News / 9 November 2009

A New Climate Bank? World Bank on Thin Ice…

The World Bank, an institution that aspires to achieve global sustainable development, now wants to position itself as an environmental bank. This role does not seem like a natural fit and is inconsistent with the implementation of its policies. So, for example, its climate investment funds' criteria are not ambitious enough to realise a transition to (real) renewable energy.


Moreover, the World Bank claims not to want to interfere with political decisions, while the solutions for climate issues will have to be found through political agreements. Western countries also dominate the decision making processes within the bank, while the climate issue particularly affects the very poorest countries. In short: is the World Bank really suitable for a role as an environmental bank?


Climate change, causes and finance
The current level of global warming has been caused mainly by industrialisation and the modern lifestyle that is particularly prevalent in western countries. Its consequences, however, mainly affect developing countries, especially the poorest people in those countries. They have the fewest means to take measures against the impacts of droughts, floods and rising sea levels. Climate change is thus a reflection of the imbalances in global political and -economic power relationships.


To further counteract climate change (mitigation) and to protect the most vulnerable groups and eco-systems against the effects that are already taking place (adaptation), a global agreement with concrete responsibilities is of great importance. Internationally, there is great division about where the main responsibility lies and how much money can and should be committed and by whom. The question is whether the upcoming climate summit, to be held in December in Copenhagen, will lead to an agreement.


World Bank and UN
The World Bank has not awaited the outcome of the negotiations. On the initiative of a number of its donors, namely Japan, the United Kingdom and the United States, it already established so-called climate investment funds in 2008, for which over 6 billion US dollars have been made available so far. With its mission to combat global poverty and promote sustainable development, the World Bank is becoming increasingly prominent as an advocate of the so-called global public goods, i.e. resources that serve global public interest (besides conflicts and pandemics, other issues such as climate change fall under this).


A lot of money, which could be put to good use in developing countries, will potentially be made available by industrialised countries and companies to avert and adapt to climate change. According to an estimate by Yvo de Boer, Head of the United Nations Framework Convention on Climate Change (UNFCCC) the long term projection is for an annual sum of 200 billion US dollars for mitigation and 100 billion US dollars for adaptation. Compared to the 120 billion US dollars spent annually on development cooperation, on average, these are rather significant amounts. That's why the World Bank is so interested in playing a prominent role.


There are doubts about the legitimacy of the World Bank as a climate bank, however. The World Bank's decision making process is dominated by Western countries. The United Nations (UN) is more representative and the UNFCCC already plays a leading role in the formulation of international climate policy. The World Bank's climate investment funds undermine the UNFCCC by realising international climate policy without waiting until international political consensus has been reached. Moreover, choosing new World Bank funds over funds that were created by the United Nations for the same purpose, expresses little faith in the UN process. In addition, contributions to the World Bank are voluntary and are counted as official development assistance by the donor countries. Seen from the point of view that the polluter should pay, climate funds should always be additional and should not be used instead of aid budgets. Countries like China and India have also indicated that the World Bank's initiatives are unacceptable to them.


The programming content of the climate investment funds has also been controversial. According to their criteria, investments in efficient coal plants and large dams can be financed with climate funds. That would be detrimental to the promotion of energy saving and 'real' renewable energy sources (such as wind or solar energy). Within the framework of the World Bank, there is also the possibility to use climate investment funds not only as donations, but as loans, which means that developing countries could build up debt.


No longer "business as usual"
There is still insufficient awareness at the World Bank of its need to get rid of its "business as usual" pattern. The wide range of existing World Bank investments in coal plants and oil projects are poorly compatible with the environmentally friendly image that they are trying to cultivate. While the Bank has indeed invested more in energy saving and renewable energy in Financial Year 2008, it is disturbing to see that there are still so many large scale investments in the expansion of the exploration and use of fossil fuels (especially coal power plants) and that there has even been a sharp increase in these types of investments in recent years. This makes the World Bank's position on climate change ambiguous and even controversial.


With its climate investment funds, the World Bank, which explicitly states in its Articles of Agreement that it does not want to interfere in the political affairs of its members, finds itself on a slippery slope. Both in terms of interference in political affairs - where the UN should play a leading role - and the need for climate considerations to play a far more fundamental role in all its activities, the World Bank has to find a new balance. Many eyes are now trained on its climate policy. This gives Both ENDS and its partners a bigger opportunity to call for fundamental reforms in the field of sustainability and greater public participation in and transparency at the World Bank.


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