The World Bank (IBRD) is expected to launch a new lending platform shortly which will make it more attractive for Middle Income Countries (MICs) to seek funds to address global challenges, such as climate change, and signal a timely investment boost from donors. Maximising the impact of guarantees and hybrid capital alongside ambitious IDA replenishment in 2024 will in turn help to make the case for a General Capital Increase (GCI).

Raising demand for climate lending while increasing the supply of finance? Sounds great! If that is – and it is an if – the World Bank can secure sufficient buy-in from donors and client countries. Some previous efforts have faltered, but these latest efforts could potentially be transformative. 

The World Bank’s new vision to create a world free of poverty on a liveable planet will require increased investment in global challenges, leveraging a sufficient supply of donor funding. “Global challenges” are collective action problems which are underinvested because national costs may appear to outweigh national benefits, despite net positive benefits globally. You know the list: climate change, pandemic preparedness, biodiversity loss, conflict and fragility. Few institutions are adequately structured to address these issues… but the World Bank is, or at least is intended to be. 

The World Bank wants to help countries prioritize projects that stack global benefits on top of domestic ones. Think clean energy investments that improve local energy access while simultaneously avoiding cross-border, climate-warming emissions. For example, the Bank has considered rebooting its Global Public Goods Fund as the Liveable Planet Fund (LPF), ringfencing expanded concessional finance to buy down interest rates for loans which address global challenges.  

Concessionality is only one of a menu of incentive tools at the IBRD’s disposal to promote demand for global challenges lending. Other incentives could include volume top-ups, longer loan tenors, faster disbursals, or exceptions to lending limits.  

Determining where and when to deploy these various incentives will require an allocation framework, contingent on analytics that compare how national costs and benefits compare with the global benefits of a given project. This will be the role of the Bank’s recently announced Framework for Financial Incentives (FFI). On top of increased incentives to borrow, lending will need to be connected to an additional supply of finance. For this, the key tool will be the tentatively named Global Solutions Accelerator Platform (GSAP). 

The GSAP aims to funnel new, additional finance commitments earmarked for global challenge investments, using the FFI to determine the proper incentives to increase deal flow. By taking advantage of innovative financial mechanisms like hybrid capital and portfolio guarantees which have high leverage factors (e.g. 6 or 8 to 1), the GSAP would differ from conventional paid-in donor structures and make efficient use of donor balance sheets.  

Meeting global challenges will eventually require a GCI to expand lending capacity. At present some donors are reluctant to make the accompanying changes to Bank shareholding percentages but in the meantime, GSAP could help to bridge the gap. GSAP is launched at a timely moment, as countries negotiate an ambitious IDA replenishment by year end.  

A holistic donor approach to climate and development could offer many geopolitical and diplomatic opportunities to donor countries. Together, the new FFI and GSAP could be a vehicle for large client countries to access enough finance to move the needle on climate mitigation, while IDA replenishment and Crisis Response measures address the needs of the most vulnerable countries, including adaptation and debt pauses. All this will in turn support increased global climate ambition ahead of COP30 and bending the emissions curve thereafter. 

A small number of key donor countries standing behind this new model would demonstrate the transformative potential of multilateral cooperation. Without such support the World Bank’s new vision could yet fizzle, reducing implementation of the Evolution Roadmap to efficiency measures, pilot programs, and a new scorecard that charts a path to higher temperatures. This wouldn’t be the vision of a liveable planet that anyone signed up for, and to avoid it, both donor and client countries should embrace and support these new tools.  

Expanding the IBRD in 2024: new tools to address global challenges

Written by Claire Healy, Danny Scull, Erin Landy

The World Bank is evolving to meet climate change and other global crises head on. A Roadmap to guide this institutional reform was a good start; now, shareholders must get creative to finance and operationalize the plan. Large, developing countries’ interest in additional borrowing for global challenges will ultimately determine whether the Roadmap succeeds or fails.

The World Bank made considerable progress in 2023. Four small words added to its vision statement were emblematic of its new direction: “on a liveable planet”. This unleashed a flood of ideas aimed at sustaining our global commons. Now the work must continue to reform the Bank at a more granular level.

This second volume of E3G’s recommendations for the Bank’s Evolution Roadmap sets out a new set of priority action areas where a climate-challenged world needs the Bank to progress in 2024. It follows last year’s well-received briefing, which made the case for a new vision of additional investment in global public goods.

Meeting the target of limiting global warming to 1.5 °C hinges on the transition of large developing economies. The Bank must therefore find ways to stoke demand from those borrowers, and work with them to support their transition. But incentives must also be applied fairly, and sources of finance need to grow substantially.

Recommendations for the World Bank’s Evolution Roadmap in 2024

The priority action areas for the World Bank to fulfil the promise of the Evolution Roadmap are:

Scaled up analytics to apply a menu of incentives for investment in global public goods, within a fair and transparent allocation framework.

Pioneering a dozen country platforms that pull together the entire capital stack, and shifting focus from inputs to outcomes (such as greenhouse gas reductions).

Doubling the size of MIGA and sharpening IFC’s focus to attract 4 times the level of private finance as is currently the case.

Financial innovation to give global public good lending a one-time boost, proving the Roadmap concept before making the case for a General Capital Increase.

Priorities for the World Bank Evolution Roadmap: Volume II

Written by Viktor Ahlgren, Laura Sabogal Reyes, Neil Chin, Elena Bagnera, Nicole Pinko

On-lending by multilateral development banks (MDBs) to national development banks (NDBs) could significantly accelerate global climate investment where it is needed most, by leveraging the institutional advantages that MDBs and NDBs each possess. New analysis identifies how MDBs and NDBs can work more effectively together to achieve climate goals.

Public financial institutions need to work together as a system, moving from project-based approaches to more coordinated country platforms with local financial institutions. However, the current state of engagement between MDBs and NDBs in emerging and developing economies (EMDEs), particularly regarding climate-related finance flows, is not comprehensively documented. 

Simultaneously, MDBs and NDBs can take different approaches to aligning finance with the goals of the Paris Agreement. These approaches may depend on differences in, for example, their institutional structure, size, client base, mandate, and political context. Practically, this variability may in turn impact the quantity and quality of climate on-lending from MDBs to NDBs, particularly as MDBs begin to push for alignment among their counterparties. 

