| Paris alignment | Reasoning |
|---|---|
| Some Progress | At the heart of the WBG’s Evolution Roadmap, the Bank Group has adjusted its mission and vision statement to reduce poverty and inequality “on a livable planet”. This update to the Bank Group’s mission and vision reflects the progress in the Bank Group’s ongoing evolution process. At a more granular level, the Climate Change Action Plan (CCAP) 2021–2025 and the WBG’s Approach to Paris Alignment represent an ambitious strategy for Paris alignment across the WBG’s operations. This is complemented by a comprehensive WBG Paris alignment methodology to ensure alignment across Bank Group-funded operations, featuring specific sector notes to guide implementation. However, gaps remain in how the WBG plans to follow up on its commitments – in terms of both Paris alignment and broader evolution. Furthermore, while the “do no harm” principle is present within the CCAP 2021–2025, the Bank Group could be expected to go beyond this, such as by considering a commitment to “do good beyond no harm”, to truly step into the role of the leading global MDB. |
| Climate strategy | Overarching strategy |
|---|---|
| The CCAP 2021–2025 is broadly compatible with the joint MDB Paris alignment commitment, and the principle of “do no harm” is integrated in the climate strategy. Though the current CCAP is an improvement from its predecessor, the lack of precision on commitments beyond the climate financing target of 35% over 2021–2025 (later raised to 45% by FY25) remains. | The WBG’s Evolution Roadmap designates climate change, including both mitigation and adaptation, as one of eight “global challenges” to receive greater focus across its operations. The Roadmap introduces wide-reaching reforms to better equip the Bank Group to address these challenges, including mainstreaming climate considerations across its activities, with tangible progress already achieved. However, the “do no harm” principle is not reflected within the Evolution Roadmap. |
Explanation
Overarching strategy
The WBG announced in early 2023 a reform agenda, known as the Evolution Roadmap, which would see eight “global challenges” (including climate change, nature/biodiversity, energy access and pandemic preparedness) take on a greater focus in the Bank Group’s lending and operations. The strategy entails scaling finance to address the world’s cross-border, global public goods which are often underfunded because individual countries bear the borrowing costs, while the investment benefits are shared. The Roadmap aims to optimise and stretch the Bank Group’s current balance sheet with efficiency measures and mobilise additional finance by de-risking clean development in emerging markets, thus mobilising further private investments.
Since the announcement of the reform, the Bank Group has been conducting consultations on the Evolution process and submitted Development Committee Papers as the basis for the consultations. Climate change was iterated throughout these papers as an intertwined issue of increasing focus at the WBG.
The Evolution Roadmap was initially built upon four pillars: changes to the Bank Group’s Mission and Vision, Borrower Incentives, Operational Model, and Financial Capacity. Shortly after WBG President Ajay Banga took office in 2023, the Board of Governors agreed a new vision statement, which formally endorsed a mandate to include prioritisation of global challenges. Specifically, the Bank Group’s mission now states it will “end extreme poverty and boost shared prosperity on a livable planet”, representing a historical pivot to integrate resilience and sustainability into the Bank Group’s objectives. To tackle the aforementioned eight global challenges, the Bank Group is currently finalising the design of a set of Global Challenge Program pilots (GCPs), which will include climate adaptation, energy transition, efficiency and access, and support for biodiversity.
Further to these efforts, in 2024, the Bank Group announced its Framework for Financial Incentives, a list of incentives to scale demand for, and encourage clients to prioritise, “global challenges” borrowing, in many cases to address climate change. The incentives menu includes lower rates for cross-border projects, volume top-ups, longer loan tenors, and other sweeteners to promote borrowing for global public goods. It is too early to tell whether these will meaningfully increase climate finance, but it is encouraging to see the Bank Group experimenting with new strategies for building demand within a borrower-led framework. Progress on the Incentives pillar also includes a revised and streamlined corporate scorecard to track progress on all dimensions of the Bank Group’s new mission. The complete new scorecard was released prior to the 2024 Annual Meetings and tracks the Bank Group’s delivery across 22 key indicators instead of the previous scorecard’s 150 indicators. However, much remains to be done, including staff incentives for prioritising work on global challenges and developing private capital mobilisation targets.
On the Operational Model, the Bank Group has continued rolling out diagnostic tools for global challenges, such as its Country Climate and Development Reports (CCDRs). In addition, the Bank Group rebranded the Innovative Global Public Goods Solutions (IGGS) Fund to the Livable Planet Fund (LPF). The fund received an initial USD 20 million commitment from Japan, with additional contributions to be expected from the World Bank Group’s net income. This first contribution is in stark contrast to the 2023 budget requested by the (then-IGGS) fund of USD 756 million. This indicates both the need for further fundraising efforts and the LPF’s current relatively limited role in resource mobilisation. Aside from the LPF, the World Bank Group has also expanded its Crisis Response Toolkit to include Climate Resilient Debt Clauses.
