Today’s Key Takeaway: “As it stands, the World Bank’s climate portfolio does not target resources to ensure that mitigation financing is going where potential gains in emissions reduction are greatest. In turn, the portfolio fails to target adaption financing where the needs are greatest.”
What Counts as Climate?
The Breakthrough Institute, June 14, 2023
Preliminary Evidence from the World Bank’s Climate Portfolio
The World Bank is one of the largest providers of development finance to poor countries. In recent years, it has been under immense public pressure, mostly from its richest shareholders, to expand its climate portfolio. It has set ambitious targets to finance climate change mitigation and adaptation projects in low- and middle-income countries. As a result, its climate portfolio has undergone a significant expansion, especially after the publication in 2016 of the World Bank Group Climate Change Action Plan.
Too often, climate finance has become a proxy for climate outcomes when it comes to agenda-setting and strategy at the multilateral development banks. Over the last 18 months, the World Bank’s shareholders have led a major reform push that would have the Bank focus more on climate, with the discussion focused almost entirely on optimization of the institution’s balance sheet to scale up climate finance.
Whatever the merits of this agenda, it should not proceed to the exclusion of a much more intensive focus on how the Bank is programming its climate finance. Previous reports from Oxfam and the Overseas Development Institute have asked important questions about the levels of funding and rebadging of flows.
We build on this work to present evidence at the project level that suggests that the state of knowledge related to how the World Bank’s climate projects reduce emissions or help poor countries adapt to climate change is rudimentary at best.
We examine the World Bank’s climate portfolio of 2554 projects between 2000 and 2022. We look at the share of financing labeled as climate mitigation (projects that help limit climate change by reducing greenhouse gas emissions or removing greenhouse gases from the atmosphere) and climate adaptation (projects that help countries cope with present and future effects of climate change), and the corresponding amounts of money committed by the World Bank.
We find that the Bank has a climate portfolio skewed towards mitigation, both in middle-income countries and in energy-poor, low-income countries. Further, hundreds of projects tagged climate—many in poorer countries—appear to have little to do with climate change mitigation or adaptation. A plain reading of these project documents sheds no light on why they are labeled as climate change projects.
Analysis of the data shows that the World Bank project selection does not appear to be guided by a strategy to help poor countries adapt to climate change. Adaptation—and its overlap with poverty reduction—is difficult to define, and the Bank has avoided any precise definition in project selection.
Projects devoted solely to climate change are more likely focused on mitigation, even in poor countries with low emissions. The Bank only adopted adaptation-specific targets recently, reflecting a strategic preference for climate change mitigation during most of the period in which the institution has provided climate finance.
In sum, the evidence presented in this paper suggests the World Bank has a long way to go in demonstrating the value of its climate projects.
The quality of project-level reporting to date raises questions about appropriate targeting of climate dollars, what counts or should count as climate adaptation, and the degree to which climate mitigation tagging can demonstrate a clear link to emissions reductions in every instance. External “pressure to lend” for climate could be exacerbating these problems and almost certainly creates internal incentives that prioritize volume over quality.
Going forward, the Bank’s shareholders and climate advocates should apply more scrutiny to how the World Bank is spending climate money and not simply how it is raising it.
Method for data analysis
The Bank provides a detailed description of every project that it funds on a public database called the World Bank Projects Database. This database provides important information for a project—the amount of financing, the amount committed by the World Bank to the project, whether the financing was provided by the Bank’s market window (IBRD) or its concessional window (IDA), the approval and closing dates and the name of the implementing agency.
The database also categorizes the project by themes, one of which is “environment and natural resource management.” Climate change is a subcategory of this theme, and the project database notes the percentage of project funding allocated to addressing climate change. The World Bank notes the following:
The climate change percentage (climate finance) shown under the Environment and Natural Resource Management Theme refers to the original amount of IBRD/IDA financing that was committed at Board approval stage. The World Bank estimates climate finance ex-ante, using the joint Multilateral Development Bank (MDB) methodologies for tracking climate finance in climate change adaptation and mitigation.
An example of this categorization is shown in Figure 1. In the example below, the project is tagged as 100 percent climate, with all of it devoted to climate adaptation. As a result, the entire dollar value of the project is attributed to climate adaptation financing.
We examine 2554 projects that are tagged “climate change” out of a total of 12,000 projects. The projects have funding ranging from 1 percent of the loan allocated to climate to 100 percent of the loan. The next section describes the frequency distributions and corresponding funding for projects tagged from 1 percent to 100 percent climate, for the overall portfolio. The following section looks at the distribution of adaptation vs. mitigation projects in the Bank’s portfolio. We conclude with some observations on how the Bank can improve its work on climate.