CPI and E3G’s report advances the understanding of climate finance cooperation between MDBs and NDBs in EMDEs by: 

Developing a methodology to quantify and analyse MDB–NDB climate finance flows. 

Assessing differences in Paris alignment approaches between MDBs and NDBs and the factors that underlie these. 

The financial flows that can be tracked to date between MDBs and NDBs show limited climate cooperation. CPI constructed a sample of climate-related MDB-to-NDB financial flows across EMDEs between 2015 and 2022, by scraping data from project portals from MDBs’ joint reporting on climate finance. While this dataset likely underrepresents total MDB-to-NDB finance, it reveals only 42 total transactions between MDBs and NDBs, totalling USD 5.5 billion.

There are operational challenges to greater on-lending, particularly where misalignment between MDBs and NDBs creates transactional friction. Challenges include currency risks and domestic currency lending, general risk appetite, institutional capacity, and expertise. This is illustrated through the support and development of project pipelines, the role of NDBs as financial intermediators, and the procedures and approval policies that come with MDB loans. Additionally, there are macroeconomic political economy and governance risks.  

MDBs and NDBs diverge on their paths and progress towards Paris alignment. E3G assessed a sample of six MDBs and six NDBs across key dimensions based on an abbreviated version of the E3G Public Bank Climate Tracker Matrix. NDBs in the sample showed greater variability than MDBs in terms of accounting for and setting targets for climate finance, and on clarity of policies applied to financial intermediary financing. Moreover, NDBs are less likely than MDBs to have dedicated climate change strategies and adaptation goals. Rather, NDBs tend to incorporate climate into core strategic documents largely in the context of reaching NDCs. Unlike most MDBs examined, the NDBs do not have dedicated energy sector policies, although some are involved in just transition efforts. 

Recommendations to strengthen MDB–NDB cooperation

Our recommendations target three key shared areas to increase both the volume of on-lending and the level of Paris alignment. 

MDBs should optimise how they deliver climate finance through NDBs via on-lending to improve the scale, durability, and effectiveness of MDB–MDB collaboration. For example, by:

bringing concessional support into financial arrangements

supporting NDBs’ development of sectoral pipelines with clear climate criteria

promoting the development of local currency instruments.

MDBs and NDBs should clarify their mandates for climate action and leverage these as a framework for collaboration and development of institutional capacity.

MDBs and NDBs should share capacity for better collaboration on advancing institutional climate mainstreaming, scaling intermediated financing structures, and filling data gaps. Steps toward achieving this could include:

creating an MDB–NDB working group to share best practices

ensuring that MDB projects have a phased technical assistance approach

creating a public database of MDB–NDB financial engagements.

This report was jointly written by E3G and Climate Policy Initiative (CPI). The contributors from CPI are: Nicole Pinko, Senior Analyst; Elena Bagnera, Analyst; and Neil Chin, Analyst.

Enhancing MDB–NDB cooperation - Understanding climate finance flows and Paris alignment

Written by Dileimy Orozco, Njavwa Sanga, Alexia Meynier

Transitioning to a clean and resilient economy will require transforming the world’s economic system. Navigating this transition, coupled with the impact of climate disasters, will affect macro-financial stability and have global financial impacts. How international financial institutions evolve to support their members will be a crucial component of supporting the stability of a transitioning global economy.

Standing at the centre of the international financial safety net is the International Monetary Fund (IMF), which functions as:

A lender of a last resource for many economies;

A convener of the key decision makers both at the international and national level – the ministries of finance and central bankers;

A standard setter recognised as a thought leader in economic and financial management;

An influencer of the international financial system, including credit rating agencies, creditor countries and debt restructuring. 

This institution is a key advisor to countries, steering them to better macroeconomic outcomes. As decarbonisation deepens and spreads to encompass the whole economy, critical decisions on the pace and scale of climate action are increasingly being made on the economy–wide level, rather than as part of sectoral policy in energy, transport, and agricultural sectors. This means that the IMF must be responsive to anticipate potential macroeconomic issues in the future.

The current IMF Managing Director, Kristalina Georgieva, quickly elevated climate change to one of the Fund’s top priorities by considering it a systemic risk for the stability of the global economy and financial system. This has led to progress in several areas:

A climate strategy, published in 2021. Climate mitigation efforts in the 20 largest greenhouse gas-emitting countries are included in Article IV consultations, every six to seven years.

Strategy for transition management will be reviewed every five to six years. This covers eight to nine countries per year, with greater frequency for large emitters and vulnerable countries. For adaptation and resilience, the Fund will prioritise the 60 most vulnerable countries. It builds climate risks into the Financial Sector Assessment Program, depending on the materiality of climate risks. 

The Fund’s lending tools were expanded, with the Resilience and Sustainability Trust (RST) put in place in record time. It increases countries’ resilience to climate by providing long-term financing to low-income and vulnerable middle-income countries. The IMF has started five pilot programs (Costa Rica, Barbados, Rwanda, Bangladesh, Jamaica), and there might be a huge demand from 44 countries to access these funds – despite this being a small sum of resources in comparison to MDBs.

A commitment to enhance collaboration with the World Bank on climate issues. This renewed partnership on climate comes alongside the establishment of a new Bank-Fund Climate Advisory Group, tasked with ensuring coordination of both their climate-related work streams.  

Including climate in the main flagship reports, such as the Fiscal Monitor and the Global Financial Stability Report. 

As the IMF moves from setting targets to implementation, it will need to consider how tackling the climate crisis may run counter to its usual ‘crisis response mode’. Previous IMF interventions may have reduced a country’s ability to invest in transition. Now, the IMF’s response to, or management of, an economic crisis must also consider solutions that are not building the fragilities of the future.

There have been numerous criticisms about whether the IMF is providing the right advice and tailored advice to countries, whether the RST is delivering what it intended, and whether the IMF is overpromising. 

Some shareholders are also calling for the IMF to ‘stay in its lane’ instead of trying to become a global climate expert which they believe strays from the core mandate of custodian of global financial and economic stability. 

