It’s no wonder the World Bank is not currently showing sufficient leadership on the climate crisis. World Bank President David Malpass’ recent remarks when asked if he accepts the science on climate change sum it up perfectly. “I don’t even know, I’m not a scientist,” he said, declining to take a public position.
This response came as no surprise to World Bank insiders — the Trump-appointed Malpass is a well-known climate skeptic. What was different this time is that his remarks were aired outside the top corridors of the World Bank and made the news, exposing to a much wider public that the climate agenda is not a de facto and accepted part of the World Bank’s support of global economic development.
With their higher risk appetite and development mandate, multilateral development banks are in a strong position to proactively be part of the climate crisis solutions at the same time as they deliver on their core goals of poverty reduction and economic growth. But they must all do much more than they currently are to support countries in achieving low-carbon, resilient growth.
To give credit where it is due, all the MDBs — the World Bank under Malpass included — have a good track record in scaling clean technologies and enhancing energy efficiency. They all have spending targets on projects supporting climate change mitigation and adaptation. They aim for their operations and investments to be aligned with the Paris Agreement on climate change. High-income countries have fallen short of their commitment of providing and mobilizing $100 billion of climate finance a year. But without loans and grants from MDBs, that target would not even be in sight.
However, tackling the climate crisis requires more than incremental spending and investment in commercial clean technology while continuing business as usual on other fronts.
MDBs are not showing sufficient leadership, especially on phasing out fossil fuels. And particularly given they lend to many emerging economies, of which a number are large emitters of greenhouse gas, they should be at the forefront of climate action, working with their sovereign clients to identify and adopt new technologies and policies that can deliver for both people and the planet.
An example: The European Investment Bank ended financing for fossil fuel energy projects only from 2022 onward and only in response to extensive civil society pressure. Other MDBs have made just verbal pledges and some do not even have a policy on phasing out fossil fuel energy projects.
MDBs could also be playing a catalytic role in developing markets, promoting projects with demonstrated effects, and providing the policy advice necessary for this systemic change. With their deep technical expertise and access to capital, MDBs are well-positioned to support governments to craft and finance lower-carbon, more climate-resilient development paths.
MDB staff know about policy implementation and can share ideas and lessons from their projects and programs across the globe. MDBs offer finance at scale, leveraging their balance sheets, often at rates that are better than what markets can offer. That is why MDBs must help change the narrative: Climate change measures do not have to come at the expense of poverty eradication or economic growth.
It is a case of finding the synergies between them. Low-carbon and climate-resilient economic growth and development will be less exposed to shocks and stresses of all kinds.
MDBs can change their technical offer and support countries to craft climate-smart development strategies which offer more energy security — i.e., less dependence on fossil fuels — lower and more predictable operating costs — i.e., more energy-efficient with no fossil fuel inputs — and co-benefits such as job creation, clean air, and increased fiscal space in the medium term.
And MDBs should use their concessional finance instruments more strategically. For example, if solar has higher capital costs and risks, deploy guarantees to manage this and build a market, as India and Tanzania have done with great success. If countries are highly exposed to climate risk, offer “hurricane clauses,” as Barbados has successfully sought.
For MDBs to truly deliver and support countries in the low-carbon transition, their leaders should be fully behind it. If there were a job description for the role of MDB president, combating and adapting to climate change should be part of it.
But change needs to permeate the whole organization too. A supportive and motivated president is a necessary, but not sufficient, part of the solution in the fight against the climate crisis. With their higher risk appetite and development mandate, MDBs can proactively be part of the solution but they — and MDB shareholders — need to take action now to make it happen.