Climate Finance and Bank Reform

• Author: Bruce Rich
• Position: Attorney and author who has served as senior counsel for major environmental organizations
• Pages: 18-18

Page 18 ❧ THE ENVIRONMENTAL FORUM Copyright © 2010, Environmental Law Institute®, Washington, D.C. www.eli.org.

Reprinted by permission from The Environmental Forum®, Sept./Oct. 2010

Given this record it

would be negligent to

not demand overdue

reforms

Climate Finance

and Bank Reform

The commitment by industrialized

nations of new funds for climate

change mitigation and adaptation in

developing nations is already a real-

ity. e World Bank, in partnership

with other multilateral development

banks, has become the main f‌inancial

administrator of these “climate invest-

ment funds”: $4.3 billion for the Clean

Technology Fund, to support low car-

bon energy investments in developing

nations, and about $1.88 billion in the

Strategic Climate Fund. Donor coun-

tries also have entrusted to the bank

over the past decade some $2.5 billion

in capital for 12 dif‌ferent carbon funds.

is has helped to jump start trading of

emission rights and carbon of‌fsets un-

der the Kyoto Protocol.

Before still more money is commit-

ted, governments and donors would

do well to consider major institutional

problems that have come to light in the

management by the bank of its envi-

ronmental lending and carbon f‌inance.

e environmental integrity of

World Bank carbon fund projects is

undermined by critical problems in cal-

culating whether they f‌inance real over-

all greenhouse gas reductions. A grow-

ing literature has documented the lack

of real additionality in many projects;

i.e., whether emission credits bought

by industrialized countries in develop-

ing nations through projects really con-

tributed to net additional reductions

in GHG emissions. e problem is, as

the U.S. Government Accountability

Of‌f‌ice concluded in a report in 2008,

“it is nearly impossible to ensure that

projects are additional.” e bank ac-

knowledged this huge methodological

hole in its promotion of carbon trading

in a recent review of its carbon funds.

Every year the World Bank’s internal

operations evaluation unit, the Inde-

pendent Evaluation Group, publishes

an Annual Review of Development

Ef‌fectiveness on the bank’s operations.

Last year the IEG focused on the bank’s

record in supporting environmental

sustainability. e f‌indings are disturb-

ing. e 2009 review noted that in

2001 the bank launched a new envi-

ronmental strategy, the goal of which

was to “mainstream” environmental

concerns in major lending sectors af-

fecting the environment. Perversely,

starting in 2002 the review found that

“mainstreaming has decreased in some

sectors such as agriculture, energy and

transport.” For example, as the bank

has gathered in billions in new addi-

tional climate funds from donors over

the past two years it

has lent over $4 bil-

lion for giant new coal

plants.

e report cites sev-

eral major constraints

on the bank’s relatively

weak environmental

performance: f‌irst there is low demand

from the borrowing countries, com-

pounded by “corruption surrounding

resource rents.” e U.S. Senate For-

eign Relations Committee has found

that the bank itself needs to do much

more to f‌ight corruption, particularly

in its own lending concerning natural

resources and large energy infrastruc-

ture projects.

Borrowing countries often have

weak capacity to manage environmen-

tal projects, but more alarming, within

the bank “internal knowledge gaps,

inadequate technical and operational

skills to integrate environment con-

cerns into investment and policy reform

projects, and poor dissemination of evi-

dence on ef‌fectiveness within the bank

impede ef‌fectiveness and limit growth

[of environmental lending].” e bank

only bothers to track results for one

quarter of the environmental initia-

tives it f‌inances; no analytical ef‌fort is

made to examine the success or failure

of the three quarters of environmen-

tal lending that is embedded in larger

projects or programs. “Finally, internal

staf‌f and management incentives favor

large projects, such as infrastructure or

power, which disadvantages the typi-

cally smaller environmental projects,”

according to the IEG report.

Another 2009 IEG report found

that the pressure to push money out

the door for large projects has fostered

a systematic neglect by the bank of

investment opportunities in energy ef-

f‌iciency, despite the fact that “numer-

ous analyses show that much of the

demand for energy services over the

next 30 years can be more cheaply pro-

vided through increased ef‌f‌iciency than

through increased generation.”

Most egregious of all, these f‌indings

of perverse institutional incentives in

the bank are decades old. e “pressure

to lend” and “loan ap-

proval” culture were

denounced in an

internal 1992 bank

review of the perfor-

mance of its lending

portfolio and repeated

in numerous internal

and external studies over the past two

decades. In 1986 the bank’s energy de-

partment published a study examining

the huge opportunities that already ex-

isted for investments in energy ef‌f‌icien-

cy in China and India, a report whose

recommendations the bank largely ig-

nored.

Given this record, it would be the

grossest negligence of governments to

not demand long overdue institutional

reforms in the World Bank as they con-

tinue to discuss mechanisms for manag-

ing still larger sums of climate f‌inance

over the coming years.

T D W

Bruce Rich is an attorney and au thor who

has ser ved as s enior couns el f or m ajor

environ mental organizatio ns. His email is

brucemrich@gmail.com.

By Bruce Rich