects “could be a quick win” but MDBs were “quite risk averse”, he said. “There can be a false perception that an MDB will always take much more risk than a commercial entity.”
Last week, climate activist groups hit out at the World Bank for its continued financing of certain fossil fuel projects. Although the bank has said it will not finance new oil and gas production, it has made no commitment over gas distribution and has said “natural gas may be useful in accelerating the transition away from coal”.
The World Bank said it had delivered a record amount of climate-related financing this year and that it looked forward to “working with our shareholders during the annual meetings to hear their ambitions and priorities for the World Bank Group in a changing world”.
The German official said there was “now much more appetite” from shareholders to reform the bank, and that the institution itself was also more amenable to change.
But Joe Thwaites, international climate finance advocate at the Natural Resources Defense Council, said Malpass was “not out of the woods”. “There is going to be a lot of pressure on him to show how the World Bank is working, and it needs to go beyond him just apologising.”
Source: Economy - ft.com
