How can DPFs promote equitable energy access and accomplish climate objectives?
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Article summary
Moderator
- Katelyn Gallagher, Bank Information Centre
Panellists
- Valerie Hickey, Global Director for Climate Change, WBG
- Jon Sward, Environment Project Manager, Bretton Woods Project
- Nadishani Perera, Southern Asia Consultant, Partnership for Transparency Fund
A recording from this session can be found online here.
Katelyn: DPF is one of the World Bank’s three lending instruments. It supports government policy reform programs through direct budget infusions once the government completes a set of agreed prior actions, often involving changes to legislation or regulations. DPFs has long faced criticism from civil society – historically for being a way the Bank can impose its agenda on borrowing governments. More recently, concerns have focused on its limited environmental and social requirements, short implementation timelines that reduce transparency and accountability, and the lack of a mandate for stakeholder consultation, which makes it harder for civil society and affected groups to engage. Today, the Bank is promoting DPF as a tool to help countries meet their climate commitments and energy transition goals, and to support its own target of 45 per cent of the portfolio being climate finance. We’re going to explore how that happens, or doesn’t, in practice.
So, first to Valerie – how does DPF fit into the Bank’s broader efforts to reach that 45 per cent climate co-benefit target and advance its climate and energy transition goals?
Valerie: Every instrument at the Bank matters, because every dollar we lend is about one thing: helping people out of poverty and ensuring the environment they live in isn’t what keeps them there. DPOs are a big part of that. Since 2020 – through COVID, its economic hangover, growing conflicts, and the mounting pressures of climate change – we’ve realised that if we’re serious about building a liveable planet, green projects alone aren’t enough. We have to build green economies. That means three things: strong and predictable policies, credible institutions, and resilient, low-emission infrastructure. DPOs are how we support that first pillar – policy reform. In FY24, we delivered around 59 DPFs worth $22 billion, with roughly 30 per cent climate co-benefits – that’s the share directly contributing to adaptation or mitigation. Our approach is transparent: you can see every DPF, its climate share, and its policy actions online. These are results-based loans – countries make policy changes first and then receive disbursement. We’re not paying on hope; we’re paying for results.
Now, when it comes to climate, the policies we support are those countries ask for. We work at the pleasure of our shareholders – who are also our clients. They want policies that help them grow faster and greener, because that’s the only kind of growth that’s competitive today. Many of these policies are foundational. Take land rights: women make up nearly half the agricultural workforce, but in about 40 per cent of countries they can’t own land. When men migrate because droughts or floods destroy crops, women are left farming land they don’t legally own, unable to access credit for drought-resistant seeds. Fixing tenure rights is climate policy.
We also work on mobile collateral laws – so that farmers can use assets like tractors or carts as collateral for loans. Without that, they can’t expand, store produce, or adapt to climate shocks. These sound like small changes, but they have huge impacts on resilience. And then, of course, there are explicit climate measures like carbon pricing carbon taxes, emissions trading, credit schemes. Through DPFs we help countries design them so they’re fair and effective: reducing emissions, driving innovation, and protecting affordability. Because it’s already hard to be poor – it’s even harder when everything costs more each week. That’s what DPFs are about: policies that create the conditions for greener, fairer growth.
Katelyn: Can you tell us some of the challenges that the bank faces and deals with when balancing between these different things that you mentioned, between the government’s priorities that they want to do with this funding, between the government’s climate commitments, between the bank’s climate commitments, and then bringing in the views of stakeholders as well.
Valerie: And to your question about balancing all these pressures – the government’s priorities, their climate commitments, our own climate targets, and stakeholder views – the first thing I want to say is this: our climate commitments don’t drive what we do in the field. We don’t pick investments because we need to meet a target. We invest where a country’s priorities meet what our economic analysis shows will best help its people out of poverty.
