The World Bank has officially expanded its mission to include climate change, while pushing ahead with reforms that could unlock additional funding and cheaper loans for green projects.
In his first major speech since taking office, President Ajay Banga said a set of measures to stretch its balance sheet could allow the bank to increase lending by up to $15.7 billion a year.
The extra funding would support the implementation of the bank’s new vision statement approved by its governing body on Thursday.
The historical objective to “end poverty” should now be achieved “on a livable planet”. The new mission will give the lender the formal mandate to tackle a whole range of global challenges, among which climate change is seen as the most urgent one.
Banga said this will widen the aperture through which the bank looks at its task in the future. “If you can’t breathe and cannot drink clean water, there is little point in eradicating poverty,” he added.
Year-long reforms
Announced at the lender’s annual meetings in Marrakech, Morocco, the changes come a year after a group of its biggest shareholders, led by the United States and Germany, called for its fundamental shake-up to deliver more climate finance.
The overhaul quickly picked up pace. Former chief David Malpass resigned early, after sparking an outcry with climate sceptic comments, and was replaced by Banga, a former Mastercard CEO, who promised far-reaching reforms.
Banga is seeking to create a “better and bigger” bank capable of plugging a few more of the huge gaps in the provision of climate finance to developing countries.
But a lack of appetite to inject fresh funds into its coffers directed the focus on financial tweaks to make the existing capital go further. The reforms mainly concern the International Bank for Reconstruction and Development (IBRD), the lending arm for middle-income countries.
Accounting tweaks
The first concrete step came in April when the bank lowered its equity-to-loan ratio from 20% to 19%, freeing up $4 billion a year.
The lender is also creating a programme of guarantees backed by shareholders, which would step in to cover potential losses if borrowers cannot repay their loans. The measure would offload some of the risk currently shouldered by the World Bank to its donors, allowing the bank to channel those reserves into more new lending.
Another option under development is the launch of a hybrid capital mechanism, which allows shareholders to inject new funds by investing in special bonds issued by the World Bank.
US Treasury secretary Janet Yellen at the World Bank annual meetings in Marrakech. Photo: World Bank / Franz Mahr
Taken together, this suite of tools could boost the bank’s lending capacity by $157 billion over the next decade, Banga said on Friday.
He added that the plans have been “met with enthusiasm and generosity”. But, crucially, their potential will only be realised if shareholders fork out the money.
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The US government favours the guarantees plan and wants Congress to approve $2.1 billion in new funding that could unlock $25 billion in new loans. Germany has become the first country to pledge 305 million euros ($321 million) of “hybrid capital”.
Cheaper energy loans
Another element of Banga’s blueprint is the extension to middle-income countries of the cheap loans that are currently exclusively offered to low-income ones. The concessional resources currently available “are insufficient to deliver on the new vision and mission”, a paper outlining the bank’s reforms said.
The rollout of clean energy in high-emitting countries is one of the primary areas the lender would be targeting with these measures.
“We’re investigating if we can reduce interest rates to incentivize exiting from coal as part of energy transitions,” said Banga, “and find ways to encourage a renewable energy transition by increasing concessional finance in the mix.”
A thermo-solar power plant supported by the World Bank. Photo: Dana Smillie / World Bank
Danny Scull, an analyst at E3G, said this is a welcome step as incentivising countries like India and Brazil to take out cheaper loans for climate action will benefit the whole world.
Amid all the optimism, the World Bank chief added words of caution on how far his organisation can go without external help.
An influential panel of experts commissioned by the G20 said in July that development banks need to triple their lending levels by 2030 if they want to make a serious dent in the trillions of dollars of climate finance needed by developing countries.
Appeals for more capital
“The World Bank is merely an instrument that reflects the ambition of our shareholders,” said Banga, “the progress we aspire to achieve requires our resources and capital to be commensurate with our vision.” In other words, governments need to inject more money into the bank to fulfill this new mission.
But support for a direct capital increase is limited. The UK is the only major Western country in favour of the idea, which is strongly championed by developing nations, China and India above all.
For the US and Japan – the bank’s biggest shareholders – these discussions prompt a headache. They would need to contribute most to a capital increase, if they are to avoid their percentage ownership of the bank being watered down, perhaps as the share of geopolitical rival China rises.
Private sector engagement
Among rich countries, the preferred solution is to get the private sector to stump up more money.
Banga agrees, saying the lender needs “the scale, resources, and ingenuity of the private sector”. But he also acknowledged that “meaningful, sustainable progress has evaded us” on that front.
To change that equation the World Bank has set up a forum with a group of CEOs from some of the world’s biggest companies.
Banga said the initiative is initially focused on increasing private investment in renewable energy and the energy transition in developing countries.