While progress has been made on the Evolution Roadmap objectives, there are several opportunities for the Bank Group to further enhance its impact. The Bank Group can work towards streamlining project preparation and loan processes to increase efficiency and responsiveness to client needs. Additionally, there is potential to expand innovative approaches to mobilising private capital, leveraging the Bank Group’s unique position in the global financial landscape. Furthermore, the Bank Group could refine its framework for Development Policy Loans (DPL) to better incentivise and support countries in addressing global challenges. This could include offering more favourable terms for projects that contribute to climate action and other key sustainable development goals. These enhancements would better position the Bank Group to effectively support countries in achieving their development objectives while aligning with critical global priorities.
Finally on Financial Capacity, the Bank Group has put several new reforms in motion. First, it unlocked USD 50 billion in new lending capacity over 10 years, by lowering its minimum equity-to-loan ratio from 20% to 19%. During the 2024 Annual Meetings, the Bank Group further lowered the ratio to 18%, unlocking an additional USD 30 billion in financing. As part of the Bank Group’s Capital Adequacy Framework reforms, this financial innovation, combined with earlier measures, has the potential to unlock more than USD 150 billion in additional financing capacity over a ten-year period. The Bank Group also developed a pilot for hybrid capital issuance to private investors, increased the limit for shareholder guarantees, and established a shareholder portfolio guarantee platform. IFC is currently developing the Warehouse-Enabled Securitization Platform (WESP) to support private capital mobilisation in Paris aligned impact loans through unified loan securitisation. In addition, IBRD is exploring a Private to Sovereign Climate Financing Investment Fund to mobilise private capital from institutional investors for co-financing green public projects. The Bank also removed the statutory lending limit from IBRD Articles, allowing solvent countries to access more climate finance.
However, despite this positive momentum, there is more to be done. The Bank Group must successfully incorporate a prudent share of callable capital into its capital adequacy framework to unlock new lending at scale. Several commentators have also highlighted the potential to further reduce the Bank Group’s equity-to-loan ratio by 2–3 more percentage points without calling into question the Bank Group’s credit rating. It must also publish full Global Emerging Markets Risk Database (GEMs) data, which will provide external investors with deeper insights into markets where it is difficult to find reliable credit information and thereby reduce risk premiums driven by uncertainty.
In addition to the Evolution Roadmap process, the Bank Group’s 2050 Strategic Directions Note looks at long-term country strategies for decarbonisation with clear references to the Paris Agreement. It also includes provisions on how the Bank Group will meet their long-term decarbonisation goals through technical assistance, country-led partnerships, lending and knowledge products. The WBG further announced at COP28 in 2023 that it will host the Joint MDB LTS program to support the development of ambitious decarbonisation pathways aligned with the objectives of the Paris Agreement.
IFC’s Strategy and Business Outlook FY24–26 states that in 2024, the WB, IFC and MIGA will continue to help countries achieve “green, resilient and inclusive development”. Climate Change and Resilience are identified as two of IFC’s five strategic priorities, and their climate priorities will be aligned to the WBG’s Climate Change Action Plan 2021–2025 (CCAP). IFC and MIGA have aligned 85% of all Board-approved projects with the Paris Agreement since 1 July 2023, and will align 100% of their operations by 1 July 2025. They will join the WB, which claims to have aligned 100% of new operations since July 2023.
Although the documents presented above show good progress from the WBG and its subsidiaries in mainstreaming climate considerations into its overarching strategy, the concept of “do no harm” has not been incorporated.1 Considering its leadership role within the PDB ecosystem, the WBG could be expected to have formally adopted such a minimum commitment, ideally going further than this with a commitment to “do good beyond no harm”.
Standalone climate strategy
The CCAP 2021–2025 is the WBG’s core strategy guiding its work on climate change and is set in the context of the Bank Group’s wider Green, Resilient and Inclusive Development (GRID) approach. The plan is based on three principles:
- People must benefit from a low-carbon and resilient future.
- Natural capital is an integral part of protecting the climate.
- The Bank Group will work together with other institutions.
In instrumentalising these principles, five key sectors are identified for transformation: energy, agriculture, cities, transport and manufacturing. This constitutes an improvement from its previous CCAP 2016–2020, however, detail is lacking on what the inclusion of these focus sectors will mean for the WBG’s lending, such as safeguards or precise prioritisation within sectors beyond general remarks on decarbonisation technologies.