Therefore, the question arises: will the IMF sustain momentum in its climate endeavours? Will the brave climate sails come down? The next five years are critical in determining the capacity of the IMF to be part of the solution to the climate crisis, not part of the problem. To succeed, the IMF must accelerate the pace of mainstreaming climate into its tools; increase transparency, including the principles driving policy change; increase consultation with civil society organisations; and ensure principles are both fair and ambitious.  The IMF is facing a steep learning curve. For the institution to succeed, it will need support from its leadership, guidance from its shareholders, and strong technical expertise that questions whether the solutions of the past can build the clean economy of the future.

Navigating a coming storm: The IMF and the climate transition

The Development Committee of the World Bank and International Monetary Fund is expected to officially endorse a suite of technical reforms to build a bigger, better development finance system that can meet the twin poverty and climate challenges following their 2023 Annual Meetings in Marrakech, Morocco. 

Countries agreed to develop principles that will enable more low-cost concessional borrowing for global challenges, such as climate change. The World Bank, the IMF and Morocco also last week published new Principles on Global Cooperation, which emphasise resilience and the green transition. 

Reform implementation is now underway, with the Marrakech meetings signalling “the end of the beginning” of the proposal process. While the agreed reforms provide a technical pathway to deliver low-cost finance, however, most countries1 have not yet made or committed to make additional capital contributions that would allow the World Bank to scale its lending. This is a key next step for 2024. 

World leaders are recognising that addressing global challenges and country-specific development together will require rewiring the way that EMDEs access funding for economic development. In Marrakech, World Bank and IMF shareholders agreed on new reforms to do just that after months of negotiation, including an updated mandate, disaster debt suspension clauses, and a commitment to develop principles to expand low-cost borrowing. These are considerable strides, but more will be necessary in 2024 from a financial and political standpoint to fund and match the scale of the climate crisis.  

Taken together, the changes announced last week will help the World Bank and the IMF respond and adapt to a world economy increasingly affected by external shocks. Capital adequacy reforms should increase the efficiency of the Bank’s balance sheet, and multilateral development bank (MDB) partnerships should enhance coordination and resiliency of the MDB system. For example, World Bank president Ajay Banga alluded to opening up the Multilateral Investment Guarantee Agency (MIGA) to other MDBs to access guarantees and risk insurance, potentially unlocking deal flow in developing countries. 

Additionally, the IMF recognised the importance of Africa’s increasingly important role in the global economy by creating a 25th chair at the Executive Board, which reinforces the voice of climate-vulnerable countries. The IMFC called on the Executive Board Directors to draft a potential approach for realigning quota shares to reflect members’ relative positions in the world economy, while protecting the quota shares of the poorest members; this should be presented by June 20252. 

The World Bank and Japan also launched a new model for equal partnerships in supporting climate resilient development as part of the net zero transition: the Resilient and Inclusive Supply-chain Enhancement—or RISE—initiative launched with an initial $40 million pledged from Japan, Canada, Italy, Korea, and the UK. If implemented at scale with a country-led partnership approach, RISE could help emerging markets and developing countries leverage their mineral reserves with greater participation in clean technology value chains to create local economic opportunities while also aiming to secure global supply chains for clean technology. 

The World Bank Board of Governors spent 2023 debating many proposals in response to calls for a World Bank Evolution Roadmap. The Marrakech meetings marked “the end of the beginning” of that technical process, with reform implementation firmly underway. President Banga committed to continuing work with shareholders on the next steps, involving more political bargaining and sequencing as donor countries grapple with how to recapitalize the World Bank at every level – for example, through IDA replenishment, an IBRD general capital increase, and a voluntary concessional boost for borrowers. 

“The Marrakech meetings saw real political consensus, and unexpected progress, on radical reforms of the World Bank to meet the twin development and climate crises. Now developed country leaders need to signal that these changes will be backed up by a major capital increase for the Bank next year.” 

Dileimy Orozco, Senior Policy Advisor at E3G on IMF and debt said: 

“Kristalina Georgieva’s leadership kickstarted a process to make the IMF more effective in responding and adapting to a world economy increasingly affected by external shocks. Shareholders should recognise that Kristalina Georgieva’s actions have ensured the IMF remains relevant in a world more prone to shocks. The extent to which she leaves a long-lasting legacy will be seen in the next year when shareholders start discussing new leadership for 2024 to 2029, a critical five years for both climate and development.” 

Danny Scull, Policy Advisor at E3G on the World Bank said: 

“Under-the-hood reforms won’t always make the headlines, but World Bank shareholders have worked hard to shift the Bank’s financing and operations to tackle global challenges. Realistically, though, a new mandate will require new resources.” 

Laura Sabogal Reyes, Senior Policy Advisor at E3G on MDBs and public banks said: 

“The Annual Meetings showed that there is a pressing need for a third-party source of information on MDBs to support shareholders in scrutinising these institutions. We propose an advisory body to help bolster the confidence and governance of these uniquely powerful institutions. This will also help to address the general mistrust between donors and recipients, shareholders and banks.” 

Danny Scull (EN), Policy Advisor, (Evolution Roadmap, World Bank Group)  
m: +1 (301) 787 0942 | danny.scull@e3g.org

Sima Kammourieh (EN, FR), Programme Lead, (International sustainable finance, financial stability, financial regulation and G20 finance track)  
m: +4916095964443 | sima.kammourieh@e3g.org 

Dileimy Orozco (EN, ES), Senior Policy Advisor, (Development banks and private finance, green recovery, IFA reforms) 
m: +44 7876 301 615 | dile.orozco@e3g.org 

Alex Scott (EN), Programme Lead, (Climate diplomacy, climate finance, adaptation finance, road to COP28) 
m: +44 7482 750760 | alex.scott@e3g.org   

Frank Schroeder (EN, DE), Senior Policy Advisor, (Global transition finance, Global financial reform, Governance of multilateral institutions, private finance mobilization, innovative financial mechanisms) 
frank.schroeder@e3g.org   

Franklin Steves (EN, FR, ES, RU), Senior Policy Advisor, (Global financial reform, debt burdens, Bridgetown Initiative, climate finance) 
m: +44 7484 815 434 | franklin.steves@e3g.org 

Laura Sabogal Reyes (EN, ES, DE), Senior Policy Advisor, (MDB climate reform and Paris Agreement alignment and E3G Public Bank Climate Tracker Matrix website) 
m: +4916096466368 | laura.sabogal@e3g.org 

Germany is the only country that has committed significant additional capital so far. 

https://www.imf.org/en/News/Articles/2023/10/14/pr23353-chairs-statement-forty-eighth-meeting-of-the-imfc

E3G is an independent climate change think tank with a global outlook. We work on the frontier of the climate landscape, tackling the barriers and advancing the solutions to a safe climate. Our goal is to translate climate politics, economics and policies into action. About – E3G 

For further enquiries email press@e3g.org or phone +44 (0)7783 787 863 

Register for our journalist WhatsApp briefing service E3G WhatsApp registration for journalists – E3G. 

