Global leaders gathered last week in Paris for the Summit for a New Global Financial Pact aimed at increasing the financing available for meeting challenges like climate change and unsustainable debt burdens of low-income countries. The Summit came on the heels of several record-breaking weather events ramped up by climate change, including Cyclone Mocha, the strongest tropical cyclone to ever hit Myanmar and Cyclone Freddy, potentially the longest-lasting tropical cyclone on record. These disasters paint a stark picture of the current and future impacts of climate change, particularly in developing countries.
The need for the World Bank to do more to build resilience against these devastating climate threats was one of the major themes of the Paris Summit. Although the Bank is devising some innovative ways to raise urgently needed adaptation financing, overall, the level of action does not seem to be keeping pace with what is needed to meet the climate challenge. Instead, they are relying too heavily on risky hopes of raising private finance. With a new President at the Bank and global attention focused by the Summit there is an opportunity, but it must be embraced.
Developing countries are facing what UN Secretary General António Guterres describes as “an atlas of human suffering” due to the impacts of climate change. The latest IPCC report details widespread and severe impacts that are happening more quickly than previous reports estimated. Reduced agricultural and aquacultural productivity, severe water scarcity experienced by 50 percent of the global population, greater occurrence of food-, water-, and vector-borne diseases, and more frequent and more intense extreme weather events like droughts and tropical cyclones are already affecting vulnerable communities around the world. These impacts are especially severe for developing countries and small island states where mortality from floods, droughts, and storms was 15 times higher between 2010 and 2020. These countries bear little responsibility for the climate crisis but are on the frontlines of its consequences with limited options to respond effectively to the impacts they face today and will face tomorrow.
Extreme weather events and other climate impacts impose large recovery costs, hinder economic growth, and disproportionately hit those in poverty. This endangers the World Bank’s core mandate of ending extreme poverty and promoting shared prosperity. It is adding further to a mounting debt crisis in developing countries which the United Nations says risks a lost decade of stagnant economic growth. There is also a strong economic case for investing in adaptation solutions; every dollar invested in adaptation generates a return of between two and ten dollars, according to the Global Commission on Adaptation. Despite the obvious and growing need, adaptation finance essential for the upfront measures that help reduce the risks developing nations and island states will suffer from climate change is five to ten times lower than what is needed. Demands from leaders in these nations are growing louder with a focus that the World Bank and other global funders do more to provide badly needed assistance.
The drum beat by developing countries was loud in 2021 and 2022 at the UN COP 26 and 27. In response, the World Bank delivered a record $12.9 billion of adaptation finance in FY22 and launched new Country Climate and Development Reports that integrate climate mitigation and adaptation with broader development goals. In December 2022, the Bank released an Evolution Roadmap that proposed expanding its mandate to include global challenges such as climate change. Alongside these high-level responses, the Bank has begun to explore innovative ways to expand available finance. Most notably, the International Development Association (IDA) – the part of the Bank that helps the world’s poorest countries – has grown its lending, even as donor contributions stagnate. Initiatives like PROBLUE are also pioneering an integrated approach to addressing climate and marine risks that will improve the effectiveness of the Bank’s spending.
Ajay Banga, the new president of the World Bank, believes that mobilizing private capital is the best way to meet the financial requirements of current global challenges, including climate change. This idea, that the World Bank can use a comparatively small amount of direct funding to leverage and unlock transformative amounts of private sector finance, echoes the Bank’s “Billions to Trillions” plan, launched in 2015. However, that plan has been sharply criticized for failing to generate anywhere near the promised amounts of funding, particularly in the poorest countries. Today, such a proposition will be even more challenging, as the IMF warns that many developing countries are in acute debt distress and entirely shut out of international private capital markets. Furthermore, it is difficult for private funders to turn the benefits provided by climate adaptation investments, which can be spread across thousands if not millions of people in the form of avoided losses, into specific revenue stream and financial returns. A previous effort to mobilize large-scale private capital via rainforest carbon offsets, designed to reduce atmospheric greenhouse gases and conserve rainforests, has shown limited environmental benefits.
