Will the World Bank be a partner for a just energy transition in developing countries?

Over the last five years, the World Bank has emerged as the leading development lender for energy generation, taking a role traditionally held by China. The Bank has heralded a potential new era of infrastructure lending, particularly in renewable energy, while China has been reducing its lending. But whether the World Bank can fully embrace its role as a partner for just energy transitions will depend on its ability to integrate borrowing countries’ institutional needs in three ways: environmental and social oversight of renewable energy projects, avoiding a new resource curse in minerals tied to the energy transitions, and debt relief during financial crises.

Who finances renewable energy in developing countries?

Many observers have expected China to be at the centre of global finance for the energy transition in developing countries, given the emergence of the “Green Belt and Road Initiative (BRI)” policy push. For its part, the World Bank has relied more heavily on the “cascade approach” of directing infrastructure finance through facilitating and mobilising private finance where possible (see Briefing, Civil Society calls for rethink of World Bank’s ‘evolution roadmap’).

However, since its peak in 2016, Chinese development finance has fallen significantly, even in its traditionally strong areas like energy generation. Instead, Chinese support for overseas energy generation has shifted toward foreign direct investment, which intrinsically favours higher-income countries. The Green BRI continues to gain strength as a policy framework in China, with new government guidance and taxonomies emerging each year, but Chinese renewable energy financing overseas has primarily taken the form of investment by private Chinese firms. However, lower-income countries struggle to attract foreign direct investment (FDI); as of 2023, 94 per cent of Chinese equity investment overseas was in high-income countries.

So where can low- and middle-income countries turn to finance their energy transitions without paying the exorbitant interest rates of the bond market? Somewhat surprisingly, the World Bank is on its way back. To be clear, the World Bank’s current renewable energy portfolio is still miniscule in comparison with the $1 trillion per year in external climate finance needed to avert the worst of the climate crisis, according to the Independent High-Level Expert Group on Climate Finance (IHLEG). However, the Bank’s pivot toward energy has begun and is likely to accelerate in the coming years thanks to its recent adoption of a mission that includes working towards a “livable planet”, its recent decision to end a ban on nuclear energy, and the possibility that it will revive lending to upstream natural gas projects.

As a result, while Chinese energy lending dwarfed World Bank energy lending a decade ago, the reverse has been true since 2019. The World Bank has committed over $7 billion in renewable energy (solar, wind and geothermal) and over $2 billion in hydropower, compared to Chinese development finance institutions’ (DFIs) $1 billion in both of these sectors combined, according to new data from Boston University. These levels amount to a tiny fraction of the international climate finance needed to avert climate catastrophe, but are crucial nonetheless. The IHLEG concludes in its latest assessment that public climate finance is “insufficient” overall, but points out that multilateral development banks (MDBs) represent the only major source of climate finance that is “trending upward”. The fact that developing nations have so few options to finance their own transition other than turning to the bond market makes it all the more urgent that DFIs direct their limited assistance as well as possible.

The World Bank’s pivot to renewable energy: the best of both worlds or a race to the bottom?

Even though China’s direct lending for energy has fallen, its renewable energy advantages may still be harnessed for the energy transition in the Global South when those firms compete for and win bids for World Bank-financed projects. Data recently compiled by the Center for Global Development (CGD) shows that over the last decade, approximately one-third of World Bank contracts by value associated with renewable energy and hydropower generation went to Chinese contractors.

This arrangement brings important potential benefits, combining Chinese technological and cost advantages with the World Bank’s environmental and social framework (ESF) and procurement framework. The ESF is far from perfect but has still helped World Bank projects have significantly lower environmental and social risk profiles than Chinese development finance projects. In 2022, China issued Green Finance Guidelines for banks to develop environmental and social risk management processes found in the ESF, including community consultation processes and grievance mechanisms, but as of mid-2025 has not yet published key performance indicators to track banks’ progress in developing these practices. Until these components are established, advantages remain in combining World Bank finance and Chinese contractor know-how. Furthermore, recent CGD research shows that using Chinese contractors does not significantly affect World Bank project outcomes. Finally, the World Bank’s AAA credit rating allows it to lend at lower interest rates than China’s DFIs, lessening sovereign debt risk for borrowers.

However, it is an unavoidable fact of World Bank history that the devastating environmental and social consequences of large hydropower projects – most notoriously the Narmada dam project in Gujarat, India – were a major cause of the development of the World Bank’s environmental and social risk management (ESRM) practices in the first place (see Observer Autumn 2017). The prospect of the World Bank returning to its historical emphasis on hydropower may reasonably raise concerns regarding whether the ESF as it currently stands is sufficiently robust to learn lessons from cautionary tales of the past (see Observer Summer 2025).

Indeed, the timing of this pivot in the context of competition with Chinese DFIs may put downward pressure on existing standards. One major reason why borrowing governments seek out infrastructure financing from Chinese DFIs rather than from the World Bank is the institutional ease of relying on their own environmental and social oversight, instead of facing the “hassle factor” of the World Bank’s ESF. But given the speed and competition of DFIs’ pivot to a land-intensive sector like renewable energy generation, the potential for a “race to the bottom” in environmental and social governance is a risk that must be taken seriously.

Beyond solar panels and windmills: just transitions for mining countries

As the World Bank itself has noted, the global energy transition will require a new extractive boom, particularly in newly-industrialised minerals such as lithium, chromium and nickel, which are predominantly found in Latin America, Africa and developing Asia, respectively. A just energy transition must grapple with the prospects of reinforcing the “resource curse” that has trapped developing countries in boom-and-bust cycles plagued with high inequality and economic stagnation for generations. In fact, helping nations break out from the resource curse is one major purpose for the existence of development finance. However, the World Bank has traditionally eschewed industrial policy in developing countries and has only recently begun to consider its potential relevance to renewable energy industries. If developing countries are to remain tied to their traditional sectors of specialisation – especially minerals production in this case – the World Bank has a mandate that encompasses strategising with developing countries for potential trajectories toward sustainable development and diversification within those sectors, particularly in the face of resurgent mineral commodity markets.