Marrakech supports global transition but countries yet to step up with cash injections

The World Bank Evolution Roadmap, called for one year ago at the Annual Meetings, has produced real-world reforms in a short time. New lending and a shift in the Bank’s mission toward global challenges represent progress, but these initial tweaks won’t come close to solving climate change. To scale the required finance, Bank shareholders must connect proposals to G20 processes, pledge new resources, and build the politics for a global push towards a bigger, better MDB system.

Twelve months have passed since Janet Yellen challenged the World Bank to re-examine how it addresses cross-border issues like climate change and pandemics – problems that no country can borrow its way out of alone. In that time, the world has been hit by record heatwaves, wildfires, an earthquake in Morocco, and a flood in Libya. But what can the Bank adequately deliver in response?

With a new president and a new mandate, expectations are high at this year’s World Bank / IMF Annual Meetings for shareholders to enact reforms to unlock future investment for clean development. To make sense of these ideas, it’s worth considering how they fit into the wider landscape of international finance.

The reform process kicked off when the US, Germany, and other donor shareholders put forth a non-paper last year, calling for World Bank “evolution”. Since then, the World Bank board has responded with a string of quick wins, none of which were easy, including:

A new mission to be agreed in Marrakech that emphasises poverty alleviation and shared prosperity “on a liveable planet”.

An increased focus on transnational “global challenges” (including climate change, pandemics, conflict), with related proposals contemplating new incentives for borrowers.

Recognition that the Bank has been too cautious in the face of catastrophe. The Bank has lowered the equity-to-loan ratio from 20% to 19%, thus taking on slightly more risk, to free up $50bn in new lending over the next decade.

Greater attention for callable capital, hybrid capital, and guarantees. Each of these could be used to leverage or de-risk more lending for clean development.

These are not insignificant achievements for a deep-rooted institution with global governors – but we need to go much bigger, much faster.

Bridgetown Initiative and Paris Summit Pact: moving climate finance up the agenda

Last year also saw the launch of the “Bridgetown” suite of ideas to reform the international finance system, some of which landed at the Paris Summit in June. In addition to shining a light on debt and disaster-related suspension clauses, the Bridgetown Initiative moved the concepts of “loss and damage” funding and concessional lending for climate-vulnerable countries firmly up the board. Next up: expanding multilateral lending by up to $1 trillion via capital adequacy reforms, Special Drawing Rights, guarantees, and a foreign exchange risk facility.

Likewise, India’s G20 Presidency established a taskforce to evaluate systemic reform of the multilateral development banks (MDBs), beyond the World Bank alone. The experts recommend tripling MDB finance from $130 billion to $390 billion annually for climate change and the Sustainable Development Goals. This should be combined with bilateral and private sector lending to mobilise an additional $1 trillion/year for emerging markets. Some of this will require donors to reach deeper into their pockets. However, MDB measures are equally important, such as incentivising staff to take more risk and prioritise private capital mobilisation.

The G20 showed MDB reform is a top priority for key actors including the White House, despite the geopolitical headwinds, but collectively we need a better sense of the lending benchmarks. It will take time to triple MDB finance, and the danger is that we walk away too soon.

To hit these targets, World Bank shareholders must be clear on the agenda and on building the right coalition, at this and future Annual Meetings. In Marrakech, E3G is convening a group of thinkers to map out a political sequence to guide more technical reforms.

It’s not clear whether the politics are yet ripe for a General Capital Increase. However, if the Bank can stretch its efficiency and prove the concept on financing global challenges, we may get there in the end. Here’s a suggested sequencing:

2023 Marrakech: Get the capital efficiency reforms done and the mission/vision finalised. Agree a concessional allocation framework for middle-income country borrowing. Start discussion on credit and grant replenishment for low-income countries.

2024 Brazil G20: Donors stump up guarantees and hybrid capital to hit World Bank President Banga’s target for a one-time $100–125 billion lending boost.

2026 USA G20: Land the General Capital Increase and formalise institutional reforms across the World Bank and wider system. This should include new arrangements to deal with political risk, currency risk, and global challenges.

Bigger, better, faster? A year of reforming the World Bank

G20 leaders have agreed to a “New Delhi Leaders’ Declaration” at the beginning of this year’s G20 Leaders’ Summit.

The summit included historic milestones like the African Union’s inclusion in the G20, a commitment to triple renewables capacity by 2030, and support for financial reform including multilateral development banks.

However, the lack of concrete action on energy efficiency and fossil fuel phase-out raises concerns for the global energy agenda that need to be actioned by COP28.

Amidst geopolitical challenges, a joint declaration that at least advances some elements of the international climate agenda is a positive step for international collaboration.

This week had already seen leaders at the African Climate Summit appeal to global cooperation to provide financial and technical support to their climate goals, and the report on the Global Stocktake, which highlighted big gaps in global delivery. All eyes were on G20 leaders to design and follow a political roadmap to COP28 and indicate how to close global delivery and finance gaps.

The summit featured many firsts, including addressing a big gap in representation by welcoming the African Union as a permanent member of the G20 and making a commitment to pursue and encourage efforts to triple renewables capacity by 2030. The agreement to pursue reforms for better, bigger, and more effective Multilateral Development Banks, along with facilitating low-cost financing solutions for developing countries, is also positive and can help create fiscal room and fast-track implementation of climate actions.

