Can the World Bank lead on climate?
Stopping climate change is one of the planet’s great challenges. As often happens when governments face new challenges, there’s been a big effort to add climate missions to other organizations that have proven competent in the past.
This time, it’s the World Bank that’s being asked to lead the way on climate action. Some of the bank’s biggest donors, including the U.S. and Germany are pushing for this pivot. What they’re trying to do, however laudable, is misguided.
The bank should stay focused on what it does well — help the planet’s poorest people. I know because for 15 years, I worked on economic development at the bank. Sustainability, to be sure, is critical and has always been part of the bank’s focus — but leadership on climate action is better handled by other organizations with scientific expertise and distinct funding. Current pressures are already distracting bank staff away from pursuing economic development to positioning their work — no matter in what country or on what topic — as instrumental to climate action.
The mission of the World Bank is to reduce poverty. However, over the nearly 80 years of its existence additional responsibilities have repeatedly been hoisted on it by rich countries, many with limited success. Indeed, the leading criticism of the World Bank is that it promotes economic policies that prioritize the interests of wealthy countries and corporations over those of developing countries and the vulnerable populations it purports to serve.
The demand for World Bank lending to lead the way on climate by the U.S. and Germany seems especially hypocritical when they are among the largest carbon emitters. The top 10 emitters (treating EU as one), which include both countries, together account for two-thirds of carbon emissions. In contrast, the bottom 100 countries, home to many of the world’s poor, account for less than 3 percent of emissions.
Wealthier countries also continue to backpedal on climate. The U.S. has increased drilling on public lands under President Biden and has consistently refused to share technologies that could advance climate action. Meanwhile, Germany, home of the some of the largest auto producers, has been far from the lead on green vehicles and is now seeking exception to the EU ban on combustion engines. And the European Union (which sets trade policy for Germany and other EU members), thwarted an environmental goods trade agreement because they feared a flood of imported bikes and e-bikes.
Yet, the U.S. and Germany want to prevent developing countries — countries that have historically contributed far, far less to carbon emissions — from funding nearly anything but renewables in the energy domain. According to these wealthy nations, the current World Bank model “which is mainly based on demand from developing countries, is no longer appropriate.” Better to let rich countries guide it.
This approach might make sense if the additional funding that was pledged by the U.S., Germany and other developed countries in 2009, at the UN climate summit COP15 in Copenhagen, had materialized. They promised $100 billion annually for climate finance in developing countries by 2020. After failing to deliver, developed countries seem to be hoping the World Bank can singlehandedly help them to reach the elusive goal by redirecting existing funds toward this target. If not, they can throw the blame on an increasingly beleaguered institution.
Leaving such an important responsibility to the World Bank, absent additional funds, is taken straight from the old playbook, where developing countries are being forced to prioritize the interests of rich countries. The world’s poor have contributed the least to carbon emissions, yet their livelihoods are being negatively impacted by climate change and natural disasters, and on top of that, they will now need to pay more for energy.
Perhaps the biggest risk is that if underfunded and overregulated, this approach will have perverse consequences. World Bank lending is notoriously cumbersome, taking on average 465 days to get a loan from concept note to disbursement, with infrastructure lending being the most time consuming. Reforms that make its lending any more costly and restrictive will only shift more borrowing to other lenders, especially China, pushing the world further away from climate targets.
While China talks a good game on climate, it is now the world’s largest emitter, and its banks and state enterprises lend without many of the onerous environmental and social safeguards of the World Bank. Tallied since 2000, China has lent roughly the same amount to Africa as the World Bank, with a greater share going toward energy and infrastructure, and Chinese lenders continue to fund coal.
Let the World Bank stick to its knitting while continuing to support on climate when and where appropriate. Make sure it has resources and expertise for any new priorities. Otherwise, the bank is sure to fail in a double mandate to eliminate both poverty and carbon emissions, and future generations will pay the price.
Caroline Freund is dean of the School of Global Policy and Strategy at UC San Diego, a nonresident senior fellow at the Peterson Institute for International Economics, as well as a former director for Trade, Investment and Competitiveness at the World Bank.
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