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US Treasury secretary Janet Yellen and allies in Germany are pushing for a “binding schedule for reform” of the World Bank as early as April, as the lender comes under sustained pressure for failing to adequately address climate change.
German development minister Svenja Schulze, who also acts as the country’s governor to the World Bank, held talks with Yellen on Monday, where they discussed the “fundamental reform” to ensure the lender “leads the way on climate action, pandemic control and crisis prevention”.
Yellen will push for the first instalment of the World Bank’s “evolution plan” by next month, according to one source familiar with the matter.
The pressure on the World Bank to tackle “global public goods” follows the abrupt resignation of sitting president David Malpass, and comes as the US and other shareholder nations seek to expand the bank’s remit to include the fight against global warming alongside tackling poverty.
“Janet Yellen and I agree that the World Bank spring meetings in April must result in a binding schedule for reforms,” said Schulze on Monday. “The decision about the reform itself should be taken within this year, because we must not lose any time to tackle the global challenges we are facing.”
Her comments came as almost 50 climate ministers and envoys from around the world met in Copenhagen this week, where they reiterated the need for a rapid “greening” of the World Bank.
Dan Jørgensen, Danish minister for development co-operation and global climate policy, said many ministers at the two-day summit held to discuss the agenda for this year’s UN COP28 climate meeting in Dubai spoke about the need for urgent reform of the World Bank with a focus on global warming.
“They feel there is a window of opportunity for reform of multilateral development banks, especially the World Bank.”
This month the World Bank updated its rules for ensuring that new financing approved from July 1 was “aligned” with the goals of the Paris Agreement. But campaigners reacted angrily, saying the rules fell badly short by only explicitly excluding the financing of electricity production from, and the mining of, coal and peat.
All other potential investments, such as oil and gas projects, would be subject to a series of more subjective tests, that include whether they are likely to cause a “significant” increase in emissions, or reinforce “barriers” to the country’s transition to a low-carbon economy.
Some activities that cause a significant increase in emissions could be considered Paris aligned “as long as there are no viable alternative pathways with lower greenhouse gas emissions that achieve equivalent development objective(s),” the rules state.
“Sadly, the World Bank’s new guidance is far from transformational. Continuing to provide funding, guarantees and policy support for fossil fuels is simply fuelling the fire of the climate crisis,” said Fran Witt, campaign manager at the non-governmental organisation Recourse.
At the ministerial meeting in Copenhagen this week, representatives also discussed the loss and damage fund agreed at COP27 in Egypt, to provide financial help to poorer nations hit by climate change. Egypt will host the first meeting to discuss the next steps for the loss and damage fund this weekend in Luxor.
Simon Stiell, the UN climate change chief, told the meeting that 2023 would be an important year for operationalising the funding arrangements. He added that multilateral development banks needed to “evolve and respond more effectively to the climate challenge”.
Ajay Banga, the former Mastercard chief executive who is being backed by the US in the World Bank leadership race and is so far the sole candidate ahead of the close of nominations on March 29, is expected to begin his new role no later than June.
The Wall Street leader has said the bank must do “everything it can” to squeeze more cash from its balance sheet while preserving its triple-A credit rating, indicating that he would explore elements of a G20-commissioned report into the “capital adequacy frameworks” of multilateral development lenders such as the World Bank.
As the agenda shifts heavily towards climate change issues, a senior World Bank official, Axel van Trotsenburg, said last week that the Bank would use the spring meetings to “take stock of progress” being made “to tackle the many challenges facing global development, including climate change”.
This week, the UN Economic Commission for Africa also reiterated the need to reform the international financial architecture to help the continent’s nations tackle climate change and poverty.
It called for multilateral development banks to provide better lending terms to kick-start “sustainable growth” and said a greater volume of low-cost lending “could be a game-changer for struggling countries”. That could be achieved via MDB reforms as well as “increasing [MDBs’] capital bases”.
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