World Bank’s $40 Billion Climate Funding Goal May Be Surpassed

By Vandana Gombar, Senior Editor, BloombergNEF

The World Bank Group – the biggest provider of climate finance to developing countries – has become more ambitious. It aims to raise annual climate financing to $40 billion by the end of the next fiscal year in June 2025.

“If we are actually able to do more than $40 billion, I’ll be delighted,” President Ajay Banga told BloombergNEF in an interview in his office in Washington DC.

The Bank increased its target after it found itself ahead of a goal to put 35% of total financing in climate projects. It is now aiming for 45% of all financing to go toward climate projects by 2025.

The $40 billion is proposed to be “split equally between mitigation [actions to reduce or avoid emissions] and adaptation [to adjust to climate change]. There is no science to that number, and I don’t know if it is right,” Banga admitted. The equal split is to make sure that the concerns of the global South as well as the global North are addressed.

The Bank’s new vision is to create a world free of poverty on a livable planet. The latter would mean more climate-linked investments. Climate projects received $38.5 billion last year.

The World Bank Group is made up of five institutions:

  • International Bank for Reconstruction and Development
  • International Development Association
  • International Finance Corporation
  • Multilateral Investment Guarantee Agency
  • International Centre for Settlement of Investment Disputes

The largest shareholders of the Bank – the US, Japan, China, Germany, France and the UK – have endorsed the new vision, and the turn toward climate. They also supported the climate-resilient debt clauses Banga recently announced with Prime Minister Mia Mottley of Barbados for 45 small islands and states.

With almost all his experience in the private sector, the world of multilateral banks and climate has been relatively new for Banga. He picked up a “disconnect” in the conversation, and wondered why the private sector was not “beating down the doors of every country to just throw trillions of dollars” on renewable energy.

After talking to scores of international leaders, he has identified two priorities: to be a catalyst for mobilizing private capital for mitigation, where the Bank will be the junior player, and to be the senior player in adaptation. “That is why the Private Sector Investment Lab got set up, and it’s focused on renewable energy because I believe without them, we won’t get to meeting mitigation needs,” he said.

There is another source of non-private sector funding he flagged for climate projects: the $1.25 trillion that goes into subsidies for fossil fuels and agriculture, the harmful impact of which is estimated to be $6 trillion in a year.

His priority projects include a $15 billion plan to provide renewable energy to 100 million people in Africa, a multi-country effort to monetize carbon credits at premium pricing, a plan to limit methane emissions and to support green hydrogen infrastructure in India.

Q: Let me start with your new vision: When do you see a world free of poverty on a livable planet?

A: It is an aspirational target. We have many of those. At COP28 [climate conference in Dubai], we committed 45% of our financing for climate-related projects in fiscal 2025 [year ending June 30, 2025]. The original target was 35% and the bank was doing better than that, so we raised our aspiration. This will be split equally between mitigation [actions to reduce or avoid emissions] and adaptation [to adjust to climate change]. There is no science to that number, and I don’t know if it is right.

The western world typically approaches climate from the viewpoint of energy emissions – as mitigation – while the global South tends to look at the impact: hurricanes, water problems, soil degradation or biodiversity loss. That is one way to make sure we are true to both sides. The people in the global South need money to build weather resistant infrastructure, and we have to make sure that we focus on bending the curve of emissions-heavy growth. If the middle class in India, Indonesia, Bangladesh and Vietnam grows the way we did in the Western world, then we are all in trouble.

Q: We did some modeling at BloombergNEF to see what would happen if everyone in the world consumed energy like an average American. The 2C level would be crossed by 2027…

A: The developing countries used to say: It is our turn now to develop. That approach has thankfully changed because climate change impacts everyone. The onus is on the developed world to help the developing world with technology, with financing and with capability, otherwise you are asking the developing world to not develop. Without electricity, there is no development.

Q: You have come from a different world – from the private sector, been at the helm of the World Bank for about seven months now, and have met scores of world leaders. As you heard more about energy transition and climate change, what are the things that surprised you, and the things you found most challenging? 

