Dear President Banga and Executive Directors of the World Bank Group,
It’s been one year since the World Bank Group (WBG) launched its Paris alignment approach. As the climate crisis accelerates, there remain concerns among civil society organisations about whether this approach will yield the necessary social and ecological transformations to meet global climate goals.
Over the past year, global fossil fuel consumption reached a record high, pushing CO2 emissions past 40 gigatonnes for the first time ever. While advanced economies contemplate potential emissions peaks, lower-income countries face huge barriers in investing in the green transition due to a lack of grant and highly concessional climate finance, and a prohibitively high cost of capital from market-based financing sources. As UN Secretary-General António Guterres warns, "We need an exit ramp off the highway to climate hell. And the truth is… we have control of the wheel. The 1.5-degree limit is still just about possible."
As the world gears up for the UN General Assembly, G7 and G20 Summits, and COP29, it’s crucial the World Bank and its Northern governments – representing the largest multilateral development banks (MDBs) shareholders and creditors globally – use their power to transform global energy policies. This involves providing a credible pathway to ending fossil fuel finance and helping low- and middle-income countries develop robust macroeconomic strategies for green economic transformation, aligned with climate justice principles.
If the World Bank is serious about Paris alignment to fulfil its vision of eradicating poverty and promoting shared prosperity on a liveable planet, it must transform its approach:
- Paris alignment needs to go beyond NDCs
The Bank’s Paris alignment criteria must go beyond implementing countries’ Nationally Determined Contributions (NDCs). Currently, investments aligned with activities listed in NDCs receive funding approval regardless of their environmental impact. According to Climate Action Tracker, no country’s NDC is compatible with 1.5°C of global warming. The 2023 UN Environment Programme says the current pledges made collectively by countries in their NDCs put the world on track for a temperature rise of between 2.5°C and 2.9°C by the end of the century. The Bank needs to be transparent about the metrics it is using to help countries keep 1.5°C alive, in both investment project financing and policy-based lending.
- Unify and strengthen fossil fuel exclusion list
The WBG and its MDBs peers must unify and strengthen their list of universally non-aligned investments in the Joint MDB Methodological Principles. Germanwatch notes a lack of standardisation and ambition in the joint MDB ‘exclusion list’, which currently only excludes coal mining and electricity generation from peat and coal. Policies regarding oil and gas investments vary significantly among MDBs, with the European Investment Bank (EIB) being the only institution to exclude downstream oil and gas investments. MDBs, including the WBG, must expand their exclusion lists to encompass all stages of fossil fuel activities – from production to consumption. Specifically, guidance across MDB operations must rule out high-emitting technologies and fuels, including all forms of fossil gas and captive coal power, and quickly phase out existing gas capabilities to align with limiting global warming to 1.5°C.
- Tighten the loopholes in WBG Paris alignment methodologies
The WBG needs to enhance its methodologies for assessing the Paris alignment of its financing arms. The current methods inadequately consider planetary boundaries, particularly concerning fossil fuel financing. The Development Policy Financing (DPF) methodology allows a DPF prior action (i.e. a policy change required to unlock DPF finance) to align with the Paris Agreement if it “generates significant GHG emissions but is in line with the country’s long-term decarbonization pathway and has a low risk of locking in carbon-intensive patterns.” The guidance notes that staff should consider whether lower greenhouse gas emissions are ‘technically feasible’ and ‘economically viable’ but does not disclose a methodology for this process. This lack of transparency makes the evaluation unclear and open to wide interpretation. A June 2024 briefing by Recourse highlights the loopholes in the Bank's DPF methodology, which has enabled fossil gas expansion at the expense of renewables in countries like Bangladesh and Senegal.
The International Financial Corporation (IFC), the private sector arm of the WBG, needs to address indirect financing through financial intermediaries (FIs) involved in fossil fuel value chains. A December 2023 report by Recourse revealed that MDB funds, including those from the Asian Infrastructure Investment Bank (AIIB) and the Asian Development Bank (ADB), continue to support fossil fuel projects through these channels. The lack of transparency in the agreements between MDBs and their FI clients, along with inadequate and outdated disclosures on their websites, prevents the public from verifying the effectiveness of supposed ring-fencing measures for MDB investments in FIs. Even if funds are ring-fenced to specific non-fossil fuel projects, FI clients can still invest in activities that support fossil fuels elsewhere in their portfolios.
Transformative actions urgently needed
1.5°C is not a goal, but a planetary limit.
As a 2023 United Nations report argues, “Low- and lower-middle-income countries are in the greatest need of affordable finance as they are already saddled with debt, receive disproportionately low clean energy investments, are more vulnerable to volatile fossil fuel markets either as exporters or importers, and may face future stranded fossil fuel assets.”
The WBG should support strategies to scale up grant and concessional finance amid rising commercial capital costs. Grant and highly concessional public finance need to be directed towards low-carbon energy production, agriculture, and transport, and communities' access to clean energy in the Global South.
To prevent exacerbating inequalities, low-carbon development projects must be executed with human rights assessments, respecting Free, Prior, and Informed Consent. Local governments, workers, communities, civil society organisations (CSOs), and trade unions must play central roles in inclusive planning and leadership.
Sincerely,
The Big Shift Global Coalition