Yet, progress on the global energy agenda remains patchy at best, as the summit declaration failed to detail more concrete action on doubling energy efficiency (the text is weaker than the energy ministers’ outcomes document) and to phase out fossil fuels. Also unfortunate is the absence of recognition for private sector transition plans and stronger endorsement of the work achieved by the International Sustainable Standards Board (ISSB) on disclosures. Both transition plans and a common standard for disclosures are critical to align financial system flows with the need for transitions.

Leaders need to use the remaining 12 weeks until COP28 to set out and build support around clear, ambitious visions for COP decisions that address the fossil fuel culprit and loss and damage consequences of climate change, as well as amplifying a renewable future. The UAE has opened the door to addressing the phase down of fossil fuels at COP28 — they need to seize the opportunity.

Madhura Joshi, Senior Associate at E3G, said:

“This G20 has seen many firsts, welcoming the African Union’s G20 membership, making the G20 more inclusive. We have seen a landmark decision to support tripling global renewable energy capacity by 2030, important for both development and climate goals; support for doubling the rate of energy efficiency, crucial for energy transitions; and for reforming multilateral banks, which can help unlock affordable finance for implementation.

However, increasing renewables needs to go hand in hand with phasing out fossil fuels, which is completely missing. We need stronger, bolder action from leaders on both. All eyes now on COP28 – can the leaders deliver?”

Lisa Fischer, Programme Lead for Climate Neutral Energy Systems at E3G, said:

“It is disappointing that because of a few blockers the G20 could not agree on the phasing down and out of fossil fuels, an integral part of the COP presidency’s vision and of just energy transitions. Leaders agreed to the bare minimum, a repetition of the 2022 Bali commitment on coal phase down. If they restrict themselves to coal, we need to see much faster action on ending the global coal buildout.

There is no hiding from the fact that a peak in the use of all fossil fuels is needed as early as possible this decade, and countries must cooperate towards their phase out. Abatement technologies will not significantly alter this trajectory so cannot substitute for phase down. In the run-up to COP28, leaders must steer instead of running behind the re-structuring of the global energy economy.”

Sima Kammourieh, Programme Lead on international sustainable finance at E3G, said:

“This year has been difficult for the G20, especially on the finance agenda. The Indian presidency’s focus on the twin challenges of climate and development faced by many emerging economies was welcome, but more concrete progress could have been achieved, especially by endorsing in stronger terms the work done by the Independent Expert Group on Strengthening MDBs. The ambition of the Sustainable Finance Working Group of the G20 was also quite low this year. Leaders missed the opportunity to more strongly support the work achieved by the ISSB on global disclosure requirements and to deepen work on norms to align financial flows with climate safety.” 

Alden Meyer, Senior Associate at E3G, said:

“G20 leaders have embraced the goal of tripling renewable energy capacity by 2030, but much work lies ahead, particularly on mobilizing the trillions of dollars in annual public and private finance needed to turn that aspiration into reality. To have any chance of meeting the Paris Agreement’s 1.5°C temperature limitation goal, sharp reductions in the production and use of all fossil fuels – including, but not limited to, coal – are also essential, and on that issue, the G20 leaders are missing in action.

It’s time to stop letting a handful of countries block progress on the rapid transition away from polluting fossil fuels that are driving the mounting impacts of climate change and threatening the lives and livelihoods of people across the world.”

E3G is an independent climate change think tank with a global outlook. We work on the frontier of the climate landscape, tackling the barriers and advancing the solutions to a safe climate. Our goal is to translate climate politics, economics and policies into action. About – E3G

For further enquiries email press@e3g.org or phone +44 (0)7783 787 863

Under current trends, global gas demand is set to peak before the decade’s end. Bringing forward this peak in line with climate imperatives can bolster economic growth, security, and resilience. Structurally reducing demand must become a focus of international collaboration. Read more: Global gas demand – E3G

As the largest single source of emissions, ending coal power is the central pillar of all climate mitigation scenarios. Outside of China, last year total pre-construction coal capacity fell below 100 GW for the first time ever, and only 20 new coal plant proposals were initiated or restored. Read more in E3G’s global coal pipeline analysis: Boom and Bust 2023: Tracking the global coal plant pipeline – E3G

G20 Leaders’ Summit sees climate cooperation, but much remains to be done

Written by Danny Scull, Claire Healy, Erin Landy, Jonathan Walters, Sonia Dunlop

This is E3G’s response to the World Bank Group’s consultation on its Evolution Roadmap. The roadmap outlines how the Bank will review its vision and mission, operating model, and financial capacity and model. 

Our response welcomes the World Bank’s proposed updated mission statement. Its explicit acknowledgement that global challenges must be addressed to achieve the Bank’s twin goals of ending poverty and boosting shared prosperity is important. However, the proposal does not give a quantifiable end goal or timeline for what it hopes to achieve on the challenges of climate change, pandemic preparedness and fragility / conflict. The Bank must demonstrate its ambition; we anticipate that it would have to deliver finance in the range of $100bn per year to have a meaningful impact on climate change. 

The proposed changes to the Bank’s operating model are a good starting point to expand on. We identify several areas that should be prioritised or developed further. Among these is increased concessional lending to incentivise borrowing countries to pursue finance for global public goods. 

Any new climate lending must be additional to the Bank’s current commitments. Shareholders need to find a way forward that ensures the development goals of low- and middle-income countries are not traded off against each other. First and foremost, they must explicitly protect baseline IDA lending so low-income countries’ development needs are not superseded by global challenges. 

The Word Bank’s reforms are desperately needed to reverse the development backsliding trend of the last several years. The Bank should therefore expect shareholders to formally agree the roadmap by the 2023 Annual Meetings and be prepared for full implementation by 2025. We broadly support the proposed next steps to advance the Bank’s evolution agenda. However, World Bank Group management must be fully bought into deep reform of the institutions from day one. 

Read our full consultation response with further comments and recommendations here. 

Over the course of the past year, E3G has worked on several papers related to the World Bank Evolution Roadmap. These papers reflect E3G’s views on the potential for the World Bank to evolve its mission, strategies and operations to become a driving force among the MDBs on climate action. The papers are the result of an ongoing dialogue with the World Bank and its shareholders, as well as collaborations with other civil society organisations such as the Center for Strategic and International Studies (CSIS). 