A: My background is with food, Nestle, then PepsiCo, which is food, beverages, restaurants, distribution, logistics. I understand trade because I chaired the International Chamber of Commerce. I was the head of the US-India Business Council for a long time. I understand digital. I understand currencies. I understand payments. I understand markets, but I am not an energy expert. I understand management. I understand target setting. I understand motivation, leadership, people development, dealing with politics, dealing with policy. I am a subject matter expert in financing, so I can understand securitization, private sector risk, loans and all that. A part of my knowledge base is relevant here: managerial expertise, leadership skills, task orientation, strategy, public policy. As the CEO of a public company, you have to engage in public policy. Governments and legislatures decide the space that a company operates in, particularly if you are a multinational. Being attuned to public policy, being attuned to public opinion – those things I understand from earlier. What one doesn’t have is subject matter expertise

The Bank is at least as much of a knowledge bank as it is a money bank, and knowledge bank is where I have a lot to learn. When you want to learn about water and what you can do about improving utilization of water, ask us and get 700 people who can spend time with you. We know so much about forestry, water, biodiversity, nature and renewable energy.

Q: What are the surprises you encountered in your conversations on the energy side?

A: When I first started traveling as a nominee, even before I got the job, I learned about the big gap between mitigation and adaptation. The president of Kenya, William Ruto, in a very respectful way, told me:

“When you talk climate change, you are not talking my language brother. The problem with all you guys from the Western world is you think it’s only about emissions and energy emissions and managing the migration from fossil fuels to renewable energy. That is very important, but I have to live my life today. In my country I’ve had drought for four years.”

The country already has a high share of hydro and geothermal. I realized there was a disconnect in the way we were speaking to each other. That was one big learning.

The second big learning was about renewables. I already knew that the cost per unit of solar and wind is lower than that of power from fossil fuels – before joining here I was working in a private equity firm as an adviser to a green fund called Beyond Net Zero. The question then was – how come the private sector is not beating down the doors of every country to just throw trillions of dollars on this? What is holding it back? I learnt about the importance of regulatory and policy clarity. That is why India’s prime minister Narendra Modi made progress on solar energy. Political risk is also an issue. The idea of political risk being insurable is an interesting topic. As it turns out, the World Bank has a really good institution to provide that – MIGA [Multilateral Investment Guarantee Agency].

The third thing I learned was that there was a scale issue. There could be interest in the private sector to take some projects off the World Bank’s balance sheet – maybe $5 billion of drinking water projects in Africa – but that will not happen. Creating standardized loans which can then become marketable as securities and thereby creating an asset class in the space of ESG investing – that is still far away.

Interestingly, people did not raise FX [foreign currency] as much as I thought they would. A lot of the larger middle-income countries, which is where the renewable energy effort is focused, and that’s where the big payoffs are, they actually have decent local capital markets. This includes countries like India, Indonesia, Mexico, Brazil and Vietnam.

Q: As the World Bank, when you say you are going to split equally between mitigation and adaptation, and one set of projects are positive IRR, and the returns on the other are in terms of impact rather than dollars, don’t the shareholders have some concerns?

A: More private sector capital will go to mitigation and renewable energy than to adaptation. It is easier for a private sector investor to create a spreadsheet with returns of the right type with solar, wind, electric buses, cars and battery systems.

Within mitigation, energy emissions is only one part. Getting agriculture right, along with dairy/husbandry and solid waste management is another big part of mitigation. Getting heavy construction material right – steel, concrete – is another part. And then there is heavy transportation. I don’t think the private sector is ready yet for these challenges, though we are on the cusp of breakthroughs.

We ran some pilots in Maharashtra [in India] where we changed the diet of a cow to reduce methane produced while also improving the milk output. And then there is heavy transportation that we need to decarbonize. Maybe green hydrogen will be part of the answer for trucks and other heavy transport vehicles. It sounds interesting but I haven’t figured it out yet. It is $5,000 a ton. It needs to come down for it to become competitive.

One part of mitigation will get private capital. The other will not as much, yet. For adaptation, I think you will mostly have to put in public money, either government money or MDB [Multilateral Development Bank] money, to start moving the needle on it. We are discussing a multi-billion dollar project on changing the trajectory of soil degradation in Kenya with President Ruto. That has to be from us and him. Where are you going to get private sector money to invest in soil degradation?