That’s why our CCDRs are so central. They’re the analytical foundation for the technical assistance and policy advice we give governments. They help countries identify which policy reforms can keep their development path on track, accelerate it through cheaper and more reliable climate technologies, and make it more resilient. Because, let’s be honest, nothing frustrates a finance minister more than taking even a highly concessional loan – sometimes a grant – to build something vital, only to see it washed away in the next flood or destroyed in the next storm. Our IDA countries are already spending around 7 per cent of GDP just on interest payments. So, when they take on debt, they want to make sure it lasts, that it strengthens resilience and supports growth for the poor.
When we design a DPF, we don’t just show up and decide which policies to reform. These operations are built on years of policy dialogue, deep analytics, and broad engagement. We talk to civil society, to academics, to different ministries – not just at the top, but across departments – and we try to reach the people who will actually be affected. Is it perfect? Of course not. We can’t talk to everyone. But we do our best to make sure we’ve heard from the right people, that we understand the country’s needs and realities, and that our analysis genuinely supports the outcomes they want to achieve.
Katelyn: Nadishani, in the case of the Sri Lanka DPF, what did civil society organisations want to contribute to this policy reform process? And then what was their experience in trying to engage?
Nadishani: To start with, if you ask an ordinary person in Sri Lanka – or even many in civil society – about policy reform or DPF, they’ll probably look at you and say, what reform? what DPF? when did our government agree to that? And that’s exactly the problem Communication is the first duty of government when it undertakes major policy reforms. And they have the means – state-owned TV, radio, a public service that reaches the grassroots. Even people who don’t have enough to eat often still have access to a TV or radio. If you really want to get a message across in Sri Lanka, you can. We even have local officials who know every family and can reach them directly. So the issue isn’t capacity – it’s political will. There’s simply no priority given to informing people.
That’s tragic, because after the country’s economic collapse people were wide awake. They understood that the crisis came from weak governance and mismanagement – a view even upheld by the Supreme Court, which held the president, finance minister, central bank, and monetary board accountable. People wanted to know how their country would recover and to have a say in it. The two World Bank DPOs that followed covered crucial areas: economic governance, competitiveness and growth, and protection for the poor and vulnerable – exactly where Sri Lanka had collapsed. When I spoke to the Bank for our case study, they said the government supported civil society engagement but lacked capacity coming out of the crisis. So, the Bank took some initiative: for one DPO, they consulted a few CSOs, including a well-established one that helped design the new social protection programme and trained officials. For another, they hired a think tank to run focus groups and town halls across the country, followed by a workshop in Colombo.
All of that was funded through the project preparation budget – which is good – but when I spoke with senior civil society leaders, none of them had been part of those consultations. And even for those who were, there was no clarity on how their input fed into final decisions. The Bank said they shared feedback, even through social media, but clearly it didn’t reach most of us. So people only learn about decisions after they’ve been made – often when it’s too late. For example, one reform under the competitiveness and growth pillar supported solar and wind power. And today we have mass protests over a wind power project in a protected bird migration area – allegations of corruption, environmental damage, and poor site selection. Had there been proper consultation, much of this conflict could have been avoided. That’s why I keep stressing that DPOs are important – we need them. But they bring deep, difficult reforms that affect people’s daily lives. So you must bring those affected people in early. That’s how you build trust and support. It also gives government and Bank experts a chance to explain why these reforms matter, the trade-offs involved, and how compensation will work when people are displaced.
But there’s a bigger issue too. Countries like Sri Lanka that turn to the Bank are often governed by broken systems – systemic corruption, state capture, executive overreach. In theory, we’re a democracy. In practice, parliament no longer represents the people. Sometimes the only recourse left is the courts – and even that’s expensive and difficult. So, if the Bank truly wants to ensure accountability – both to its shareholders and to its clients – it must make sure the money it brings in achieves its purpose. That starts with transparency, inclusion, and political courage to let people be part of the process. My recommendation is to include CSO engagement into every process and step of the development of DPO.
Katelyn: We know no policy or requirement to have stakeholders be involved and consulted in design and follow-up of DPFs. Leaves it up to task team leader for there to be stakeholder engagement.
