Multilateral development banks (MDBs) have successfully positioned themselves as key actors in the global climate finance architecture, as efforts to agree a new global climate finance target floundered at the UN Framework Convention on Climate Change’s (UNFCCC) 29th Conference of Parties (COP29) in Baku, Azerbaijan, in November. Global civil society group Climate Action Network International (CAN-I) called the outcome a “betrayal” by rich countries of “people and planet.”
COP29 agreed a hugely controversial New Collective Quantified Goal (NCGQ) for climate finance, with developed countries proposing only a marginal increase of $300 billion in public climate finance by 2035 – well below the $900 billion per year called for by Least Developed Countries and the Alliance of Small Island States, who staged a dramatic walkout at the close of COP29 negotiations on 23 November. The talks also failed to agree a clear and precise definition of what counts as climate finance, extending a long-running issue.
Kenya’s climate envoy Ali Mohamed lamented, “While the New Collective Quantified Goal appears in writing, its delivery is left to the uncertain goodwill of public and private actors. No guarantees exist that climate finance will come as grants, not debt-loading loans for vulnerable nations. Africa demanded clear targets for mitigation, adaptation and loss & damage management. We received none.”
We found financing for projects involving fossil fuels, human rights violations, and environmental destruction. This raises serious questions about whether the MDBs’ current approach is genuinely helping to address climate change for the most vulnerable people and places.Petra Kjell Wright, Recourse
Ten MDBs, including the World Bank, announced a new joint climate finance target at the start of COP29 on 12 November, with their joint statement noting, “we estimate that by 2030, our annual collective climate financing for low- and middle-income countries [LMICs] will reach USD 120 billion.”
The NCQG’s $300 billion goal includes MDB climate finance to LMICs that is attributable to developed countries via their paid in capital. According to a blog from Joe Thwaites of US-based National Resources Defense Council, using 2022 reporting as a baseline, “the amount [of MDBs climate finance] attributable to developed countries would be $84 billion” by 2030.
“By strengthening the role of MDB finance in the new climate deal, developed countries managed to get away from their obligation to provide public finance in the form of grants at scale to developing countries, cutting these countries’ hopes to effectively deal with climate impacts and transition to a clean energy future,” said Mariana Paoli of UK-based civil society organisation (CSO) Christian Aid. “It not only risks worsening their debt, but it shifts the burden from developed countries to the private sector-first approaches. This reverse in the narrative is pervasive and morally wrong because what will guide finance is where profit can be found and not the needs of developing countries, especially those communities who are most marginalised,” Paoli added.
Rich countries’ strategy to channel climate finance via MDBs risks worsening debt crisis
As noted in a report from Netherlands-based CSO Recourse on the eve of COP29, 63 per cent of MDBs climate finance to LMICs in 2023 was provided as loans, and just 7 per cent as grant financing. This is an urgent concern, as the NCQG result comes amid what debt groups have called the “worst debt crisis ever”. In 2023, debt servicing consumed 38 per cent of budget revenues and 30 per cent of government expenditure across the Global South, with low-income countries seeing their highest debt payments since 1998, surpassing spending on health, education and climate action.
Beyond this, there are serious concerns about MDBs’ approach to climate action, more broadly. “The development banks’ climate finance figures should be read with great caution,” said Petra Kjell Wright from Recourse. “We found financing for projects involving fossil fuels, human rights violations, and environmental destruction. This raises serious questions about whether the MDBs’ current approach is genuinely helping to address climate change for the most vulnerable people and places.”
Despite being observers of, rather than parties in, the UNFCCC, the World Bank and other MDBs continue to grow in prominence in the climate finance landscape: the Bank has long been the host of numerous carbon credit trust funds (see Inside the Institutions, What is the role of the World Bank in carbon trading markets?); established the Climate Investment Funds in 2008, which were initially meant to serve as a temporary bridge while a UN-based climate fund was established (see Observer Summer 2019); and most recently secured an agreement to host the Fund for Responding to Loss and Damage (FRLD) over the next four years (see Observer Winter 2023), with its role as host and trustee confirmed at COP29.
The Bank’s claimed climate finance has grown dramatically in the past decade, reaching $42.6 billion in fiscal year 2024, ending 30 June. However, in an op-ed by Kjell Wright in African Arguments published on 14 November, she noted one of the main problems with MDBs’ climate finance, “is a lack of transparency on what is being counted. For example, Oxfam could not verify 40% – that’s $7 billion – of what the World Bank claimed as climate finance for one fiscal year. The Asian Infrastructure Investment Bank (AIIB) declared that they reached their target for 50% of their financing approvals to be for climate finance in 2022, three years…[before] their 2025 deadline, but failed to make the relevant data public. Meanwhile, the African Development Bank (AfDB) has not published any public record at all of what it counts as climate finance.”
The MDBs’ loan-based climate finance totals dwarf pledges to the Bank-hosted FRLD, which total just $731.5 million, with only three countries making new pledges at COP29, despite the trillions in damages already being wrought by the climate emergency in LMICs.
False solutions abound in a world on fire, with the MDBs at the wheel
With global temperature rise passing a 1.5°C increase above pre-industrial levels this year, the World Bank and other MDBs continue to lead the way in cheerleading for policy solutions that have thus far failed to bend the global greenhouse gas emissions curve.
The World Bank’s pavilion at COP29 was replete with talks about carbon credits as well as efforts to crowd in the private sector into climate finance efforts. This included a new initiative from the Multilateral Investment Guarantee Agency (MIGA), the Bank’s political insurance arm, to insure carbon credits, despite the fact many have been shown to have negligible impact in reducing emissions (see Observer Winter 2024).
The World Bank and other MDBs continue to promote private finance as a solution for climate action, in alignment with their often criticised ‘billions to trillions’ approach (see Observer Summer 2023). World Bank President Ajay Banga jetted into Baku for a single day, in order to promote the Bank’s support for private investment in climate action in an event co-hosted by the IMF and the Financial Times on 12 November, where he was particularly gushing about the Bank’s efforts to create asset classes out of MDBs loans, in order to sell them as securities to Wall Street investors.
In a string of Bank-hosted events on private sector ‘climate finance’, the trade-offs associated with this approach for countries and citizens – including long-term contracts that leave governments responsible for guaranteeing private sector profits, and rising energy and other prices for consumers – were largely skated over (see Report, Gambling with the Planet’s Future). The Bank’s obsession with foreign direct investment appears undimmed, largely ignoring calls to strengthen local currency lending and domestic private sector investment.
In contrast, as noted by PowerShift Africa advisor Fadhel Kaboub, “100 Global South trade unions representing more than 100 million workers signed a joint declaration at COP29, saying that climate finance must reclaim and restore public assets and services, calling for a just and equitable transition.” In their statement, unions called for, “a public pathway approach to addressing climate change, one that requires a major policy shift away from the current ‘privatise to decarbonise’ policy towards a bold pro-public framework.”
With the Bank and its MDBs peers in charge of climate finance, however, climate justice seems sure to remain firmly on the side-lines.