E3G’s consultation response on the World Bank Evolution Roadmap

Written by Alex Scott, Dileimy Orozco, Frank Schroeder, Franklin Steves

Leaders’ conclusions from the ‘New Global Finance Pact’ Summit in Paris show Barbados and V20 (The Vulnerable Twenty) calls for the transformation of the global financial system are now firmly global. While no new finance or debt relief was delivered for developing countries, the chair’s summary and roadmap provide a basis for accountability and transparency for citizens and civil society to track progress and put pressure where needed.

The Summit’s final leaders’ roundtable solidified a refreshing change in the political dynamic taking place outside the world’s multilateral decision-making bodies. Defying traditions of diplomacy, leaders openly disagreed with each other. They called out each other’s responsibilities. The push from developing countries to confront global challenges and co-design solutions emerged loud and clear. Their call for reforming the governance of multilateral institutions for equal voice and representation can no longer be ignored. 

Leaders, ministers, heads of institutions and multilateral development bank (MDB) governors mixed with civil society, academia and philanthropy over conversations that reached new levels of ambition to change how our finance system delivers capacity to develop and address climate change. Leaders made clear they want their economies to be resilient to risk, including climate, and to increase their agency when climate disasters hit them. 

The few financing deals concluded to get money moving immediately included a debt restructuring deal with Zambia and just energy transition financing partnership with Senegal. New commitments from the World Bank, France, US and UK to use climate resilient debt pause clauses will help to give developing countries breathing room on debt repayments when climate disasters hit.

New pledges to re-channel special drawing rights (the IMF reserve assets that were released during COVID to help governments manage their balance sheets) get the world closer to the $100bn target intended to open up new fiscal space for developing economies. That target is not quite met though, despite IMF Head, Georgieva’s fanfare, as the tally relies on a $21bn pledge from the US that is tied to their domestic political battles. Leaders missed the opportunity to immediately open up the usefulness of this reserve asset by channeling them through MDBs as well as the IMF trust funds with restrictive eligibility criteria, though calls for this are included in the concluding roadmap. 

Overall, while welcome, these pledges don’t yet represent the kind of downpayment needed to restore confidence in these multilateral institutions nor activate the levers that could mobilise the trillions in private capital called for at every Summit roundtable. 

The Summit Chair’s Summary and Roadmap do offer a vision and pathway to getting there. The MDBs needed a mandate to evolve towards global challenges, to seek further capital injections and to be more creative in their use of their Capital Adequacy Frameworks. And they got all three. 

Issues around debt sustainability still feel intractable; but the emergence of leadership from Kenya and Colombia to set up a new Global Expert Review on Debt, Nature and Climate offers hope. They’re set to establish it by COP28 with a mandate to assess the impact of debt levels on the ability of countries to accelerate a just, resilient transition.  

Barbados brought new innovations for managing the disproportionately high costs of borrowing for developing countries by enhancing the currency risk management architecture. 

The energy, the dynamism and the big new ideas continue to come from developing countries. It is vital that the developed countries now step up and deliver. We will see where the courage and commitment lies as President Macron gathers signatures to the concluding outcome document named Paris Agenda for People and Planet.  

Rebooting the system requires protracted efforts, long-term focus, solid political support and ongoing activism from civil society. It doesn’t have to take an age – Kenyan President Ruto reminded us the original Breton Woods institutions were designed over a three-week summit. France committed to co-convene a stackable summit alongside the Summit for the Future in September 2024 so we have our end point. 

Paris Summit roadmap raises expectations for finance system transformation

Written by Hanna Fekete, Imogen Outlaw, Santiago Woollands, Anja Gebel, Laura Sabogal Reyes, Erin Landy, Jake Schmidt

A joint blog by NewClimate Institute, Germanwatch, E3G, and NRDC by Hanna Fekete, Imogen Outlaw, Santiago Woollands, Anja Gebel, Laura Sabogal, Erin Landy, and Jake Schmidt.

Following the release of their “Instrument Methods” for Paris alignment, the World Bank Group published accompanying sector notes for Energy and Extractives; Agriculture and Food; Transport; Environment, Natural Resources and Blue Economy; Water; as well as Urban, Resilience, Disaster Risk Management, and Land.

The notes detail the approach to assess whether different types of projects in these sectors are aligned with the Paris Agreement. The World Bank Group will update the notes, and will publish six more for additional sectors. In this blog we look at whether the approaches in the notes are sufficient to avoid financial flows that conflict with the Paris Agreement.

Our analysis shows a mixed picture, where the approaches for some project types complement and provide more clarity and detail to the general instrument methods. The sector notes include a few particularly positive features, like a comprehensive approach in terms of project type coverage and a promising approach to lock-in risk assessments, particularly for but not limited to the power sector.

Still the notes leave room for improvements. For some critical project types, for example technical assistance for oil and gas, the level of detail seems rather low. And the risk assessments could be undermined by too much freedom for staff conducting the assessment, for example the choice of analytical model and data sources and the option to focus on an asset-level assessment rather than assessing the project in its context and other projects in the pipeline. In other cases, guidance promotes the adoption of low-carbon alternatives without referencing the threshold for low carbon or clarifying how this is assessed.

A consideration of the detailed elements that the sector notes provide can spur thinking about different projects and countries’ transitions in the context of a global decarbonisation. However, the notes alone will not prevent the projects that could be in conflict with the Paris Agreement to be filtered out.

Here are a few concerns about the sector notes and Paris alignment:

Too much room for oil and gas. The World Bank Group decided in 2017 to no longer provide direct finance to upstream oil and gas after 2019. Civil society groups have criticised that this promise has been broken various times. It is disappointing that the sector notes explicitly allow technical assistance for upstream oil and gas projects under certain circumstances. The sector notes also allow fossil fuel transport infrastructure, as long as it can be repurposed, including blends between fossils and synthetic green fuels. The question of repurposing and blending comes with many uncertainties given that green gases will fill a niche in a decarbonised energy sector, and should not be used as an argument to build up infrastructure for fossil fuels.