The World Bank approaches this role most notably through Country Climate and Development Reports (CCDRs), which are collaborations among the World Bank, the International Monetary Fund, national governments, academic experts and civil society. These chart pathways for countries to engage with the international economic trends associated with the global energy transition in a way that prioritises their economic development goals. Unfortunately, most CCDRs do not develop strategies for mining countries to ensure that any new extraction boom is carried out in a sustainable or inclusive way. Recent Boston University research shows that out of 54 CCDRs reviewed, 22 of which noted potential economic benefits of transition mineral development, just nine included actionable strategies for environmental and social governance of mineral booms. The same research shows that World Bank mineral-sector policy lending, designed to support institutional capacity building at environmental and social ministries that oversee mining conditions, has largely not yet extended to transition mineral-exporting countries. In other words, while the World Bank has embraced its role as a partner for the energy transition for developing countries’ energy sectors, it has not yet fully stepped into its role as a partner for their mining sectors.

Debt justice as climate justice

As the energy transition will necessarily bring a return to prominence for minerals markets, it will undoubtedly accentuate the economic boom-and-bust cycles for commodity producers that lead to recurring debt crises. As mentioned above, World Bank lending typically carries lower interest rates than Chinese DFI lending, resulting in a lower debt burden for borrowing countries. Furthermore, neither China nor the World Bank have provided much debt forgiveness since the outbreak of the Covid-19 pandemic in 2020 – Paris Club creditors rightfully claimed credit for providing most of this support. However, China did at least provide significant rescheduling of debt payments, while the World Bank did not.

While recognising the need for stronger debt relief generally, the World Bank has focused on providing “net positive flows” during the current debt crisis, continuing to release funds rather than restructuring existing commitments. However, a growing consensus among global creditors has called for a more proactive role. The G20 has explicitly called for multilateral creditors “to develop options … to deal with debt vulnerabilities such as domestic adjustment, net positive financial flows and debt relief.” By relying on the “net positive flows” approach, the World Bank risks simply bolstering other creditors such as bondholders, who may be repaid out of these new World Bank funds, resulting in little overall improvement for the borrowing countries themselves. In order for debt relief to be meaningful it needs to incorporate all creditors – including bondholders, bilateral creditors and multilateral creditors such as the World Bank.

Recommendations: policy for a just transition

Whether the World Bank can fulfil its potential as a partner for a just energy transition in developing countries may depend on three major policy areas: the strengthening of the ESF, its role in advising and supporting mining countries, and its participation in debt relief during times of financial turmoil. Each of these areas will require significant participation from borrowing countries, academic researchers and civil society members.

In 2024, the World Bank began a process to “streamline and strengthen” ESF implementation by evaluating borrowing countries’ own environmental and social standards and relying more heavily on them where possible. Such a move could address the “hassle factor” mentioned above but may bring pitfalls of its own. In 2017, examining a range of DFI-financed infrastructure projects in the socially and environmentally sensitive region of the Andean Amazon, my co-authors and I found that both national government standards and DFIs ESRM processes are crucial. When one is absent, project performance frequently suffers, as governments have strong incentives to circumvent their own standards to expedite prominent projects, and may do so when external DFIs are not independently verifying compliance. The success of the new ESF approach will depend on whether the World Bank continues to work actively with host country counterparts or leaves oversight to them. Civil society will need to play an active role in ensuring it is the former.

Secondly, regardless of who finances renewable energy expansion, the demand for developing countries’ mineral resources will expand, putting stress on oversight ministries and raising the risk of entrenched boom-and-bust cycles. Currently, most World Bank CCDRs do not account for managing these risks, and World Bank policy lending for sustainable and inclusive mining practices largely omits transition mineral producing countries. For the World Bank to fulfil its mandate as a development partner, it will need to begin centering the goal of sustainable and inclusive development for mining countries and expand mining policy support to include transition mineral producers. The current process of World Bank “evolution” allows for expanding concessional lending beyond low-income countries, which may allow for the World Bank to constructively engage in this way.

Finally, the World Bank will need to grapple with the fact that ascendent transition mineral sectors will raise the likelihood of future debt crises for producing countries, based on volatile global commodity prices. The World Bank need not jeopardise its AAA credit rating to participate meaningfully in upcoming debt relief cycles. After all, World Bank interest rates are comparatively low to begin with, and so the World Bank should get some credit for this concessionality when it comes time to bear the costs of debt crises. Advocates may consider pushing for the use of “fair comparability of treatment”, which would bring the World Bank and other multilateral creditors to the table under more favorable conditions than high-interest bondholders.

About the author

Rebecca Ray, Global Development Policy Center

Rebecca Ray is a Senior Academic Researcher at the Boston University Global Development Policy Center (GDP Center). She leads the Forests, Agriculture and Indigenous Rights in the Belt and Road Initiative (FAIR-BRI) workstream, which produces policy-relevant research on local social and environmental risks and impacts of Chinese overseas economic activity. She also leads GDP Center research on China in Latin America. She oversees the annual China-Latin America and the Caribbean Economic Bulletin series and was lead editor for the books China and Sustainable Development in Latin America: the Social and Environmental Dimension and Development Banks and Sustaina.bility in the Andean Amazon. She holds a PhD in Economics from the University of Massachusetts-Amherst and an MA in International Development from the Elliott School of International Affairs at the George Washington University.