Institutional leadership and information sharing

Explanation

In 2023, the WBG welcomed a new president and unveiled a new vision and mission: “end extreme poverty and boost shared prosperity on a livable planet”. The Bank Group deserves recognition for being the first MDB to embed a commitment to global public goods within its mission statement. The WBG Evolution process, prompted by shareholders led by the United States and Germany and under the leadership of WBG President Ajay Banga, has kickstarted an ambitious and expansive process to restore credibility and establish the leadership of the WBG on climate issues.

To realise this vision, the Bank Group still needs to deliver on a range of issues. These include: scaled-up analytics to inform and support its incentives framework for investment in global public goods; and proactively engaging on the development of the next generation of country platforms, in view of the momentum behind their rollout as part of wider international architecture reform discussions.¹

Ajay Banga’s tenure as World Bank Group president, beginning in June 2023, has been marked by a strong focus on climate action amid growing pressure for evolution. His leadership has been instrumental in uniting MDBs around reform efforts, as evidenced by the agreement on five principles for systemic collaboration at the 2023 Annual Meetings. The World Bank Group’s renewed vision and evolution agenda have set a precedent for comprehensive MDB reform and have implemented key planks of the G20 Triple Agenda and Capital Adequacy Framework reports aimed at expanding the MDB system, including by enhancing lending capacity and developing a portfolio guarantee platform. However, the Bank Group has lagged in it its efforts to properly value callable capital on its balance sheet and has yet to formulate plans for potential re-channelling of SDRs, each of which could dramatically increase lending for climate and other development goals. Other MDBs are currently experimenting with these concepts, highlighting that while the World Bank Group is a leader on some measures, it has further to go in other areas.

Beyond its internal reform efforts, the WBG has also attempted to be a driver of systemic change through its high-level convening power, including via the number of initiatives it leads or supports. For instance, the WBG hosts the Secretariat of the Coalition of Finance Ministers for Climate Action, which brings together fiscal and economic policymakers from over 90 countries. Through this platform, the WBG actively promotes the greening of financial systems and facilitates knowledge sharing. The WBG also co-leads the Carbon Pricing Leadership Coalition which supports efforts to expand carbon pricing by enhancing knowledge and research around its benefits, as well as mobilising business and doing stakeholder engagement. 

In terms of Paris alignment, the WBG has committed to align all new IBRD and IDA financing flows with the Paris Agreement by 1 July 2023. 85% of new operations at IFC and MIGA were to be aligned by the same date, with full alignment by July 2025. This puts the WBG on par with most other MDBs, though it is behind leaders such as EIB which aligned all new operations by the start of 2021.

A core component of the WBG’s institutional leadership has been its country level work. The WBG has developed a comprehensive range of financial, advisory and knowledge tools, resulting in an in-depth country engagement process. In particular, the development of Systematic Country Diagnostic (SCDs), and more recently the Country Climate and Development Reports (CCDRs), could prove useful across the MDB system. The depth of the WBG’s analytical and practical expertise in this regard could be leveraged in efforts to improve country level donor coordination in support of national climate and development priorities. In particular, contributing to generating consensus assessments of country climate and development needs (which should fundamentally be driven by countries themselves) can help the PDB ecosystem engage in a more effective and complementary way.

The WBG agreeing at COP28 to host the Joint MDB LTS program presents an opportunity for it to leverage its expertise and experience in country level engagement. In close cooperation with other MDBs, the WBG can support countries in setting ambitious decarbonisation trajectories and building climate resilience. This process also has the potential to be transformative in supporting and shaping the development of country platforms, which in turn offers the opportunity to collaborate with and support other PDBs to enhance ecosystem-wide impact, beyond the Country Diagnostic Working Group.  

Finally, the WBG has helped develop new instruments and innovative areas of work with the potential to deliver transformational change across the climate-development landscape. At COP28 in 2023, for instance, this included launching the following initiatives:  

• Climate Resilient Debt Clauses: The WBG, as part of a grouping of MDBs, announced a pilot initiative to offer climate-resilient debt clauses for least developed countries (LDCs) and Small Island Developing States (SIDSs). These clauses allow for the postponement of principal payments in the event of natural disasters attributed to climate change. This provides financial relief to borrowers, enabling them to redirect resources from debt servicing towards disaster response and recovery requirements, and providing them with crucial fiscal flexibility.
• Methane emissions programmes: The WBG announced the launch of 15 country-led programmes which aim to slash 10 million tons of methane emissions by 2030 in areas such as rice cultivation, livestock and waste management. This also includes the launch of the Global Methane Reduction Platform for Development (CH4D), a hub for methane abatement in agriculture and waste, and the Global Flaring and Methane Reduction Partnership (GFMR) which focuses on reducing oil and gas sector methane leaks.
• Voluntary carbon markets: Building on the work of the WBG-led Forest Carbon Partnership Facility (FCPF), the Bank Group announced the launch of a program which will support 15 countries by 2028 in generating and selling carbon credits for international carbon markets from forest preservation activities.

Despite these examples, there remains scope for the WBG to strengthen its climate leadership credentials. As the oldest, and largest (in terms of member countries) MDB, the WBG occupies a unique position as a standard setter and benchmark for ambition across the PDB ecosystem. As a result, it is particularly critical that the WBG aligns with (and in many cases, establishes) best practice in key areas of climate mainstreaming. Given its relatively outsized capacity and influence throughout the wider PDB ecosystem, the WBG should be well advanced across all aspects of Paris alignment. Consequently, relatively slower progress in areas such as financing and technical assistance to support fossil fuels, as well as energy efficiency standards, means the WBG cannot be unequivocally considered a leader on Paris alignment.²

Furthermore, while the WBG has demonstrated leadership in many areas, it needs to further enhance its leadership by working more collaboratively with other institutions. This includes other MDBs but also national and regional development banks. The WBG’s work on collective tracking of climate finance is a good example of this collaborative approach, but there is potential to expand this further, particularly in terms of knowledge and analytics sharing.

Recommendations: 

• The WBG should build on the analytical expertise it has developed through its SCD and CCDR programmes by increasing engagement with a wider suite of finance providers. The WB should systematically collaborate with other PDBs on CCDRs to leverage the WBG’s analytical capacity to the benefit of the broader PDB ecosystem, including through the planning and delivery of country platforms. This would work to both strengthen CCDRs through consultation with other institutions familiar with specific regional and national contexts and improve their usefulness as shared analytical resources to inform country level engagement. This can also help lay the foundation for leveraging the value-add of different institutions in a given context, ensuring countries have access to actively complementary support.    
• The WBG could enhance its approach by refining its Paris alignment methodology to better ensure its financing aligns with the temperature goals of the Paris Agreement. This could be achieved by incorporating an additional scenario check for compatibility with the 1.5 °C temperature goal in the methodology, rather than relying solely on country strategies to verify alignment. 
• Given the WBG’s position of influence in the PDB ecosystem and the centrality of the energy transition to meeting climate goals, the WBG should lead by example in its approach to the energy sector. To strengthen its climate leadership credentials and be considered a leader on Paris alignment, it is therefore imperative that the WBG implement reforms relating to its energy sector operations such as those detailed throughout this assessment.³  

¹ For more information, see the Priorities for the World Bank Evolution Roadmap – Volume II.

² See the “Technical assistance for implementing Paris goals”, “Fossil fuel exclusion policies” and “Energy efficiency strategy, standards and investment” metrics for further details.

³ See the “Technical assistance for implementing Paris goals”, “Fossil fuel exclusion policies” and “Energy efficiency strategy, standards and investment” metrics for further details.