Reliance on NDCs, LTSs and CCDRs. Like the overarching Paris alignment methodology, the sector notes require the projects to be in line with countries’ climate targets, which in aggregate are insufficient to limit temperature increase to the agreed levels and often lack sufficient detail to guide investment decisions, risking future carbon lock-in and stranded assets. The sector notes require assessments for some project types to consider Country Climate and Development Reports (CCDRs), but allow flexibility in how the diagnostics are applied in the Paris alignment assessment of operations, and the CCDRs themselves would benefit from more standardisation across countries to ensure a high level of quality. And so far, there are only 25 CCDRs and it will take a while to comprehensively cover most countries. World Bank Group does not publicize the comprehensive data or modelling that is behind the CCDRs, so the Paris-compatibility of those recommendations is also hard to follow. Provided the issues around standardisation and transparency of data are remedied, the CCDRs are a potentially standard-setting vehicle if they are based upon 1.5°C aligned strategies. For the land sector, previous analysis from NewClimate found that CCDRs are “a lost opportunity” because they generally lack a clear vision of a Paris aligned land sector, especially when it comes to livestock emissions.

Reiteration of the universally aligned list. Like the instrument methods, the sector notes state that specific categories of projects under each sector are exempt from the Paris alignment assessments since they are listed as universally Paris-aligned on the joint MDB list. However, many of those activities would merit scrutiny with regards to Paris alignment, either because their climate risks might not always be negligible (e.g., port infrastructure, aquaculture), or because they could benefit from an alternatives assessment to identify the most climate-positive design and maximize their transformative impact (e.g., public services, water supply systems).

Focus on risk mitigation, neglect of opportunities for climate action. Similar to the instrument methods, the sector notes focus predominantly on providing support for the identification of potential climate risks in operations, i.e. on doing no harm to the Paris climate change mitigation goals. The sector notes go into quite a lot of detail on different sub-categories of investments to outline potential risks; yet, they fail to list potential climate-positive measures or provide guidance on how to design operations in a way that mainstreams opportunities for green development or how to identify the most climate-positive alternative. This focus on risk mitigation, however, neglects the fact that achieving the Paris goals urgently requires transformative action.

Enhancement of resilience through the investment is not considered. While the sector notes include considerations of resilience and adaptation risks that could arise for investments, i.e. the problems that climate change impacts could cause for the investments, they do not consider negative systemic impacts on climate vulnerability that might arise from the investment (e.g., an agricultural project that relies on irrigation, potentially worsening water scarcity in the case the region is hit by a drought). Nor do they provide guidance on potential measures to increase a country’s resilience to climate change in that sector through the investment, e.g. prioritising activities that increase resilience over others.

Most methods leave room for interpretation. While some flexibility is essential to cover different contexts meaningfully, we find that the sector notes leave a high degree of freedom for the project officers to set parameters of the analysis, thus allowing for a range of different outcomes. A lack of transparency on selected analytical models and data increases the risk that unaligned projects slip through. In addition to a risk of mis-alignment with temperature limits, a lack of guidance can be a burden for project officers, leading to inconsistent outcomes for similar projects and failing to provide indications for future projects to be developed. For agriculture and food, for example, we find that the impact of this guidance will hinge on how stringent the definition of climate smart agriculture is. The energy and extractives note, for example, describes feasibility as “technically feasible and economically viable”, but the fast and comprehensive transitions that are required will often have to go beyond what is typically considered economically viable by the banks, and depending on the counterfactuals chosen, project officers are likely able to drive the outcome of the analysis to a large extent.  

The World Bank’s approaches highlight the positive development impacts of Paris alignment beyond climate change. The sector notes show examples of how a closer look at implications around the Paris Agreement does not only foster mitigation, adaption and resilience, but also additional development benefits. A good example is the transport sector, where the approach for road infrastructure projects requires a qualitative assessment of how the project can be designed so that it also promotes public and non-motorised traffic. This makes roads safer and more accessible also to people without their own private vehicle. A checklist on what options to consider could even further enhance this approach (see previous analysis of Germanwatch & NewClimate, table 13). The energy note includes considerations on a just transition in the power sector, with the objective to “retain workers for new areas of employments and strengthening social protection” after the closure of coal mines of power plants. This best practice approach should be applied across all operations involving the phase out of other fossil fuels.  

A potentially promising approach to lock-in risk assessment for the power sector. For the power sector, i.e. mainly fossil gas power plants, the risk assessment includes consideration of feasible lower-GHG emissions alternatives, whether the operation could prevent or slow down the transition to lower-carbon alternatives and the operation’s economic viability in the face of the energy transition (“stranded asset assessment”). This is a comprehensive and forward-looking set of considerations, which, if applied thoroughly, will prevent non-aligned investments in the power sector. However, as explained above, there is room for interpretation in the methods, potentially threatening the overall strong framework.

Relatively comprehensive coverage of what will be assessed. The sector notes include direct investments as well as technical assistance and policy-based lending. Lending through financial intermediaries is somewhat awkwardly grouped in with “investment project financing” and would benefit from more detail and its own instrument method. While the notes say that projects with a high level of direct emissions will require higher scrutiny, they also include projects with low emissions. This would identify projects for example for infrastructure that do not emit greenhouse gases themselves, but could cause indirect emissions elsewhere or prevent or slow-down the transition. In the Agriculture and Food note we find a good overview of potential risks of development policy finance on land sector emissions, feasibility studies, technical assistance and other measures that insinuate other interesting solutions to decreasing emissions from the sector and remove barriers, although more details and examples are missing.  Additionally, the notes cover development policy financing – support for governments to improve service delivery, strengthen planning frameworks, and implement regulation – which includes consideration of policies’ impact on GHG emissions and potential for future carbon lock-in, particularly for urban planning and the building sector.

An integrated perspective on climate across instruments and sectors. In some cases, the notes seek to provide an integrated perspective on how different financing or technical instruments can work together to address climate-related risks or challenges hindering the deployment of low GHG alternatives. This is the case for the agriculture and food sector note which mentions that relevant measures to mitigate lock-in risk for investment operations might include elaborating climate-informed national plans for sub-sector development – something that could be supported through development policy operations and/or technical assistance. However, this is not alluded to in other key sectors such as energy.