There is a partnership role for the private sector to play in building climate adaptation alongside the international financial institutions. But public institutions such as the World Bank need to lead today to meet the climate crisis and increase the amount of direct climate adaptation finance available to developing countries sooner rather than later. Public actors provide almost all adaptation finance, with development finance institutions (DFIs) like the World Bank accounting for 80 percent in 2019-2020. Funding from DFIs is more affordable, sustainable, and scalable than private sector financing. This increased accessibility of funding is especially critical for funding projects for which it is difficult to capture the benefits in a way that generates revenue. Many of these types of projects – such as early warning systems; restoring and conserving coral reefs, wetlands, and other ecosystems; and improving drainage and coastal protection – offer tremendous value in avoided losses but do not generate predictable cash flows. Funding climate adaptation projects directly and at scale will require donor countries to make reforms and to increase contributions to the World Bank’s IDA and the Adaptation Fund to expand the grants and concessional loans available for the most climate vulnerable countries. To achieve such an ambitious increase, the World Bank will need to draw on the ideas offered in the Bridgetown Agenda and the G20-commissioned report released last November. Ajay Banga has just begun his presidency of the World Bank. The next few months, on the heels of the Summit for a New Global Financial Pact, are a transitional period that provides an opportunity for Banga and the Bank to reform past policies and recognize what is required to lift-up countries and people facing climate change today. By demonstrating leadership and foresight they can work to overcome the inertia and obstacles in funding climate adaptation and meet the urgent need to provide the required capital in short order.
Ajay Banga’s Chance to Prioritize and Reform Climate Adaptation Financing
By Natalie Fiertz
Energy, Water & Oceans
Developing countries are on the frontlines of the climate crisis, facing what the UN Secretary General describes as “an atlas of human suffering”. Despite initial steps, the World Bank is not doing enough to fund climate adaptation projects to help meet this threat, too often relying on risky hopes of raising private capital. Past efforts demonstrate that such an approach is unlikely to succeed, especially in the poorest countries. The Bank should instead prioritize providing direct climate adaptation financing, and a new Bank President offers the opportunity to take the necessary steps to do so.
Global leaders gathered last week in Paris for the Summit for a New Global Financial Pact aimed at increasing the financing available for meeting challenges like climate change and unsustainable debt burdens of low-income countries. The Summit came on the heels of several record-breaking weather events ramped up by climate change, including Cyclone Mocha, the strongest tropical cyclone to ever hit Myanmar and Cyclone Freddy, potentially the longest-lasting tropical cyclone on record. These disasters paint a stark picture of the current and future impacts of climate change, particularly in developing countries.
The need for the World Bank to do more to build resilience against these devastating climate threats was one of the major themes of the Paris Summit. Although the Bank is devising some innovative ways to raise urgently needed adaptation financing, overall, the level of action does not seem to be keeping pace with what is needed to meet the climate challenge. Instead, they are relying too heavily on risky hopes of raising private finance. With a new President at the Bank and global attention focused by the Summit there is an opportunity, but it must be embraced.
Developing countries are facing what UN Secretary General António Guterres describes as “an atlas of human suffering” due to the impacts of climate change. The latest IPCC report details widespread and severe impacts that are happening more quickly than previous reports estimated. Reduced agricultural and aquacultural productivity, severe water scarcity experienced by 50 percent of the global population, greater occurrence of food-, water-, and vector-borne diseases, and more frequent and more intense extreme weather events like droughts and tropical cyclones are already affecting vulnerable communities around the world. These impacts are especially severe for developing countries and small island states where mortality from floods, droughts, and storms was 15 times higher between 2010 and 2020. These countries bear little responsibility for the climate crisis but are on the frontlines of its consequences with limited options to respond effectively to the impacts they face today and will face tomorrow.
