According to its own reporting and standards, the World Bank is the biggest provider of multilateral climate finance. According to the Bank’s internal reporting, it provided $38.6 billion in climate finance in fiscal year 2023, marking a 22 per cent increase from fiscal year 2022. The figure below shows the WBG’s reported climate finance in recent years across its four main arms: The International Bank for Reconstruction and Development (IBRD), the Bank’s middle-income arm; the International Development Association (IDA), the Bank’s low-income arm; the International Finance Corporation (IFC); the Bank’s private sector arm; and the Multilateral Investment Guarantee Agency (MIGA) the Bank’s project insurance arm.

Figure 1: Overview of climate finance lending from the Bank (Bretton Woods Project’s adaptation of World Bank reporting)

This upward trajectory seems set to continue, with the Bank now aiming for 45 per cent of its annual financing to be classified as climate finance by fiscal year 2025.

Inflated figures? Lack of transparency around WBG climate finance accounting

WBG climate finance reporting is guided by the multinational development banks (MDBs) Common Principles for Climate Mitigation Finance Tracking, detailed in Appendix C of the 2020 Joint Report on MDB Climate Finance. These principles state that merely acknowledging climate change impacts is insufficient; projects must also give project-specific evidence of efforts to mitigate greenhouse gas emissions or contribute to adaptation efforts. While the Bank provides project-level data on the proportion of projects it classifies as climate finance for its direct lending arms (i.e. IBRD and IDA), it fails to disclose details of which components of the projects are counted as climate finance. For IFC and MIGA, even less information is disclosed about which projects are climate-tagged.

Civil society has raised concerns about the accuracy and transparency of the Bank’s climate finance reporting. Oxfam’s 2022 investigation into the World Bank’s fiscal year 2020 climate finance reporting for IBRD and IDA using the MDBs’ methodology revealed inconsistencies, suggesting that the Bank could have inflated its climate finance by up to 40 per cent (see Observer Autumn 2022). This is not an isolated case; many other civil society organisations unearthed similar issues elsewhere: CARE Denmark and CARE Netherlands in 2021 found an over-reporting of $832 million in 16 World Bank projects assessed for climate adaptation finance between 2013-2017 (Observer Spring 2021); the Centre for Global Development’s analysis of over 2,500 World Bank projects tagged for climate mitigation or adaptation between 2000 and 2022 saw numerous projects unrelated to climate change; and the Bank Information Center, which obtained 51 climate finance accounting documents from the World Bank in April 2022, highlighted inconsistencies between methodology and practice in calculating climate co-benefits, suggesting potential over-reporting. This is problematic, as MDBs climate finance attributed to developed countries’ capital contributions count towards the $100 billion climate finance goal.

Can loan-based climate finance deliver climate justice?

According to the principles outlined in the United Nations Framework Convention on Climate Change (UNFCCC), climate finance should adhere to the “principle of common but differentiated responsibilities and respective capabilities”, stated in Article 2 of the Paris Agreement. This principle underscores the need for global climate justice, recognising that cumulative greenhouse gas emissions primarily stem from countries in the Global North, and that the impacts of climate change disproportionately burden nations in the Global South.

Yet, the climate finance provided by the Bank and its MDB peers to lower-income countries is primarily loan-based, according to their own reporting (see Figure 2).

Figure 2: MDB climate finance by type of instrument in low- and middle-income economies, 2022 in USD $ million (Bretton Woods Project’s adaptation of MDBs’ reporting)

MDBs’ climate finance, though offering better terms than private lenders, still burdens many Global South borrowers with significant debt. This debt, tied to interest rates, compounds existing financial strains. According to the IMF, half of low-income countries are either in or at high risk of debt distress. This means many borrowing countries are unable to sufficiently meet the needs of their people or of climate action, as budgets are taken up by debt repayments. In African countries, over half of government revenues (53.4 per cent) are allocated to debt service, as of 2023.

Low- and middle-income countries, and global civil society, have been vocal in the UNFCCC process on the need for climate finance to be grant-based and reparative, addressing past and ongoing injustices. Ahead of UNFCCC’s COP 28 in 2023, 221 global civil society groups from 55 countries sent an open letter urging world leaders to transform international public finance, advocating for transparent and unconditional climate finance grants. Linked to this call, the Asian Peoples’ Movement on Debt and Development (APMDD) and 51 member organisations urgently called for the immediate, unconditional cancellation of public debt for all countries in need. These demands align with principles of climate justice, aiming to break the neo-colonial cycle that stifles development in Global South countries, leaving them indebted and reliant on the Global North.

WBG climate finance – a handmaiden of green structural adjustment?

Concerted calls have been made to address the climate crisis in recent years, which was one of the rationales for the Bank’s Evolution Roadmap process and the Bridgetown Initiative. However, despite these efforts, calls for the substantial transfer of non-debt creating resources from Global North to South to address what grassroots organisations have called the Global North’s ‘climate debt’ remain largely unheeded. In addition to the challenges posed by loan-based funding, developing countries must increasingly face ‘green’ conditionalities tied to many of the loans they receive.

Green conditionalities align with what Prof. Daniela Gabor labels the ‘Wall Street (Climate) Consensus’ (WSCC). In effect, the WSCC transforms developing nations into de-risking agents for private capital, with international financial institutions helping facilitate this process. This is a great opportunity for finance – and poses great dangers to the wider public and to a just green transformation (see Observer Autumn 2023, Summer 2021; Briefing, Civil Society calls for rethink of World Bank’s ‘evolution roadmap’ as part of wider reforms to highly unequal global financial architecture). Drawing on case studies of projects in South Africa and Zambia, Belgium-based CSO Eurodad revealed in February how this approach entails governments assuming extensive risks to attract profit-driven investors, resulting in higher public debt and destructive community impacts.

And yet, the WSCC remains the main approach the Bank advocates for in its loan conditionalities. A new review conducted by the Bretton Woods Project of the Bank’s development policy financing energy sector-related conditionalities between 2018 and 2023 (see Background, What is World Bank Development Policy Financing?) revealed that the Bank consistently promotes “Washington Consensus” style policy reforms in the energy sector, prioritising unbundling and private sector participation.

The Bank’s private-led approach to climate action argues that the Global North does not have adequate financing for grant-based financing for climate action in the Global South. However, this is based on flawed assumptions, ignoring Northern countries massive spending in other areas. As Lula da Silva, president of Brazil, argued “We cannot accept a green neocolonialism that imposes trade barriers and discriminatory measures under the pretext of protecting the environment.”