The notes also explicitly consider how to leverage potential GHG wins across different sectors. This is important because an integrated approach can enhance overall consistency and effectiveness of operations, in terms of both climate and development impact.

On its website, World Bank does not describe the process or timeline for updating the notes or instrument methods, but provides contact details for feedback to the bank, indicating the possibility of future revisions of the methods.

To strengthen the framework for Paris alignment in the context of the sector notes, World Bank could:

Emphasise the mutual benefits between climate change mitigation, adaptation and other development goals. We found links to win-win effects between development priorities and climate action in some sector notes, but a more comprehensive approach to integrate the positive impact of climate action on SDGs in the notes would help to harvest the synergies, foster the inclusion of climate-transformative measures in projects, and make the framework more attractive to developing client countries.

Continue capacity building of staff and advance analytical approaches. The World Bank is already considerably investing in building internal capacities, e.g., by training staff on Paris alignment. These efforts need to continue across the WBG including staff based in country offices. Furthermore, climate diagnostics, i.e. the application of the sector notes and related analysis, need to be regularly conducted and mainstreamed into projects, and the early and systematic involvement of staff in the climate division needs to be improved, e.g., by creating respective internal accountability mechanisms. Finally, as technological development is a dynamic process, it is important that the results framework of projects include a monitoring & evaluation (M&E) mechanism which allows for learning at the country and programmatic levels.  This will strengthen the robustness of the assessment process performed by staff across the Bank guided by the sector notes.

Publish as much data and analysis on Paris alignment project assessments as possible: Transparency will allow others to understand the rationale of the approach, increase scrutiny of the assessments and hence enable accountability. It will also provide a structure to interact with civil society in a meaningful way and discuss concrete problems in order to continue improving the bank’s Paris alignment approach.

The World Bank’s sector notes encourage the consideration of transitions, but lack sufficient detail to ensure full alignment with the Paris Agreement

On Wednesday, February 15, 2023, World Bank President David Malpass announced he would step down from his position at the end of June 2023, about a year before his term ends. Mr. Malpass has led the Bank over the last four years amid compounding crises, including the global pandemic, economic downturn, and accelerating impacts of climate change.

The next World Bank President will assume the role as the institution transforms its mission and purpose as part of an effort to evolve the MDB system, an initiative spearheaded by U.S. Treasury Secretary Janet Yellen. At the end of 2022, the World Bank released its Evolution Roadmap, detailing a plan to reshape its mission and scale up financing to address growing global challenges.

The members of the IFI Working Group have described expectations for the next World Bank President and reacted to the announcement:

Bank Information Center: Statement on the Resignation of World Bank President David Malpass

Center for Global Development: What the Biden Administration Should Be Looking for in a World Bank President

The ONE Campaign: Tweet from ONE’s President Tom Hart

E3G: Tweet from Public Banks Program Leader, Sonia Dunlop

Oxfam: World Bank "evolution" test will be hiring process of new President: Oxfam

The IFI Working Group Reacts to the Resignation of World Bank President David Malpass

Multilateral development banks (MDBs) have a rare opportunity to define the future of climate finance. This year, several development lenders are conducting policy reviews that will determine the types of energy projects they sponsor in borrowing countries for years to come. Their decisions will set the tone for private banks—and shape whether we can achieve the Paris Agreement’s temperature goals.

This is a perfect time for multilateral development banks to quit fossil fuels and fully commit to clean energy. Many have already made important progress on this front. The African Development Bank is leading the way in funding adaption to climate chaos. The fossil fuel exclusions in the European Investment Bank’s climate bank roadmap are a benchmark for peer institutions.

But E3G’s research shows that no development bank is moving fast enough to uphold its obligations under the Paris Agreement. These banks are officially tasked with promoting development and reducing poverty. By continuing to back old-school fossil energy solutions, they are instead driving climate chaos—and exacerbating all the problems they are supposed to fix. For example, the World Bank is financing natural gas extraction in Guyana, while the Asian Development Bank underwrites pipelines in central and south Asia.

This year no less than four multilateral development banks are updating their energy policies: the Asian Infrastructure Investment Bank (AIIB), African Development Bank (AfDB), European Investment Bank (EIB) and European Bank for Reconstruction and Development (EBRD). And within the World Bank and Inter-American Development Bank (IDB) this remains a hot topic. All of these processes must make significant progress on ending all international public financial support to fossil fuels, boosting energy efficiency and energy access, and focusing on small-scale distributed renewable energy solutions.

The outcomes of the energy policy reviews could have a massive impact on climate finance flows. Compared to private banks, public banks control a relatively small amount of the money that is available for climate investments. Yet they have unmatched power to set financial trends. If public banks ditch fossil fuels, then commercial lenders will soon follow, and climate progress will speed up. A clear example is the EIB’s 2019 decision to phase out practically all fossil fuel lending – including gas. This decision sent shockwaves through the global gas market, forcing investors around the world to rethink their project pipelines.

The AIIB will set the tone of these policy reviews as the first multilateral development bank to revise its energy strategy. It needs to strengthen its new approach, as the current draft lacks a credible methodology for the bank to determine if projects are aligned with the Paris Agreement. This leaves the bank open to supporting gas and oil projects on a large scale, in contradiction to what the latest Intergovernmental Panel on Climate Change report recommends.

At AfDB, the first step of the new energy policy should be to formalize the de facto ban on coal financing announced by its president in 2019. Furthermore, the AfDB should demonstrate its commitment to the Paris Agreement by avoiding large gas infrastructure projects, such as the LNG project it financed in Mozambique in 2019. E3G research has shown that this has not led to the expected economic and development gains.

The EIB and a majority of EBRD’s shareholders have signed the statement on ending support for fossil fuels from last year’s UN Climate Change Conference, COP26. Their energy strategies will close the last remaining loopholes for ending fossil fuel support.

E3G will continue to closely monitor and feed into these energy policy reviews. We are committed to engaging with multilateral development banks on the path forward—because we know that they can and must become the climate champions we need them to be.

E3G

Contacts

Danny Scull

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