Valerie: We are committed at the bank for broad stakeholder and shareholder consultations on everything we do. And at different places, do we do it perfectly? Absolutely not. And that’s why GRMs have become such an important part of what we do, Grievance Redress Mechanisms. So when we miss something or when there are voices that feel like they haven’t been heard, there’s an avenue and a vehicle to be raised. Again, are they perfect? No. Do we need to improve? Yes. And we’re in a state of continuous improvement. But this is not something that a TTL gets to decide by themselves whether they consult or not. Every single TTL part of their terms of reference is that when putting together designing an investment, regardless of the vehicle, DPO, IPF, P4R, that we have to consult with the affected people, first of all, which is harder to identify and ring fence for policy reform. Because if you are putting together, let’s say, mobile collateral guarantee law, you can’t reach out to a specific group of people because it’s not just people who own tractors, for example. So it’s harder to identify and that’s why we use civil society more and academia more to get a sense of where the constituencies might be. Again, do we do it perfectly? Absolutely not. But we have to do it and we do it and we’re trying to do it better every day.
Katelyn: Turning to Jon, because I know that you have been looking into kind of what DPLs are funding. So what energy related reforms has the bank been including in development policy financing in recent years? And what sorts of reforms are being climate tagged and counted as climate finance?
Jon: To start, just a bit of context on where policy-based lending fits within the World Bank’s broader climate finance portfolio. Based on the Bank’s own data — and detailed further in our recent reports – DPF makes up a significant and growing share of reported climate finance. Between FY2018 and FY2023, the Bank classified just over $27 billion in DPF as climate finance – about 22% of its total for IDA and IBRD — and that figure has increased each year.
Of course, DPF is fungible budget support: the money goes directly to national budgets and isn’t earmarked for climate spending, even when DPOs are “climate tagged.” So the real test lies in whether the policy reforms linked to those prior actions are genuinely catalytic for climate goals. To give a quick example, if a DPO includes ten policy reforms and five are tagged as climate-related, then 50% of the total financing counts as climate finance.
Our research focuses particularly on the energy sector reforms that have been climate tagged. The World Bank’s policy approach here has been quite consistent over the decades – shifting from state-led energy systems to more privatized, market-based models, aimed at improving access, affordability, sustainability, and reliability. But the evidence, including from the Bank’s own studies, shows mixed results: higher tariffs for consumers, unexpected fiscal burdens from take-or-pay contracts, and cases where efficiency gains benefit investors more than citizens. So we wanted to understand which specific energy policy reforms were being tagged as climate finance. Through an access-to-information request, we obtained data showing that between 2018 and 2023, roughly 70% of energy-related DPF reforms were counted as having climate co-benefits. Most of these align with the Bank’s long-standing reform paradigm — though with growing emphasis on de-risking private investment and other market-enabling policies framed as green transition measures. The largest single category – about 27% of the climate-tagged reforms, across 44 prior actions in 26 countries – involved fuel subsidy removals, largely focused on consumer subsidies. That raises legitimate questions about additionality – whether these actions truly advance green transformation and help countries meet climate goals.
In terms of recommendations, we’re calling for greater transparency in climate finance reporting – especially at the prior action level, which the Bank has commendably begun publishing since April. That kind of granularity is crucial for open, informed debate about what counts as climate finance. We also think there’s room to learn more systematically from past experiences – not only what worked in reducing emissions, but also the social impacts of reforms, such as tariff changes. We need more open discussions on whether these reforms genuinely support pro-poor climate action. And finally, visibility remains a real issue. Even among energy experts in countries with active DPOs, awareness of these instruments is low. Many are unaware that DPFs are shaping national energy and climate policy frameworks. That’s why we’d welcome mandatory disclosure of proposed prior actions while still under discussion – so parliamentarians, civil society, and technical experts can engage meaningfully. Overall, a more transparent and regular consultation process around individual DPOs would be a major step toward ensuring these reforms deliver both for people and for the planet.
