World Bank Strives For More Funds For Climate Change Mitigation

• The World Bank is seeking to vastly expand its lending capacity to address climate change.
• The roadmap document – sent to shareholder governments – marks the start of a negotiation process.
• It is to alter the bank’s mission and financial resources and shift it away from a country- and project-specific lending model.

The World Bank management aims to have specific proposals to change its mission, operating model and financial capacity ready for approval by the joint World Bank and International Monetary Fund Development Committee in October, according to the document.

AAA Rating Required

The development lender will explore options like a potential new capital increase, changes to its capital structure to unlock more lending and new financing tools such as guarantees for private sector loans and other ways to mobilize more private capital, according to the document. But the World Bank Group (WBG) is not ready to bow to demands from some non-profit organizations to abandon its longstanding top-tier credit rating to boost lending, stating: “Management will explore all options that increase the capacity of the WBG whilst maintaining the AAA rating of the WBG entities.”

U.S. Treasury Secretary Janet Yellen has called for the World Bank and others to revamp their business models to boost lending and harness private capital to fund investments that more broadly benefit the world. A spokesperson for Britain’s foreign office said the UK “strongly supports” the World Bank proposals to explore all options to further increase support to developing and emerging economies. “The challenges the world is facing call for a massive step up in the international community’s support,” the bank said in the document. 

Inadequate Funding

The roadmap document cautions that a build-up of lending for climate change, health care, food security and other needs may require a capital increase to boost the capacity of the World Bank’s middle-income lending arm, the International Bank for Reconstruction and Development. IBRD’s $13 billion capital increase in 2018 “was designed to be prepared for one mid-sized crisis a decade, and not multiple, overlapping crises” including the COVID-19 pandemic. Another option, according to the roadmap, is for World Bank shareholder countries to step up periodic contributions to the lender’s fund for the world’s poorest countries, the International Development Association (IDA), which have declined in recent years despite increasing needs.

The roadmap also offers the option of creating a new concessional lending trust fund for middle-income countries that would focus on global public goods and be similar in structure to IDA. “A true evolutionary roadmap must commit to ending financing for fossil fuels, industrial animal agriculture, petrochemical infrastructure, corporate-friendly false solutions, and harmful activities in biodiverse areas,” Luisa Abbott Galvao, Senior International Policy Campaigner for Friends of the Earth, said. 

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Source: Reuters

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