Storm on the horizon? Why World Bank Climate Investment Funds could do more harm than good

A new Eurodad report provides a critical analysis of the World Bank’s role in Climate Finance. Civil society actors have long been contesting the role of the World Bank as an appropriate channel for climate finance based on the Bank’s questionable green credentials and its history of advising economic policy reforms to developing countries.

This report focuses on yet another concern regarding the role of the Bank in climate finance: how the World Bank is planning to disburse climate finance, via its Climate Investment Funds. It concludes that the Bank is not the best-placed institution to channel climate finance, nor does it set high standards for a legitimate and development-friendly climate finance architecture for the future.

Section one of the report, The World Bank CIFs’ financing instruments: fit for development?, critically assesses whether the financing instruments by the World Bank contribute to – rather than hinder – equitable and sustainable development in the South. It finds that only one sixth of the pledged funds will be delivered as grants. Following the financial crisis, many already heavily indebted countries have been pushed further over the brink, and providing loans for climate finance has the potential to deteriorate the financial situation of these vulnerable countries even further.

Section two, Why allocation criteria mean that recipients of climate finance aren’t always the most vulnerable, outlines how eligibility and allocation criteria may constrain the policy space available for developing countries to decide on their own pathways for sustainable development, and it may not favour a needs-based allocation of resources.

Section three, Why private finance is a risky option for the climate crisis, finds that over one third of CIF funding is channelled to the private sector. However, it is unclear what safeguards are in place to ensure that the private sector – which by definition will seek to maximise their profits - contributes to support the most vulnerable and to address the needs of the poor. All too often, public funds intended for climate and development purposes in the poorest and most vulnerable countries are being instead used for subsidising high and middle income countries’ private sectors. Other risks include the high failure rates for private equity investments, the lack of transparency and environmental and social safeguards.

The report concludes by outlining the reasons why – in light of the analysis of the Bank’s delivery of climate finance as it relates to the financing instruments - the World Bank is not the best-placed institution to channel climate finance or to set the highest standards for a legitimate and development-friendly climate finance architecture for the future.

Based on the findings of this paper, Eurodad makes the following recommendations:

• While the greater share of funding for climate finance should be delivered as grants, all adaptation funding must be delivered as grants.
• Lending for climate finance to countries in debt distress should not take place under any circumstances. Grants should be provided instead. Where and if concessional lending is accepted for mitigation in Low- and Middle-Income Countries, existing debt burdens must be taken seriously into account and repayment feasibility assessed realistically.
• The use of financing instruments must be considered in light of developmental outcomes. Whereas loans and guarantees may pile up further debts for developing countries, private equity is a risky and opaque instrument, likely failing to deliver on intended climate purposes and often undermining developing country-led equitable and sustainable development.
• No policy conditionality should be attached to climate financing.  Eligibility for funds and their allocation must be based on need and vulnerability to climate change, not on performance-based methods, meeting policy conditions or complex and irrelevant sets of eligibility criteria and allocation frameworks.
• Funding climate finance by channelling public funds through the private sector involves many risks. Stringent criteria and standards must be applied to private finance to ensure the intended objectives of the funding are realised and that they benefit those most affected.
• The highest standards of transparency must be applied to the management and administration of climate funds, including the full disclosure of the terms and conditions of all financing agreements.

Read the full report:

Storm on the horizon? Why World Bank Climate Investment Funds could do more harm than good : Kb