In a bleak series of annual meetings of the IMF and World Bank in Washington this week, policymakers left by the Covid pandemic, the war in Ukraine and rising inflation were reminded by the IMF of yet another crisis: climate change.
“The world has gone through shock after shock after shock,” IMF director Kristalina Georgieva said earlier this week. “And there is no pause button on the climate crisis as we face these other crises.”
The point had not gone unnoticed by David Malpass, the Donald Trump-appointed president of the World Bank, who has been under pressure to resign since he declined last month to say whether he believed in climate change caused by humanity. At the annual meetings this week, he repeatedly insisted that he do so.
Despite the overall gloom of a week dominated by rumors of economic instability, ministers and climate advocates say they left with a sense of optimism that the global financial architecture that has existed since World War II could turn to tackle climate change.
“I really think we’re moving towards a certain point,” said Avinash Persaud, special envoy for climate finance to the Prime Minister of Barbados. “There is a recognition that the multilateral development banks need to do much more – especially the World Bank, but not just the World Bank – on climate finance.”
Barbados has spearheaded efforts by smaller, less prosperous countries to secure funds to tackle the ravages of climate change, including by pushing the IMF and the World Bank, both founded in 1944, to change.
Barbados Prime Minister Mia Mottley, who in a recent lecture said that lenders “in the 21st century no longer serve the purpose they served in the 20th century,” has called on lenders to reduce their use of low-yield, long-term debt instruments to to finance the energy transition and to provide financing for climate resilience projects on favorable terms.
There were further signs that the so-called “Bridgetown Agenda” was gaining momentum among leaders of wealthier countries.
This week, the US, Germany and the G7 countries submitted a written proposal to the World Bank, a leading provider of loans and grants to poorer countries, outlining a range of measures to consider.
These include offering concessional financing for climate projects, scaling up the use of guarantees and extending loans to sub-sovereign entities, such as green city initiatives, according to proposals seen by the Financial Times.
The existing multilateral development finance architecture “was not designed” to address “cross-border” challenges such as climate change and pandemics, the paper said, and the world had “funding shortfalls”.
It added: “The world is evolving and the World Bank Group must evolve with it.”
A German official said World Bank management was “more receptive now” to examining reform proposals related to climate finance.
“The World Bank always says they are the biggest climate financier and that’s true, but they are the biggest animal in the city,” the official said. “They need to do more about the climate.”
The paper echoed the comments made by US Treasury Secretary Janet Yellen earlier this month, calling on Malpass to prepare a “roadmap for evolution” by December.
Yellen suggested that development banks in general should make greater use of concessional financing, including grants, to fund investments where benefits are shared globally, and specifically to middle-income countries to help them move their economies away from coal.
Persaud agreed that the lenders should address “the middle-income problem.” “It’s less sexy, but 70 percent of the world’s poor live in these countries and they depend on market debt,” says Persaud. “If you’re climate sensitive and don’t have access to finance and can’t invest in resilience, that’s a problem.”
Claire Healy, director of E3G, a climate policy think tank, said it was “exciting” to see “shareholders acting like shareholders and seeing very clearly what they want to see from their equity,” said Claire Healy, director of E3G in Washington.
“A political coalition is being formed with Barbados and other bigger countries like the US and Germany – to change these institutions, we need a collective political coalition,” Healy said.
During the week, the IMF announced that its new Resilience and Sustainability Trust, a pot of money earmarked to help low-income and most middle-income countries deal with climate change, pandemics and “structural challenges”, is now operational after receiving the first commitments. of $37 billion.
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