Extreme weather events and other climate impacts impose large recovery costs, hinder economic growth, and disproportionately hit those in poverty. This endangers the World Bank’s core mandate of ending extreme poverty and promoting shared prosperity. It is adding further to a mounting debt crisis in developing countries which the United Nations says risks a lost decade of stagnant economic growth. There is also a strong economic case for investing in adaptation solutions; every dollar invested in adaptation generates a return of between two and ten dollars, according to the Global Commission on Adaptation. Despite the obvious and growing need, adaptation finance essential for the upfront measures that help reduce the risks developing nations and island states will suffer from climate change is five to ten times lower than what is needed. Demands from leaders in these nations are growing louder with a focus that the World Bank and other global funders do more to provide badly needed assistance.
The drum beat by developing countries was loud in 2021 and 2022 at the UN COP 26 and 27. In response, the World Bank delivered a record $12.9 billion of adaptation finance in FY22 and launched new Country Climate and Development Reports that integrate climate mitigation and adaptation with broader development goals. In December 2022, the Bank released an Evolution Roadmap that proposed expanding its mandate to include global challenges such as climate change. Alongside these high-level responses, the Bank has begun to explore innovative ways to expand available finance. Most notably, the International Development Association (IDA) – the part of the Bank that helps the world’s poorest countries – has grown its lending, even as donor contributions stagnate. Initiatives like PROBLUE are also pioneering an integrated approach to addressing climate and marine risks that will improve the effectiveness of the Bank’s spending.
Ajay Banga, the new president of the World Bank, believes that mobilizing private capital is the best way to meet the financial requirements of current global challenges, including climate change. This idea, that the World Bank can use a comparatively small amount of direct funding to leverage and unlock transformative amounts of private sector finance, echoes the Bank’s “Billions to Trillions” plan, launched in 2015. However, that plan has been sharply criticized for failing to generate anywhere near the promised amounts of funding, particularly in the poorest countries. Today, such a proposition will be even more challenging, as the IMF warns that many developing countries are in acute debt distress and entirely shut out of international private capital markets. Furthermore, it is difficult for private funders to turn the benefits provided by climate adaptation investments, which can be spread across thousands if not millions of people in the form of avoided losses, into specific revenue stream and financial returns. A previous effort to mobilize large-scale private capital via rainforest carbon offsets, designed to reduce atmospheric greenhouse gases and conserve rainforests, has shown limited environmental benefits.
There is a partnership role for the private sector to play in building climate adaptation alongside the international financial institutions. But public institutions such as the World Bank need to lead today to meet the climate crisis and increase the amount of direct climate adaptation finance available to developing countries sooner rather than later. Public actors provide almost all adaptation finance, with development finance institutions (DFIs) like the World Bank accounting for 80 percent in 2019-2020. Funding from DFIs is more affordable, sustainable, and scalable than private sector financing. This increased accessibility of funding is especially critical for funding projects for which it is difficult to capture the benefits in a way that generates revenue. Many of these types of projects – such as early warning systems; restoring and conserving coral reefs, wetlands, and other ecosystems; and improving drainage and coastal protection – offer tremendous value in avoided losses but do not generate predictable cash flows. Funding climate adaptation projects directly and at scale will require donor countries to make reforms and to increase contributions to the World Bank’s IDA and the Adaptation Fund to expand the grants and concessional loans available for the most climate vulnerable countries. To achieve such an ambitious increase, the World Bank will need to draw on the ideas offered in the Bridgetown Agenda and the G20-commissioned report released last November. Ajay Banga has just begun his presidency of the World Bank. The next few months, on the heels of the Summit for a New Global Financial Pact, are a transitional period that provides an opportunity for Banga and the Bank to reform past policies and recognize what is required to lift-up countries and people facing climate change today. By demonstrating leadership and foresight they can work to overcome the inertia and obstacles in funding climate adaptation and meet the urgent need to provide the required capital in short order.
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