Conflict of interest? World Bank’s role in global climate fund causes outcry

14 June 2011

As developing countries and civil society groups continue to warn against World Bank influence in the design and management of the new Green Climate Fund (GCF), further criticism is emerging of existing Bank climate initiatives.

At a United Nations Framework Convention on Climate Change (UNFCCC) meeting in Bangkok in April, Southern civil society groups strongly questioned any future role for the Bank in the GCF, adding to a growing chorus of critical voices from international civil society groups (see Update 75, 74). Speaking at the conference, Teguh Surya of NGO WALHI Indonesia said “we deplore the appointment of the World Bank as trustee for the Green Climate Fund. The World Bank does not have any credibility to be involved in climate financing given its long track record in promoting and funding fossil fuel projects that exacerbate climate change.”

Lidy Nacpil, of NGO Asia Pacific Movement on Debt and Development, argued that the GCF should consider climate finance as “part of the reparations for climate debt owed by rich, industrialised countries to the peoples and countries of the South”. It “must be democratic, accountable, transparent, and governed by a board with a majority coming from South countries, not countries who are responsible for the problem of climate change. The World Bank is not that institution and has no place in designing, setting up or running such an institution.”

At the first meeting of the transitional committee tasked with designing the GCF, held in late April in Mexico City, three co-chairs were chosen in a behind-closed doors process, with no civil society observers admitted. All three were male, and former finance ministers. Alongside chairs from Mexico and Norway, Trevor Manuel, head of the national planning commission in South Africa, was also appointed as co-chair.

At the same meeting controversy broke out over a role for the Bank in the committee’s technical support unit (TSU). The TSU’s design document stated that some job positions would be filled by staff from multilateral development banks (MDBs). Rumours circled that Warren Evans – former environment director at the Bank and influential in setting up the Bank-housed Climate Investment Funds (CIFs) (see Update 75, 73, 68) – had been lined up as the GCF’s design specialist. Developing countries including, Nicaragua, the Philippines and India, argued that the TSU could become overly influential in deciding the design of the fund. They said that any role for the Bank would constitute a conflict of interest, as Bank staff seconded to the TSU would have an instrumental role in constructing a fund that also employs the Bank as trustee.

Nicaragua pointed to international fiduciary standards and to the famous 2010 US court ruling on Enron that precludes the combination of consultancy and fiduciary functions. The Philippines, quoting the sunset clause in the CIFs which says they will cease activity once a new financial architecture is effective under the UNFCCC, said that the involvement of anyone connected to the CIFs in the design of the GCF would also constitute a conflict of interest. Clearly referring to the Bank, developing countries asked that any reference to a specific institution in the job descriptions of TSU members be removed.

Damning reports

In May the UK research body Institute of Development Studies (IDS) published a report on the Pilot Programme for Climate Resilience (PPCR), one of the CIFs. They declare that “the CIFs and the PPCR have paved the way for a longer-term shift in climate finance sources and delivery mechanisms which establish a longer term role for the World Bank and the MDBs in both financing and implementing mainstreamed adaptation. These forms of finance shift the landscape for action on the ground and further frustrate the ability of those most vulnerable to climate change impacts to shape future adaptation funding flows.” The report highlights a consistent lack of developing country and civil society input in the design process of the PPCR, and a lack of participation for affected communities and civil society groups at country level. This led to “a programme and structure more in tune with the donor and MDB agenda than one which seeks to respond to needs of the most vulnerable and establish true country ownership.”

A case study on the PPCR in Mozambique contextualises these critiques. It reveals that the dominant role of MDBs in planning and implementation of the programme meant that it reflected MDB interests as opposed to national priorities for climate resilience. The report concludes that a lack of public engagement and awareness means that “the MDBs undermine the PPCR’s claim that it is ‘designed to catalyse a transformational shift’ in climate change policy and adaptation practice, and increase the risk that it will in fact end up reinforcing rather than transforming ‘business as usual’.”

A late March discussion note by Italian NGO Campagna per la Riforma della Banca Mondiale (CRBM) highlights and critiques the main arguments for a continued and increased role for the Bank in climate finance. In particular, the critique is focused on how the Bank is using its status and public resources to support the expansion of financial markets as a solution to the climate crisis. It highlights similar concerns around the CIFs, noting that a principal lesson learned from the funds is that a continued role for the Bank in climate finance “could limit developing country calls for direct access, recreate damaging donor-recipient aid dynamics, and hinder overall climate finance management effectiveness.”

The paper also outlines a widespread assumption that the Bank has the capacity to leverage large amounts of private finance for climate investments through financial capital markets, which is widely accepted amongst high level government officials. It argues this assumption is part of a wider trend in increased Bank lending to the private sector, and financial intermediaries in particular, based on the premise that an increased role for the private financial sector will be a key engine for economic growth and development (see Update 76). However, the paper highlights that investment in in financial intermediaries very often has a poor developmental and climate impact, is largely directed towards extractive industries, and carries considerable financial risk (see Update 73). The paper also warns against the Banks imposition of insurance-based instruments to mitigate against climate risk, which represents “support for the financialisation of the economy in developing countries, with serious long-term implications for their financial and economic sustainability.”

REDD mist over FCPF safeguards

The Bank’s Forest Carbon Partnership Facility (FCPF) is considering whether to allow multiple delivery partners, including UN agencies and regional MDBs, to implement Reducing Emissions from Deforestation and Degradation (REDD+) grants without applying Bank safeguards (see Update 72). The FCPF charter currently states that all FCPF projects are subject to Bank safeguards, but a task force will instead consider a common delivery approach for implementing agencies, which would negate this provision. A May letter to the Bank, signed by 30 civil society organisations including Greenpeace International and Ghanaian NGO Civic Response, argues that current proposals indicate a significant weakening of safeguards and a potential lack of effective monitoring and supervision of FCPF funding. It says that “the World Bank and donors to the FCPF face substantial legal and reputational risks by agreeing to include delivery partners that do not have accountability mechanisms in place and cannot otherwise demonstrate the substantial equivalence of their safeguards and supervision policies. A correction in course to remedy this accountability gap is urgently needed if the FCPF is to achieve its objectives.”

REDD+ projects are again facing increasing criticism over violations of the rights of indigenous peoples groups (see Update 75, 65). In Mexico, where the FCPF is assisting the government to produce a REDD Readiness Preparation Proposal, indigenous peoples groups are complaining that REDD+ is not addressing outstanding land ownership claims, will not produce co-benefits, and will damage indigenous peoples’ cultures. Miguel Garcia, general coordinator of NGO Maderas del Pueblo del Sureste, said that REDD+ “will alter indigenous culture, will commodify it, giving commercial value to common assets like oxygen, water and biodiversity”. He argued that “under an ecological pretext, the social fabric is being broken down and resentment of and confrontation with the Zapatista grassroots supporters are being accentuated,” he added, warning of the potential of renewed conflict between the government and the Zapatista National Liberation Army, a left-wing group that defends indigenous rights.