Climate Financing: World Bank Must Respond

• Opinion by the Editorial Board (washington dc)
• Tuesday, March 21, 2023
• Inter Press Service

Pakistan, which makes up less than 1 percent of the world’s carbon footprint, had a third of its territory under water in last year’s floods. Parts of Kenya, Ethiopia and Somalia are experiencing the worst drought in 70 years of record-keeping, threatening millions with famine, even though the entire continent of Africa contributes less than 4 percent of global carbon emissions.

Small island developing countries such as Papua New Guinea account for less than 1 percent of global carbon emissions, yet they stand to lose the most when sea levels rise.

The World Bank and the donor countries that control it can do more to step up and tackle this generational challenge. To make the World Bank and other multilateral lending institutions fit for purpose in the 21st century, leaders need to figure out how to raise and leverage the massive amounts of capital that are going to be necessary in the coming years to help countries adapt to and mitigate a changing climate.

For years, climate financing took a back seat to the bank’s twin goals of reducing extreme poverty and promoting shared prosperity. Today, it is integral to achieving those goals. Helping the poorest of the poor will increasingly mean ensuring access to drought-resistant seeds and access to water as lakes dry up. In middle-income countries, promoting shared prosperity will increasingly mean expanding access to reliable, affordable clean energy.

The World Bank has played an active role in making progress in those areas. It has begun to help countries incorporate climate change into their overall economic development plans and should continue this necessary work.

Climate-related funding has already grown in importance at the bank; in fact, some of the poorest countries are already worried that it will cut into funding for basics like education and health care. That’s why additional funding is needed to assure them that taking global action on climate won’t come at the expense of their development.

About 36 percent of the money the World Bank lent last year was classified as climate related, although questions have been raised about how classifications are made. That comes to nearly $32 billion — a big jump from previous years, but still far short of what is needed.

In 2009, donor countries promised to mobilize $100 billion a year by 2020 to help lower income countries with mitigation and adaptation. They only mustered $83 billion, $36.9 billion of which came from multilateral development banks and climate funds, in 2020.

Those unfulfilled promises haven’t gone unnoticed. According to Ephraim Mwepya Shitima, chair of the African Group of Negotiators on climate change, many developing countries, including those in Africa, have put forth ambitious plans to curb emissions in the future, but have been “hampered by the pledged financial support, which are falling short of expectations.”

Although Covid, inflation and the energy crisis related to the war in Ukraine have strained government budgets everywhere, it would be shortsighted to ignore the significance and potential of investing in climate financing.

According to Devesh Kapur, a professor at Johns Hopkins and co-author of a history of the World Bank, raising an additional $100 billion in lending capacity for the World Bank could require donors to put up about $20 billion in cash. The cost to the United States, which holds 16 percent of shares, would be $3.2 billion, an amount that could be paid out over five years.

Getting new money in the door is important, but it’s not enough. The bank also should adopt new strategies and new rules that will allow it to funnel money more quickly to where it is needed the most and will be used most effectively.

For instance, some small island states have per capita incomes that are too high for concessional loans according to World Bank rules, despite their acute vulnerability to climate change. Those rules should be revisited, in some cases, to make sure that climate financing is prioritizing the areas that will make the biggest difference.

The bank should also provide more grants and below-market financing related to climate, as Senator Ed Markey of Massachusetts has called for. The World Bank and multilateral development banks provided only 15 percent of their adaptation finance and less than 5 percent of mitigation finance through grants — a fraction he called “shockingly low.”

By comparison, Green Climate Fund, a multilateral climate fund, issued grants 41 percent of the time for adaptation and mitigation projects.The transformation that is required at the World Bank will not be easy.

But the departure of its former president, David Malpass, who says he will resign in June, might help build confidence in the bank’s climate work. Mr. Malpass, who was nominated by the Trump administration in 2019, has been the subject of controversy since his bewildering public refusal last year to acknowledge the role of human activity in extreme weather resulting from climate change.

Ajay Banga, the former chief executive of Mastercard, is President Biden’s nominee to lead the bank, and is likely to be confirmed next month. The leadership change presents an opportunity to clarify the bank’s role and lay out an ambitious vision for its future. Mr. Banga, who has recently visited several African countries, has said that he sees the bank’s goals of addressing poverty, shared growth and climate as “intertwined.”

Treasury Secretary Janet Yellen, who has been at the forefront of calls to overhaul the bank and to elevate the issue of climate, also noted the need for more concessional financing in a recent speech at the Center for Strategic and International Studies.

The bank was designed to lend to individual countries to spur economic growth within their own borders, but that model doesn’t work to address global problems like climate change, she said, because the benefits “stretch far beyond the borders of the country where a given project takes place.”

If the benefits of investing in climate change adaptation and mitigation are shared, so should the costs.

The Center for Global Development works to reduce global poverty and improve lives through innovative economic research that drives better policy and practice by the world’s top decision makers.

IPS UN Bureau

Follow @IPSNewsUNBureau
Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service

Where next?

Advertisement