Questions and answers
Alizée Le Lannou from Bretton Woods Project: The Bank tags prior actions in DPFs as climate finance if they align with MDB joint principles. But the link to measurable climate impacts is often vague, with no ex-post assessment. For example, in energy-sector DPFs, consumer fuel subsidy removals are justified on climate grounds, yet they are highly regressive, often reversed due to protests, and when implemented, simply raise costs for people with no affordable green alternatives. Does the Bank plan to develop a more robust approach to assess the actual climate impacts of prior actions beyond the initial tagging?
My second question is whether the Bank considered a systemic assessment of how its policy advice through DPFs – linked to market liberalisation and fiscal consolidation – affects governments’ policy and fiscal space to pursue a green economic transformation?
Representative from Philippines Movement for Climate Justice: On transparency and participation, the Bank has said consultations are secondary to what the borrowing country already does. Is there a mechanism at Bank level to monitor these consultations? Do countries submit outcome documents or stakeholder engagement plans beyond the brief paragraph in the DPF loan document? Even with grievance mechanisms, the Bank could take a more proactive role. Also, 2nd DPO in Philippines was accepted before assessment was done. Why is that?
Representative from Bread for the World: Following on from Sri Lanka, the point is about civil-society-led evaluations, not consultations. Governments often hire consultants who are not independent. Does the Bank understand this distinction, and would it support independent civil-society-led evaluations?
Representative from International Rivers: Some projects, like the Inga 3 Dam in DRC, involve multiple lending instruments, including DPFs. Why isn’t there a coordinated approach to consult communities and civil society on both the investment project and the associated DPF? This seems a missed opportunity to show how different instruments work together and engage stakeholders effectively.
Valerie: Thank you for the discussion and for bringing voices from the ground. It is very important to combine this honesty with data, which is what you have done. Regarding climate finance, the joint methodology is an input metric, not an impact metric. At the Bank, we also have impact metrics through our new scorecard, including greenhouse gas reductions and people made resilient. Our goal is to link input metrics to impact metrics to track efficiency and outcomes, though measuring resilience reliably remains a challenge.
On project-specific queries, I cannot speak to the Philippine DPF sequence without further information, but we will follow up to ensure transparency and access to documents. On prior actions, disclosure must balance transparency with the risk of stalling sensitive reforms. Governments ultimately decide how much to disclose. DPOs focus on broad policy reforms, not specific projects, so consultations for project-level impacts, like the Sri Lanka wind project, are covered under IPFs, not DPOs.
Regarding consultations versus independent evaluations, we understand the difference. Independence depends on methodology, rigour, and absence of bias. Many civil society organisations are advocacy-based; their independence is assessed based on the evidence, methodology, and robustness of the work, not the sector focus. We constantly learn from our own projects, other MDBs, academics, and civil society to update our understanding and refine our approaches.
Finally, on systemic questions about fiscal consolidation, market liberalisation, and climate impact, our International Evaluation Group looks at where systematic assessments are feasible. We work with academics, think tanks, and civil society to improve understanding of theories of change and update our approaches regularly. One of the privileges of working for the World Bank is the constant need to reassess and refine our thinking.
Regarding linked projects, this is a key learning point. As we work more closely with IFC and MIGA, we are beginning to geotag investments to understand who is doing what and where. Geotagging a DPO is more complex, as it typically spans multiple provinces, unless it is subnational. Nevertheless, we are improving coordination: if IFC is investing in one location and we are supporting a related project, we aim to align consultations, share information, and work together on stakeholder engagement. Decentralising staff to the field also helps, as teams working in the same country can communicate directly and coordinate meetings with civil society or other stakeholders. It is important to be careful with DPOs. We cannot design a DPO to advantage one specific private sector deal. For example, a mobile collateral guarantee law cannot be structured to benefit a particular company like John Deere; it must remain neutral. Sometimes this requires keeping a degree of separation between the Bank and IFC to avoid any perception of privileging a client.
Ultimately, our goal is learning and continuous improvement: mapping who would be interested in reforms, bringing the right people to the table, and recognising that different actors come with different agendas. Fossil fuel subsidy reform is a prime example: climate advocates aim to reduce emissions, while others represent households that may struggle to pay higher energy prices. These agendas are not always aligned, but it is crucial that the government receives all the information needed to make informed decisions. If we believe the outcome is pro-poor, we support it. Not everyone at the table has the technical expertise for every detail, but experts are available to advise, for instance, on the mobile collateral guarantee law.
