World Bank’s failure to disclose details of climate finance accounting opens its claim to be leading green financier to scrutiny

4 October 2022 | Guest analysis

Wind turbines in rural Romania. Credit: Jutta Benzenberg/World Bank.

The World Bank is currently the largest multilateral provider of climate finance. However, the quality of its climate finance reporting is woefully poor. A newly released study by Oxfam found that the Bank’s claims of climate finance for fiscal year (FY) 2020, totalling $17.2 billion, could be off by as much as 40 per cent, or $7 billion, based on lack of public disclosure about its project-level accounting. The study covered the International Development Association (IDA), the Bank’s low-income country arm, and the International Bank for Reconstruction and Development (IBRD), the Bank’s non-concessional lending arm.

This calls into question the Bank’s claims that it has met its climate finance goals of 28 per cent of its portfolio constituting climate finance in FY2020, rising to an average of 35 per cent for FY2021-25 (see Observer Summer 2021).

Climate finance is essential to ensure countries and populations least responsible for climate change can adapt to its impacts and transition their economies without compromising the fight against poverty, but the situation is dire. Currently pledged levels of climate finance – “developed” countries pledged in 2009 to mobilise $100 billion a year in climate finance by 2020 – are both inadequate, and unmet (see Observer Winter 2021). Further, according to the most recent Organisation for Economic Co-operation and Development data, 64 per cent of climate finance in 2020 was delivered via debt instruments (rather than grants) which have to be paid back. In a system that is failing so badly, and with climate finance being such a scarce resource, transparency over what finance is delivered and what it is used for is essential. This is made more important given the debt burdens low- and middle-income countries are taking on in order to access limited climate finance.

This lack of transparency should be concerning for stakeholders, especially those in countries and communities who need this climate finance, but also the Bank’s wealthy shareholders.Jason Farr, James Morrissey, and Christian Donaldson, Oxfam

The Bank, along with other multilateral development banks (MDBs), determines what counts as climate finance according to an agreed MDBs joint methodology, which provides guidance for assessing climate finance under an array of circumstances and instruments. However, the level of transparency in its application is wholly inadequate.

Lack of disclosure makes public audit of World Bank climate finance impossible

Oxfam’s new study sought to replicate the Bank’s reported numbers by applying the MDBs’ joint methodology to a random sample of 78 of its FY2020 projects tagged as climate-related. Where the information provided by the Bank was inadequate to allow for the joint methodology to be applied, Oxfam made a systematic set of assumptions. The use of these assumptions caused Oxfam’s estimate of the Bank’s climate finance to diverge significantly from the reported figures. The findings from the sample were extrapolated to make claims about the quality of reporting for the Bank’s entire portfolio.

On average, Oxfam’s estimates differed from the Bank’s reported figures by 35 per cent with a confidence interval of 5 per cent. This means that the Bank could be over- or under-reporting its climate finance by up to 40 per cent – or $7 billion, given total climate finance related lending (IDA and IBRD) was 17.2 billion for the year.  In the worst-case scenario, this would mean that the Bank has not met its claims of providing 28 percent of its finance as climate finance in FY2020, with only around 19 per cent of its portfolio being climate-related.

This lack of transparency should be concerning for stakeholders, especially those in countries and communities who need this climate finance, but also the Bank’s wealthy shareholders. In the absence of this information, it is essentially impossible for the public to hold the Bank and recipient governments accountable for the use of these funds. Increased transparency would help safeguard against greenwashing, overreporting, and underinvesting in mitigation and adaptation.

The Bank is particularly significant among the providers of climate finance as its practices often set standards for other institutions. The Bank should set a high bar for other climate financiers by clearly demonstrating how it calculates and plans to deliver climate finance and measuring whether its efforts are having positive impacts on adaptation and mitigation goals.

There are several actions the Bank should take to improve its climate finance reporting. The Bank should disclose its detailed climate finance assessments for individual projects, and the evidence and justifications in support of their calculations in a way that allows for independent verification. It should also standardise how it reports on climate finance in projects by providing assessments for all projects consistently (current practice seems to vary by project). All this information should be captured in a public World Bank climate finance database. By taking these important steps and others outlined in the report, the Bank would provide evidence to support its claims and set a much higher standard for all climate finance reporting.

Jason Farr is a Policy, Advocacy and Program Advisor at Oxfam on Climate Change and Energy; James Morrissey is a Senior Researcher on Energy, Climate and Poverty at Oxfam America; and Christian Donaldson is a Senior Policy Advisor on IFIs and Economic Justice with Oxfam International.