My shareholders have endorsed the livable planet idea. They have endorsed the focus on women and young people, and the idea of mitigation and adaptation. They were supportive of my climate-resilient debt clauses announced with Prime Minister Mia Mottley of Barbados. For 45 small islands and states hit by a climate catastrophe, we will waive interest  payments and loan repayments for two years. That is expensive. I have to provide for my liquidity. That extra cost I’m going to absorb through my own concessional funding.

Q: The WBG financing last year was $95 billion, of which climate financing was over $38 billion. What is the number we are looking at in 2025?

A: We think it will be about $40 billion in climate financing in fiscal 2025 [ending June 30, 2025] which is $9 billion more than what was originally estimated with the 35% target. If we are actually able to do more than $40 billion, I’ll be delighted.

Q: And within that $40 billion annual climate financing, what is priority number one for Ajay?

A: I have two priorities. One is to be a catalyst for mobilizing private capital for mitigation because there I will be the junior player, and the private capital will be the senior player, and I will be the senior player in adaptation. That is why the Private Sector Investment Lab got set up, and it’s focused on renewable energy because I believe without them, we won’t get to meeting mitigation needs.

There is another source of non-private sector funding: $1.25 trillion goes into subsidies for fossil fuels and agriculture. The harmful impact of this is estimated to be $6 trillion in a year.

Another source of funding is carbon markets. These markets have been around for a while. They have not done well. The sanctity of the credit is in question, and the pricing is therefore very low. For 15 years, our people have been working on forestry. Where we are doing the project, we can get the  credits certified.  We are working with five countries who have shown interest in monetizing credits (selling them through market transactions) this year, and there are another 10 in the pipeline. They could all generate about 120 million credits over the course of these four to five years. If the countries can get $20 per credit instead of $5 , then this is real money.

Q: Which are the other big climate-positive projects you have in the pipeline?

A: One hundred million people in Africa are going to be connected to renewable energy under a $15 billion project – we will put $5 billion from our own balance sheet, we will bring $5 billion from the public sector in those countries and $5 billion from the private sector. I am trying to extend it to 200 million people. There are 600 million people in Africa without power. If I can connect 100 million by 2030, I change the dialogue.

In India, we are putting billions to work on developing green hydrogen projects.

We have made a very big commitment on methane. We are going to work over the next five years with 15 countries – it may take us a couple years to sign them up and five years to deliver results – to take out 10 million tons of methane by doing that.

Q: What is the World Bank’s stance on fossil fuel-linked financing?

A: There has been no funding for coal since 2010. We do very little direct financing of natural gas – last year we did $179 million. There is trade financing by IFC, but it is a small number. Our attention is off fossil fuels because we are so focused on mitigation and adaptation.

Q: What are your thoughts on the anti-ESG wave in the US, and in pockets around the world?

A: These are things that go up and down. I think the reality of society is that all of us need to worry about our environment, about our society and about our governance. I think it’s the way we have to lead our lives.

Q: What are your KPIs [Key performance indicators] for the World Bank Group? 

A: I want to make sure that the World Bank group focuses more on output than input, so not dollars and projects but impact: How many girls went to school? How many people got a better job because of a skilling institute? How many private sector dollars we crowded in? How much carbon emissions we helped to avoid?

The second thing now that we have the mission and vision defined, and we’re doing the capital adequacy work, is partnerships. Be known as good partners – that is my second KPI. Partner with other MDBs, the private sector and civil society. The bank does not have enough money to do everything by itself. Hence, the Private Sector Investment Lab. We are working with the Inter American Development Bank and the Islamic Development Bank. With IDB, their president and myself will focus on three things: funding for the Amazon, Caribbean climate and digital for girls. I am trying to do the same with others like the Asian Development Bank. For civil society, I want to do more work with the International Rescue Committee, more work with the Ford Foundation, the Rockefeller Foundation and the Wildlife Conservation Society.

There is a third KPI that I want to drive over the next few years. I want client countries who are the receivers of our funding and knowledge as well as shareholders who are contributing to say:  Thank God the World Bank is there. Because they are there, look what we can get done, rather than: Why are we involved in this again?

There are internecine challenges of 189 countries partnering together through a multilateral development bank. I want the focus to be on our impact.

Q: Are your largest shareholders willing to commit more capital?

A: In the hybrid capital and portfolio guarantees programs, they have stepped up. Each shareholder has to get approvals at various stages from various places. It is the same thing with IDA funds replenishment. I can see them engaging very constructively.

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