Is the World Bank moving fast enough on climate change?

NUSA DUA, Indonesia — The world has 12 years to stave off a climate catastrophe, and the world’s largest development finance institution has a critical role to play.

Climate change featured prominently on the agenda at the World Bank Annual Meetings in Bali, Indonesia, last week, with a slew of sessions focused on steering financial institutions in greener directions — and a handful of new commitments from the World Bank Group itself. While the bank has ramped up its climate-related financing, global projections about the impacts of warming continue to worsen, leading many to ask whether the institution is moving quickly enough to fulfill its role as a catalyst for whole-scale transformation in the planet’s energy systems and economy.

“These institutions are paid to be on the leading edge, and it’s uncomfortable, and it’s difficult, but that’s why you’re paid what you’re paid,” said Rachel Kyte, CEO of Sustainable Energy for All, and a former World Bank vice president and special envoy on climate change.

The annual meetings bore witness to a number of significant climate-related announcements and initiatives.

On Monday, International Finance Corporation CEO Philippe Le Houérou announced in an op-ed on Devex, a new policy at IFC to work proactively with financial institutions to shift portfolios away from investments in coal.

On Wednesday, World Bank President Jim Yong Kim announced that the bank will not move forward with support for a controversial coal-fired power plant in Kosovo, which had long been the subject of civil society ire.

On Friday, the bank — along with Germany and the United Kingdom — launched a $145 million Global Risk Financing Facility that will help finance national disaster risk insurance schemes to compensate countries that suffer climate-induced damages. That effort will fit into the broader InsuResilience Global Partnership, launched at COP23 in 2017.

In July, the bank announced that 32.1 percent of its fiscal year 2018 financing — $20.5 billion — had “climate co-benefits.” That surpassed the bank’s target of 28 percent climate-related lending by 2020, and was twice as much climate-related finance as the bank was delivering before the 2015 Paris Agreement on climate change. IFC reached 36 percent climate-related finance in 2018.

At the One Planet Summit in September, the bank announced a commitment of $1 billion “to accelerate investments in battery storage for energy systems in developing and middle-income countries.”

The bank is now in the process of updating its climate action plan with new targets that will be announced at the COP24 climate conference in Katowice, Poland, in December, said John Roome, the World Bank’s senior director for climate change. While only 5 percent of global climate finance goes to adaptation, the bank has directed 50 percent of its climate finance to that side of the challenge, Roome said.

The question that remains is whether these announcements reflect an institution that has internalized the dire projections contained in the latest Intergovernmental Panel on Climate Change report and aligned its role in development finance accordingly.

Two different worlds?

On a number of occasions at the annual meetings, climate experts and activists pointed out that while the bank’s efforts to distance itself from coal are welcome, they hardly seem revolutionary in a world that must achieve net-zero carbon emissions by mid-century to avoid dangerous climate change.

“This is my first time at a World Bank Group meeting, and something that’s quite shocked me … is the divide in what we’re seeing from the climate people and what we’re seeing from the finance people,” said Katherine Kramer, global lead for climate change at Christian Aid, at a civil society session last Tuesday.

“Here we’re talking about coal and trying to get out of coal. In the climate world, we’re talking about trying to reduce emissions 45 percent CO2 by 2030 … How can we accelerate to be in line with the science?”

The World Bank and other development institutions are faced with the heady task of balancing the intergovernmental panel’s stark findings with ambitious Sustainable Development Goal commitments to expand energy access and eliminate extreme poverty by 2030.

“If you think about the SDGs ... and you think about what the IPCC report has said, development finance is really, frankly, despite all of the Christmas ornaments, beginning to look a bit like a business as usual response to what is an extraordinary moment,” Kyte said.

It is one thing for the World Bank to step away from financing a coal power plant, but something else for the bank to then step in with a real-time alternative, Kyte said.

“If export-credit bank of to-be-named Eastern Asian country is offering you this deal for this coal plant, and you don’t want that, then what is the rest of the development financial world plus other development financiers offering,” she said.

Is the World Bank's financing — particularly around energy — aligned with the targets that the IPCC report demands?

“Yes,” Roome said. But the bank’s role as financier is a nuanced one.

“We only have a limited amount of finance that we can put in — if it's $5 billion or $10 billion dollars — it's a drop in the ocean compared to the total amount of finance,” Roome said.

As renewable energy has become more commercially competitive, the role for an institution like the World Bank — as opposed to an investment bank like Goldman Sachs that can spend significantly more — has changed, he said.

“It would be very easy for us to move a huge amount of money into renewables that, in one sense, is zero carbon; it is fully compatible. But what we're thinking about is how can we push the frontier, and that means into new technologies,” Roome said, pointing to the bank’s investments in battery technology, floating solar, and rooftop solar as disproportionately significant.

Projects at risk

As climate change intensifies, many of the World Bank’s biggest client countries will experience disproportionate impacts, potentially undermining the development impact the bank hopes to achieve with its financial support.

The bank’s research projects that more than 100 million people will return to extreme poverty by 2030 without “concerted action,” that climate change will force 143 million people to migrate in three vulnerable regions of the world, and that declining wheat and rice yields could cause millions more children to be stunted.

In 2018, the World Bank committed over $9.6 billion in loans and grants to India, Pakistan, the Philippines, and Bangladesh — the four most climate-vulnerable countries in the world, according to a ranking by the financial services company HSBC.

“You’ve got physical assets at risk on 20-year loans,” Kyte said.

“They’re not looking at it like a private bank would, because they’re very highly concessional loans, but the development impact that you’re expecting to achieve must be compromised or potentially compromised,” she said.

The institution’s goal is not just to protect its own projects, but to use its financing to build a country’s overall resilience, its leaders say.

“We don't look at this as an asset being exposed, over and above the generalized risk in the country, because that a little bit misses the point,” Roome said.

“We could be thinking only, OK is our individual asset robust? Is the road that we've done robust against climate change — and we're doing that. We're looking at that going forward. But our role is potentially much bigger,” Roome said.

In addition to asking whether the projects it finances in a country are protected from adverse impacts of climate change, the bank is also asking whether those investments can help to bring about broader, systemic resilience, he explained.

“Our role is not [to ask], does every piece of every $100 million we put in — is that robust against climate change, [but instead] how do we use that $100 million to build overall resilience in the country. That's the shift and the focus that we're trying to get out of our adaptation and resilience strategy — to try to get more systematic impact,” Roome said.

Catch up on what happened at the World Bank Annual Meetings in Indonesia, where Devex reporters Michael Igoe and Sophie Edwards were on the ground.