COP29 Presidency Expresses Concern Over World Bank and IMF's Negligence on Climate Issues
Climate Funding Uncertainty: Major development banks grapple with funding challenges for poorer nations
There's a pressing need for increased climate-related spending, with developing nations, excluding China, estimated to require $1.3 trillion yearly by 2035 to transition to renewable energy and fortify their economies against escalating weather extremes. Yet, the current funding commitments are nowhere near this amount.
Rich nations pledged to escalate climate finance to $300 billion annually by 2035 at the United Nations COP29 summit in Azerbaijan last year, a sum that critics deem inadequate. To make up for the shortfall, Azerbaijan and Brazil, hosting this year's COP30 conference, have launched an initiative, expecting notable contributions from international lenders. So far, only two—the African Development Bank and the Inter-American Development Bank—have responded to the call to engage with the initiative.
COP29 president Mukhtar Babayev expressed concern over the lack of engagement and urged international lenders' shareholders to assist in addressing these issues. He fears that a tumultuous global environment is distracting key players who should be bridging the climate finance gap.
Azerbaijan's top climate negotiator Yalchin Rafiyev noted a "worrisome trend" in the reluctance of development banks to discuss climate finance, given their expected role in providing essential funding in the absence of other sources. The World Bank, being the World Bank's biggest shareholder, has instead pursued a different direction.
At the World Bank, climate-related investments account for 45% of its total lending, with an equal split between emissions reductions and building resilience. Despite this commitment, the US Treasury Secretary Scott Bessent encouraged the bank to focus on "dependable technologies" rather than "distortionary climate finance targets." This could translate to investments in gas and other fossil fuel-based energy production.
Constrained by political headwinds, these lenders are the largest providers of international public finance to developing countries. Critics assert that disengaging from climate finance would prove detrimental to both the institutions and their clients, as they risk losing ground in shaping the economy of the future to other banks, like regionally based MDBs.
It's crucial to remember that wealthy developed countries, whose greenhouse gas emissions contributed significantly to global warming, are obligated to meet climate finance obligations to poorer nations. Other countries, such as China, make voluntary contributions.
Finance has long been a contentious issue in UN climate negotiations, with donors regularly falling short of past finance pledges and commitments far below what experts deem necessary for developing nations to tackle the climate crisis. This week in Bonn, the financial commitments from rich countries became a point of contention once more.
Recent cuts in foreign aid spending by European nations have heightened concerns that budgets for climate finance could also face reductions. At COP29, multilateral development banks estimated they could provide $120 billion annually in climate financing to low and middle-income countries, mobilizing another $65 billion from the private sector by 2030.
Rob Moore of policy think tank E3G states that these lenders, if they choose to retreat from climate-related lending, would be doing a disservice to both themselves and their clients. The World Bank, in particular, has made significant strides in aligning its lending with global climate goals, positioning itself to play a vital role in shaping the future economy. The World Bank declined to comment on the record.
Sources:[1] AFP[2] ODI[3] World Bank[4] Carbon Brief[5] Climate Action Tracker
- The developing nations, excluding China, require an estimated $1.3 trillion yearly by 2035 to transition to renewable energy and protect their economies against climate change.
- Critics argue that the current commitments for climate finance are inadequate, with rich nations pledging only $300 billion annually by 2035.
- The African Development Bank and the Inter-American Development Bank are the only ones among international lenders to engage with an initiative launched by Azerbaijan and Brazil to address the climate finance gap.
- COP29 president Mukhtar Babayev expressed concern over the lack of engagement from international lenders and urged their shareholders to assist in addressing climate finance issues.
- Climate-related investments account for 45% of the World Bank's total lending, with an equal split between emissions reductions and building resilience, but US Treasury Secretary Scott Bessent advocates for investments in gas and other fossil fuel-based energy production.
- Finance has been a contentious issue in UN climate negotiations for years, with donors often falling short of past finance pledges and commitments far below what experts consider necessary for developing nations to tackle the climate crisis.
- Rob Moore of policy think tank E3G states that if lenders were to retreat from climate-related lending, they would be doing a disservice to both themselves and their clients, as they risk losing ground in shaping the future economy and being surpassed by regional banks.
