This week’s World Bank meetings coincide with Extinction Rebellion protests around the world and climate change will be on the agenda more than ever, demonstrating once again just how fast previous financial paradigms are being disrupted.
The Multilateral Development Banks (MDBs) are in the process of transforming their operations to align with the Paris Agreement, and following the recent Secretary-General’s Summit on Climate Change we can foresee the end of financing for new coal power generation – perhaps by the COP26 negotiations next year. Hearings for the proposed new European Commissioners have reinforced the messages that climate is a mainstream financial issue and Europe is taking a strong lead on greening public finances by allocating substantial budget lines and refocusing the mission of the European Investment Bank.
One of the reasons for this is that the human, economic and financial impacts of climate change are ever more apparent. This year due to climatic conditions California has announced power shutdowns for well over half a million citizens rather than risking a repeat of the wildfires caused by power lines last year, a tragedy which also shocked markets into understanding the financial vulnerability of PG&E. In New York the Bank of England announced that it will stress test the UK financial system’s resilience to climate change against ‘catastrophic business as usual’ and ‘ideal’ climate change scenarios, working with credit ratings agencies and the Network for Greening the Financial System to develop its approach.
Climate change is currently one of the key, if unspoken, dividing lines within membership of the World Bank and among its board. Debate around this year’s replenishment of the International Development Association’s capital has shown both that climate is a key priority for many of the Bank’s shareholders, and that it is also a topic of controversy within the Bank.
In the future both the World Bank Group and the International Monetary Fund will have an important role to play in leading the transition to a global net zero economy and helping to protect national economies from climate-related instability. This potentially transformative role extends to the other MDBs too, and their Paris Alignment process should be used not only to look inwards at their own operations but also outwards to determine a transformative role in the climate transition. The voices of protesters and those impacted by climate change are increasingly being audible, leaving us in no doubt that responsible climate risk management is required for sound economic and financial management.
In this E3G newsletter James Hawkins sets out how development finance institutions can lead on heating and cooling while Sonia Dunlop addresses the opportunity to end coal financing. George Triggs highlights a UK government inquiry which has the potential to reshape how public finance addresses climate change, while Tom Jess and Sandrine Dixson-Declѐve set out the huge opportunity for sustainable finance leadership which is now in Europe’s hands.
Programme Leader, Sustainable Finance