The World Bank Group is now working to deliver on its pledge for a one third increase in direct climate financing to help countries tackle the impacts of climate change and move toward low carbon more resilient growth.
Currently about 20 percent of the Bank Group’s funding is climate related and that could rise to 28 percent in 2020 in response to client demand. The Bank Group now provides, on average, more than $10 billion in direct funding for climate work and if current financing levels are maintained, that would mean an increase to $16 billion in 2020.
In addition, the Bank Group plans to continue current levels of leveraging co-financing for climate related projects and has pledged to mobilize $13 billion in external private sector capital annually by FY20. That means in total direct financing and leveraged co-financing could potentially reach $29 billion in 2020.
The move to increase financing recognizes that delivering on climate ambitions will require significant increases in investments, going far beyond public resources.
As the report, Finance for Climate Action shows, the Bank Group plays a key role in mobilizing financing for climate mitigation and adaptation. And along with the other multilateral development banks (MDBs), and other leading development financial institutions, tracks finance in accordance with the common principles for tracking mitigation and adaptation finance. The latest joint report of the MDBs shows that in 2015 climate finance totaling $81 billion was mobilized for projects funded by the world’s six largest multilateral development banks (MDBs).
The Bank Group helps countries access other sources of climate financing through the Global Environment Facility, the Climate Investment Funds, various carbon funds, the Montreal Protocol, the Global Facility for Disaster Reduction and Recovery (GFDRR), the IFC Canada Climate Change Program and going forward, the Green Climate Fund.
By seeking to blend funds from outside sources with its own, the Bank Group can help spur successful investments, crowd in other investors and create incentives to drive transformation.
It’s a move that has helped the Bank Group identify and take on risk; buy down the cost of new technologies and accelerate investments in new markets; test new products; expand resources to low income countries; and provide technical assistance, as well as support to build up capacity within countries, learning and knowledge exchange. A clear example of this is the US$8.3 billion pledged to the Climate Investment Funds (CIF). With funding from the Bank Group and regional development banks, 72 developing countries have been able to pilot low-emissions and climate resilient development through country-led programs and investments.
At the program level, financing of $905 million from the CIF’s Clean Technology Fund (CTF) is driving global investments in Concentrated Solar Power (CSP) and is expected to contribute more than a quarter of current global capacity. This financing is expected to attract an additional US$ 6 billion in co-financing for projects in Chile, South Africa, and the Middle East and North Africa region delivering a projected generation capacity of 1 GW, around one-quarter of the current global capacity of 4 GW.
Transitioning to a low-carbon, climate-resilient global economy will require trillions of dollars in new investments and, while public and international concessional finance have a critical role to play, this transition will ultimately be financed by the private sector.
The Bank Group has demonstrated innovative ways to mobilize additional resources by working with partners. This includes IFC’s efforts which co-invests donor funds on concessional terms alongside its own commercial funds in high-impact climate projects that would not happen otherwise due to market barriers or high risks. Since FY10 IFC has deployed over $380 million in donor funds to support 48 climate projects, leveraging $1.3 billion of the IFC’s own investment plus $4 billion from other financiers – a leverage ratio of almost 14 times. The IFC Catalyst Fund has raised more than $418 million from institutional investors and sovereign funds interested in green growth opportunities.
Green bonds are another powerful source of private sector led climate finance, which has emerged in recent years. The bonds support environmentally friendly activities, including projects that mitigate climate change or help countries adapt to its effects by strengthening climate resilience. The Bank helped pioneer green bonds, launching its first in 2008. The Bank issued a record $64 billion in bonds in the international capital markets to support sustainable development in countries in FY16. The fiscal year also saw the 125th green bond with $9 billion issued since 2008. IFC’s green bond program helps unlock private capital investment for low-carbon projects. In FY16 IFC’s total issuance was $1.38 billion in seven currencies through 23 bonds – the highest volume in a fiscal year. To date, IFC Treasury has issued $5.64 billion in 11 currencies through 63 bonds. IFC’s green bonds strategy is to serve as an anchor investor in bond issuances of other financial intermediaries and corporates.
Nearly two decades ago, the Bank Group established the world’s first carbon fund to support the objectives of the Kyoto Protocol by paying for verified reductions in greenhouse gas emissions while at the same time reducing poverty, improving access to clean energy and offering health and community benefits. So far, $4.65 billion has been raised through 19 carbon funds and initiatives, supporting over 150 projects in over 75 client countries to reduce carbon pollution equal to taking42 million passenger vehicles off the road.
These funds include the Carbon Initiative for Development (Ci-Dev) and the Carbon Partnership Facility, which use results-based finance (RBF) approaches to climate finance to catalyze sector-wide investment in clean technologies and low-carbon energy solutions. RBF, which follows the payment for performance model, is also being used to reduce deforestation and preserve landscapes through the Forest Carbon Partnership Facility (FCPF) and the BioCarbon Fund Initiative for Sustainable Forest Landscapes (ISFL). These two funds have been essential to laying the groundwork for more sustainable management and governance of the natural assets of partner countries using REDD+ strategies.
A new cost-effective climate finance mechanism using online auctions to sell contracts that guarantee the purchase of carbon credits from the private sector is also being tested by the Pilot Auction Facility (PAF). Its first auction to sell price guarantees for methane gas reductions in the waste management sector was named Carbon Deal of the Year by Environmental Finance Magazine in March 2016. The initiative was also given a World Bank Group Innovation Award.
Looking ahead, the Bank Group is preparing for the next generation of carbon markets under the Paris Agreement. At COP21, it announced the Transformative Carbon Asset Facility (TCAF), a $500 millon fund that will leverage public finance to create favorable conditions for private sector investment in low-carbon technologies that will lead to efficient and low-cost mitigation at the national and global scale with lasting, transformational impact.
The Global Facility for Disaster Reduction and Recovery (GFDRR), a global partnership managed by the World Bank and supported by 34 countries and 10 international institutions, acts as a financing and technical body that supports DRM across the World Bank Group. Over the past decade, the World Bank has emerged as the global leader in disaster risk management (DRM), supporting client countries to assess exposure to hazards and address disaster risks. It provides technical and financial support for risk assessments, risk reduction, preparedness, financial protection, and resilient recovery and reconstruction. The WBG’s DRM portfolio has increased by nearly 50% in the past five years, from $3.7 billion in FY12 to $5.5 billion in FY16.
Last Updated: Sep 30, 2016