The post World Bank approves green reforms, appeals for more money appeared first on Climate Home News.
Vishal Prasad is director of Pacific Islands Students Fighting Climate Change.
When the International Court of Justice (ICJ) delivered its advisory opinion on climate change last year, it marked a turning point not just for the Pacific, but for international climate law.
The court was unambiguous: states have legal obligations to protect the environment from greenhouse gas emissions, and they face accountability when they fail. For those of us who carried this campaign from a classroom in Vanuatu to Europe and New York, it was a moment of profound validation.
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But we have always said that the advisory opinion was a tool, not an endpoint. The ICJ affirmed what many in the Pacific have been saying for some time. Now we have a legal blueprint, we must carry this momentum from the courtrooms to the negotiating rooms.
Potential to shape climate politics
The advisory opinion has already begun to reshape the climate landscape. At COP30 in Belém, we saw countries that had supported the campaign citing the opinion in their interventions, while those blocking progress were clearly concerned of its implications. Its potential to shape climate politics and policy is significant.
This year we have arrived at the mid-year climate negotiations in Bonn not only with the advisory opinion, but with a UN General Assembly resolution endorsing it. Despite a fierce campaign from the usual suspects, just eight countries, including the USA, Saudi Arabia, Russia and Iran voted against. That is a victory for multilateralism at a moment when multilateralism is under strain.
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But we know that advisory opinions alone are not enough. Legal clarity will not automatically translate into reduced emissions, increased finance flows or stronger national climate plans. That translation requires political will in the negotiating rooms, both here in Bonn and all the way through Fiji and finally in Antalya this November.
What the Pacific needs from this negotiating year
The Pacific put significant political capital into the joint Australia-Pacific bid for COP31. It is fair to say that the compromise of Australia holding the role of president of negotiations while the COP is held and presided over by Türkiye is not what we imagined.
But we in the Pacific are used to looking for silver linings. Both Australia and Türkiye have acknowledged the important role the Pacific will have at COP31, through the appointment of Pacific champions and the hosting of a Pacific Pre-COP in Fiji with a leaders event in Tuvalu. These are genuine opportunities to bring the world to our shores and ensure that Pacific issues are front and centre going into the final negotiations.
But we are not naive. Envoy positions and meeting locations are just the architecture of goodwill. We need to see that goodwill converted into concrete negotiating outcomes and finance.
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The Pacific helped put Australia’s climate minister Chris Bowen in this important position, so we expect to see Australia advocate not only for us, but to turn a mirror towards itself as one of the world’s biggest fossil fuel exporters.
At Bonn, and then in Antalya, we need ambition on mitigation that reflects the ICJ’s clarity on state obligations and the science. That means action on fossil fuels.
We need climate finance that is new, additional and accessible to the countries that need it most. In the Pacific we have already demonstrated what that looks like.
The Pacific Resilience Facility is the first climate finance facility designed, governed and managed by Pacific people, built specifically to reach the grassroots and community initiatives that larger funds routinely bypass. We need the international community to meet that ambition with contributions that reflect climate justice, starting with pledges to meet the $500-million capitalisation goal.
And we need the oceans – which are the lifeblood of the Pacific and a critical part of the global climate system – treated as a central element of the negotiations rather than a thematic aside.
Energy crisis driven by imported fossil fuels
The days of speaking about climate and fossil fuels purely as a moral issue are long gone. Pacific ministers recently adopted the Tassiriki Call for a Fossil Fuel Free Pacific, in the context of a deepening energy crisis that has triggered states of emergency in several Pacific nations. Our dependence on imported fossil fuels is both a climate and an economic vulnerability.
Conflict in the Middle East is pushing our region into an energy crisis. We are dependent on imported fossil fuels for 80% of our energy needs. My home country of Fiji could see an increased fuel bill of nearly three times our annual healthcare budget.
Comment: COP31 must persuade countries to make fossil fuel transition plans
We need the technical and financial support to transition to 100% renewable energy. Not only because it is what the world owes us for decades of carbon pollution that continue to render parts of our home uninhabitable, damaging ecosystems and culture. But because we must be part of that transition. Fossil fuels have proven to be the greatest source of damage to our climate, and with their volatility, to our sovereignty as well.
What next?
The demands have not changed. Greater action on mitigation, adaptation, finance, loss and damage: these remain the substance of what the Pacific requires from the international community. What has changed is the legal foundation beneath them.
The ICJ has affirmed that these are not requests. They are obligations. The task this year is to make the negotiations reflect that.
The post The Pacific made history in the courts – now we must do it in the negotiations appeared first on Climate Home News.
The Pacific made history in the courts – now we must do it in the negotiations
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