Regarding commitments, the CCAP 2021–2025 states that the WBG is progressing towards full Paris alignment (more below). The WBG committed to achieving 35% in climate finance across the implementation period of the CCAP 2021–2025, with at least 50% of the WBG’s climate finance to be allocated to adaptation. At COP28 in 2023, the Bank Group further raised its climate finance target by committing to devote 45% of its annual financing to climate by FY25. The new target represents an additional USD 9 billion to CCAP 2021–2025 programmed funds.
As mentioned, the CCAP 2021–2025 stated the WBG’s commitment to align all operations with the objectives of the Paris Agreement by 1 July 2023 (85% for IFC and MIGA, which will reach 100% by 1 July 2025). The WBG published an alignment approach document outlining its methodology on Paris alignment. The WB has three instruments for assessing the Paris alignment of projects: Development Policy Financing (DPF), Investment Project Financing (IPF, which includes intermediary lending), and Program-for-Results (PforR). IFC and MIGA will use the MDB Principles for Direct Investment Operations, FI and General Corporate Financing. In addition, the WBG has produced eleven Paris alignment sectoral notes which outline sector-specific issues relating to the WB, IFC and MIGA Paris alignment approaches. The principle of “do no harm” is present across all activities in these documents, though it does not go as far as committing to the best-practice principle of “do good, beyond do no harm” adopted by others including the Inter-American Development Bank (IDB). Given the WBG’s focus on climate and development, and its leadership role among MDBs, the Bank Group is well positioned to pave the way for the sustainable transition of developing economies and should therefore strive to be more ambitious.
To develop its in-country work, the CCAP 2021–2025 introduced the CCDR analytical tool, which addresses the interlinked nature of climate and development. More specifically, the CCDRs look at the development prospects of a country based on their decarbonisation trajectories and potential impacts from climate change. The CCDRs have the potential to become a cornerstone to align in-country development finance with the Paris Agreement,2 but require more specificity on how sectoral planning relates to the tangible investment decisions needed to achieve ambitious NDCs and low-carbon transitions. E3G, along with partners, analysed the Bank’s Paris alignment methodology including the instrument methods and sector notes. We found that, being mindful of context specificity, CCDRs would benefit from more standardisation across countries to ensure robustness. They would also be far more useful tools if the sum of the policy proposals was 1.5 °C aligned. Additionally, we recommend that the Bank Group improve transparency behind CCDRs as all underlying modelling and data is currently not public.
Recommendations:
- The WBG should prioritise publishing an updated Climate Change Action Plan (CCAP) to provide a clear framework for climate action. This updated CCAP should outline how the climate-related aspects of the Evolution Roadmap will be implemented in practice. The World Bank Group can thereby demonstrate its continued leadership in climate finance and provide stakeholders with a concrete roadmap for how it intends to strengthen the integration of climate considerations across its operations and investments.
- Given its key role in the global system, the WBG is well positioned to build economic resilience and sustainable growth in response to global challenges such as climate change and set the standard for evolution among PDBs. To fulfil the ambitious goals of the SDGs and the Paris Agreement, the WBG should prioritise completing the remaining reforms in the Evolution Roadmap. This includes further developing business models that encourage the delivery of global public goods, efforts to increase scale such as incorporating a prudent share of callable capital into its Capital Adequacy Framework and publishing full GEMs data.
- The WBG should integrate the principle of “do good, beyond do no harm” to deliver on the Paris Agreement in its overarching strategy, CCAP, and Paris alignment methodology.
- In many cases, NDCs, LTSs, and CCDRs do not offer a complete picture of Paris alignment as they (both individually and collectively) are inconsistent with the temperature goal of the Paris Agreement. Moreover, in some cases they do not cover all the emissions from a country, have not yet been developed (not all countries have LTSs or CCDRs), or are out of date and do not reflect current national and international commitments. As a result, while those documents represent a critical reference point, the Bank Group should also consider establishing a temperature trajectory for its own portfolio to verify whether its operations are consistent with the overall goals of the Paris Agreement. While this should foremostly be grounded in available member country formulations of decarbonisation and climate-positive growth trajectories, it should also draw on the WBG’s (and other development partners’) analysis as supporting data points for verifiable overall alignment.
- Future iterations of Paris alignment methodology documents should include public consultation and that data and analysis on Paris alignment project assessments is transparent to the public.
1 That the activities carried out do not slow down, or work against the achievement of the climate objectives within the Paris Agreement.
2 For an in-depth analysis of CCDRs, please see the “Country level work” metric