Representative from the Bank Information Centre: Caitlin’s comments reminded me of the World Bank’s support to Mexico’s energy reform, which, as you’ll recall, was highly controversial. In a country where energy and oil have long been seen as national assets, such reforms were extremely sensitive. In the documents themselves, there were indicators such as specific numbers of kilometres of pipeline to be built. So while the policy reforms did not say “Mexico City” or “Oaxaca”, there were clear links to infrastructure outcomes.
Given that policy reforms do lead to projects and new investment, how is the World Bank changing or learning now? What is the vision for the design of DPLs and DPOs in this current moment – beyond decentralisation and more regional TTLs – to ensure stronger contextual awareness in countries where fragility is high? In Latin America, for example, opposition may be suppressed, and some stakeholders will not feel safe enough to join consultations like this. How is the Bank addressing those risks?
Representative from WaterAid: Could you speak about climate-related DPFs and how you work with the IMF? I attended a session earlier this week at the IMF on DPFs. Under the Resilience and Sustainability Trust (RST), for example, there are conditions related to water pricing. These are considered macro-critical when delivered through IMF instruments.
Could you explain how such conditions are informed? You mentioned CCDRs earlier, and we know the IMF does not have water specialists. So how does this exchange between the World Bank and IMF work, especially as both institutions evolve?
Valerie: We work in a sector where people are being killed every day, and we must remember those voices and the empty seats — the courage required to speak up for climate and nature. That courage is needed in more parts of the world. It is our responsibility to amplify those voices. That is why we value taking part in this Civil Society Forum and listening to everyone here. We won’t always agree, and we won’t always do what civil society wants – just as civil society won’t always do what we would like but our work depends on bringing different perspectives together and listening. This is also a core part of DPO reform: understanding and adapting to growing fragility everywhere. We do not approve a DPO and then disappear from the sector. We have Country Economic Memorandums coming out regularly; we produce Country Climate and Development Reports every five years in every country, so we continue to evaluate and learn.
In the background, our Development Economics team tests our theories of change, learning from academia, civil society, and our own experience, especially when the evidence contradicts what we previously believed. We constantly refine our approach and check progress through ongoing daily dialogue with governments.
On coordination with the IMF: their mandate is macro-stabilisation; ours is development. So while we have different core roles, policy reforms often overlap. We do much of the underlying technical assessment with governments – work that the IMF may take forward under the RST, or use so that a country can access additional financing. And like we work with all of you, we also work closely with the IMF – all of us operating in increasingly challenging conditions.
Nadishani: I understand the challenges you mentioned – that consultations involve sensitive, difficult reforms and diverse voices, including those with vested interests. But perhaps the way forward is more openness, so all perspectives are heard.
For example, the IMF now holds press conferences during each mission review for Sri Lanka, with press releases translated into local languages and circulated via mainstream and social media. This prevents misinformation – such as claims that the IMF said everything was “great” – and keeps people informed.
I know the World Bank is present for the longer term, but adopting similar communication practices could be valuable – during design, implementation, and evaluation. Periodically updating the public and clearly explaining consultation mechanisms would allow people to engage directly. Governments should do this – but often do not. A new government might adopt these practices if the Bank models them.
Jon: At the World Bank conference this summer the Chief Economist, Indermit Gill, noted that the uneven gains from trade liberalisation show that outcomes have often diverged from the positive-sum predictions of theory. A similar point could be made about market-oriented energy reforms promoted by the Bank in recent decades. Sometimes they succeed – but in other cases people lose out and feel unseen or unheard. At this moment, as the Bank seeks to renew its approach as a One World Bank Group, it is vital to incorporate learning, including from the Bank’s own research.
Finally, there has been discussion around the civic engagement indicator, which will include a DPF component. It is important that this indicator provides an accurate picture of whether civil society is genuinely consulted in DPOs and whether there is a link between consultation and the success of reforms.
