Which way to go? Comments on the World Bank’s Evolution Roadmap

The document “Evolving the World Bank Group’s Mission, Operations, and Resources: A Roadmap” or just “The Evolution Roadmap” marks the beginning of what may become the most important reform of the World Bank for many years. The roadmap was written after calls for major reforms to make the Bank more able to tackle the multiple crises of today, including climate change, by several institutions and persons, including the US Treasury Janet Yellen.* It also follows the G20 Capital Adequacy Framework (CAF) recommendations on how Multilateral Development Banks can lend more without needing new capital, which were welcomed by G20 ministers in July 2022. 

The roadmap was discussed by the WB Board in December 2022 and made public in the end of January. Decisions are foreseen at the Annual meeting in October.

The main proposals in the roadmap can be summarised as follows:

• Revisit the twin goals of eradicating extreme poverty and boosting ”shared prosperity” (increase equality) in a sustainable manner.

• Lend more money and shift focus from the world’s poorest countries – which account for only 2 percent of global GHG emissions – to middle-income countries that are responsible for 60 percent.
  
• Increase capital, in order to give concessional loans to middle-income countries without decreasing soft loans to low-income countries (IDA-loans).

I have found a few comments to the document online, and partly building on these I offer the following six points as a contribution to the forthcoming discussions at the Spring meetings in April.

1. Some of the proposals appear to be absolutely necessary to modernise the operation of the Bank, such as: 

• Broaden the definition of poverty and use other criteria than poverty (GNP per capita), for instance climate vulnerability, as lending criteria.

• In country level engagement: include broader definitions of poverty, shared prosperity, and sustainability, as well as countries’ exposure to, as well as contribution to, global challenges.

• Put stronger focus on crisis preparedness, disaster risk reduction, and crisis response.

2. Rather than adding new objectives to the World Bank’s mission, global challenges should be integrated in the mission and throughout the Bank’s work. Agenda 2030 is a blueprint and framework for such an integration.

As ODI notes, expanding the mission of the World Bank to cover global challenges “cannot simply be ‘additive,’ but should reflect the critical interdependence between development and climate goals. The future of development finance is to deliver sustainable, inclusive and resilient growth, not development and climate activities on separate tracks”. Likewise, IDDRI argues that “a collective agenda for action such as the 2030 Agenda and its SDGs can provide the holistic framework that is needed for MDBs to more clearly determine investments with positive spillover effects between SDGs and adjust or stop those with negative contributions”.

3. The ideas on how to address climate change and other Global Public Goods are too vague. Integrating climate into World Bank core business is long overdue, but there are and should be other institutions who provide climate finance.

Today, the WB and other IFIs deal with global commons like the climate in an ad hoc, often unsustained approach of relying on one or another donor to one or another trust fund. A 2020 study found that the World Bank had by then already created 100 climate-related trust funds since 1988. The failure to deliver on climate is not for want of a new trust fund. The World Bank needs to reform its core operations, integrating climate throughout its work and making sure all its funding is aligned with the Paris Agreement’s goals. Creating trust funds suggests they still see climate as a niche interest rather than the central development and security challenge of the 21st century.

It is long overdue to integrate activities in support of climate resilience and other global commons into the World Bank’s core business. Private and national banks and investors are increasingly integrating climate risks and opportunities in their businesses – that is the economic reality today. In the same way, the World Bank must integrate climate aspects in most if not all of its funding – especially all infrastructure projects and projects which has an impact on land use. Simply put: Stop funding fossil fuels! In the words of Fran Witt from Recourse at a seminar recently: “What is the point of mobilising capital to support climate adaptation and resilience while also continuing to finance the problem: fossil fuels?”

In the Evolution roadmap, however, the Bank suggests that climate concerns should be integrated through the use of concessionality to incentivize countries to invest in projects and support policies to address global public goods (GPGs), especially in MICs. Of course, concessionality (=subsidies) is sometimes needed to make investment in climate transformation happen. But when we are talking about climate subsidies, we are in fact talking about climate finance and the specific commitments that the wealthier countries have agreed to deliver. There are many different channels for climate finance, including the UNFCCC mechanisms such as the Global Climate Fund and the Least Developed Countries Fund. Past experience suggest that the World Bank may not be the best vehicle. As a minimum, it should be clarified how the World Bank complements, rather than competes with, these.

As CGD comments: “The document proposes attracting lots of money to provide subsidies to projects with global public good elements, but makes no case made that those resources would be used efficiently. Past climate funds inside and outside the Bank appear to be terrible at maximizing greenhouse gas reductions per dollar spent. (…) Before proposing the trust funds and the retained profits to back those subsidies, the Bank needs a far stronger case that resources would be effectively used and would not come at the cost of world’s poorest people who are still, at least for the moment, front and center in the first of the institution’s twin goals.”

4. Reform before new money: Adopt the Capital Adequacy Framework (CAF) recommendations before asking for capital replenishment.

The Capital Adequacy Framework (CAF) which was welcomed by G20 ministers in July 2022 included a series of recommendations on how Multilateral Development Banks can lend more without needing new capital (or triggering a downgrade to their credit ratings, which is usually the argument for why the Bank wants more money). Has the Bank considered these recommendations enough, before it calls for new capital? No, not according to some voices.

The Natural Resources Defense Council argues that “the Bank repeats its overused refrain that it needs more funding, when what it really needs is to reform its core operations, integrate climate “throughout its work,” and align its practices with the 2015 Paris Agreement”. Moreover, they say “there is also a lack of urgency in contemplating CAF recommendations”. In a similar way, E3G comments argues that “by not explicitly committing to immediately adopt the G20 Capital Adequacy Framework (CAF) recommendations, or even mentioning SDR recycling, the Bank is leaving stones unturned in its effort to increase its lending capacity”. 

On a general note, it should be noted that while it is true that more private money will have to mobilised to reach the objectives – the same is true for public finance.

5. Make sure increased support to middle-income countries is not at the expense of low-income countries

In the document, the Bank emphasise that concessional money to low-income countries (IDA loans to IDA countries) should be protected. But it is less clear, CGD argues, on how it will ensure that contributions to World Bank climate subsidies in middle-income countries don’t come at the expense of future IDA rounds, making people in poor countries pay twice for climate change.

CGD is also concerned that “the International Finance Corporation (IFC) thinks it can build ‘on the lessons learned about the catalytic effect of IDA’s Private Sector Window (PSW) in LICs’ to develop a multi-donor trust fund for climate, given the lesson learned about the PSW’s catalytic effect is that there really isn’t much of one at all. The nightmare scenario of financing being diverted from effective development projects in the world’s poorest countries to subsidize ineffective ‘climate’ projects in richer middle-income countries is pretty much what you would expect on this record”. 

6. Process, governance and inclusion

Reform is needed, as it is clear that the WB is not fit for current challenges. In order for it to evolve into a truly global institution which embraces Agenda 2030 and contributes to human development and Global public goods, the underlying questions about interdependency, common interests, and power structures must be addressed. This means, the reform agenda and process should be opened up. They must include governance issues and many more stakeholders than the current majority in the Board.

* Yellen had even suggested the option of using more concessional finance to wean middle-income countries off coal, and recently the Group of Seven major economies has been  coal transition projects in South Africa and Indonesia.