Overview

The World Bank Group currently provides an average of $10.3 billion a year in direct financing for climate action. In October 2015, President Kim announced that WBG climate financing could increase from the current 21 percent of its portfolio to 28 percent by 2020, in response to client demand. At current levels of co-financing, that would mean a potential $29 billion a year for climate projects by 2020.

The WBG, along with the other MDBs, plays a key role in mobilizing financing for climate mitigation and adaptation. In fact, over 2011-14, the multilateral development banks (MDBs) collectively committed over $100 billion, or an average of $26.5 billion a year, for the purpose of addressing climate mitigation and adaptation in developing and emerging economies.

The WBG and other leading development financial institutions agreed in 2015, prior to COP21, on common principles for tracking mitigation and adaptation finance. This agreement will help boost trust about finance flows, and transparency about climate finance.

The WBG also helps countries access other sources of climate financing through the Global Environment Facility, the Climate Investment Funds, various carbon funds, and the Montreal Protocol. Since 2011, the WBG has committed $52 billion to more than 900 climate-related projects. In FY15 alone, the Institution made 188 climate change-related investments in 59 countries.

Overall, the financing required for an orderly transition to low carbon, resilient, growing economies can be counted in the trillions, not billions. According to the International Energy Agency, the world needs $1 trillion a year to 2050 to finance a low-emissions transition.

The public sector alone cannot meet climate finance needs. The private sector will therefore have a critical role to play. In this regard, the WBG has demonstrated innovative ways to mobilize additional resources by working with partners and significantly leveraging private sector funding.

The private-sector arm of the WBG, the International Finance Corporation (IFC), started tracking the climate-smart components of its investments and advisory services in 2005. Since then, it has provided about $13 billion in long-term financing for renewable power, energy efficiency, sustainable agriculture, green buildings and private sector adaptation to climate change.

In FY15, 22 percent of the IFC’s long-term financing was climate-smart, exceeding its publically stated target of 20 percent. The IFC’s climate-related long-term investments for FY15 from its own account were $2.3 billion, covering 103 climate investment projects in 31 countries, with a record core mobilization of $2.2 billion. In FY15 alone, the IFC’s climate-related investment and advisory projects were expected to reduce GHG emissions by 9.6 million metric tons annually, the equivalent of taking more than 2 million passenger vehicles off the road.

In FY15, the IFC invested $893 million in renewable energy, of which $234 million was in wind and $367 million in solar.

Some examples include:

  • In Jordan, through an investment of $79.66 million and the mobilization of an additional $107 million, the IFC helped fund the construction of seven solar PV projects that will boost renewables use and transform the country’s energy sector. The project is the largest private-sector led solar initiative in the Middle East and North Africa.
  • In late 2014, the IFC completed a $300 million financing package to Penonome wind power plant in Panama, the largest wind farm in Central America. The 337.5 megawatt power plant is expected to generate roughly the equivalent of 5 percent of Panama’s total energy demand and cut about 400,000 tons of carbon emissions per year, the equivalent of taking 84,000 cars off the road.
  • In China, IFC financing helped China Wind Power Group develop its 201-MW Xiehe plant in Gansu province, China’s first wind power deal financed entirely through international bank syndication.

During fiscal year 2015, MIGA, the Multilateral Investment Guarantee Agency, issued $1 billion in guarantees for climate-smart projects. The World Bank and the IFC are among the world's largest issuers of green bonds with $8.6 billion issued by the World Bank (IBRD) and $3.8 billion issued by the IFC Treasury.

  • IBRD bond impact: a Mexican project to improve forest management is expected to reduce deforestation and forest degradation in 1.6 million hectares of forest – an area larger than the U.S. state of Connecticut.
  • IBRD bond impact: two industrial energy-efficiency projects in China are estimated to lead to a reduction in carbon emissions equal to removing 2.7 million passenger cars from the road each year, according to a formula used by the U.S. Environmental Protection Agency.
  • In Honduras, proceeds helped fund three solar power plants, demonstrating the viability and bankability of utility-scale solar power in the country, contributing to the reduction of expensive imports of fuel oil, reducing average generation costs and increasing power sector competitiveness.

 

Last Updated: Mar 29, 2016

Transitioning to a low-carbon economy and delivering on the COP21 climate agreement will require significant and substantive economic transformations. According to NDC investment plans, $16.5 trillion are needed over the next 15 years to finance climate action.

During COP21, more than 180 countries submitted their pledges, or Nationally Determined Contributions (NDCs), to the UNFCCC.  Of those, 140 are countries working with the World Bank Group. The WBG is scaling up its financing for climate action as well as helping countries to meet their immediate challenges, deliver on their NDCs, and access other sources of financing.

In this regard, the $8.3 billion Climate Investment Funds (CIF) have been a notable success. CIF is the world’s largest international climate fund providing financing to 72 countries for climate resilient and low-carbon development through the multilateral development banks. About $4.1 billion of CIF funding invested in WBG renewable energy and clean technology projects has leveraged $9.8 billion by IBRD/IFC, $10.8 billion from public funds and $14.4 billion from private investors. Every $1 from CIF funding leverages $10 from other sources.

The World Bank also actively channels funds to clients under the climate change focal area of the Global Environment Facility (GEF). To date, over $2 billion has been invested, leveraging more than $21 billion from other sources. Many of the Bank administered CIF projects also include a GEF funded component. Recent Bank/GEF programming reflects adoption of an integrated approach to tackle climate change.

The World Bank’s fund for the poorest countries, IDA, plays a catalytic role in leveraging other resources. For example, the Pacific Resilience Program (PREP) supports a number of countries and regional organizations in the management of climate and disaster risk. The PREP seeks to strengthen multi-hazard early warning systems, build resilient investments and reduce risks through investments in public infrastructure and financial protection for the countries taking part – which now include Samoa, Tonga, the Republic of the Marshall Islands and Vanuatu.

For high impact projects, the IFC can deploy concessional funding provided by the GEF, the CIF, and governments such as Canada alongside IFC’s own funds. Since FY10, US$300 million of donor funds supported over 40 climate-smart projects and leveraged US$1.2 billion of IFC’s own investment and US$4 billion from other financiers.

Over a half of total commitments were in IDA countries. Additionally, in FY15, the IFC has provided $7.2 million in funding to seven advisory projects through Blended Finance.

The IFC Catalyst Fund, managed by IFC’s Asset Management Company, has raised more than $418 million from institutional investors and sovereign funds interested in green growth opportunities.

The IFC also channels investments through financial intermediaries like commercial banks in order to support climate-related credit lines and trade finance for small and medium-sized firms. IFC’s Financial Institutions Group (FIG) has supported 125 financial partners through 135 sustainability and climate projects in 35 countries since 1997, providing $3.8 billion in financing.

Delivering Results on Carbon Pricing

Over a decade ago, the WBG established the world’s first carbon fund to support the objectives of the Kyoto Protocol and reduce greenhouse gas emissions.

So far, $4.36 billion has been raised through 18 carbon funds and initiatives, supporting over 150 projects in over 75 client countries. These projects are responsible for reducing the equivalent of 196 million tons of carbon dioxide emissions to date.

Looking ahead, a new family of carbon funds, facilities, and initiatives is currently being developed by the World Bank and its partners to help prepare the next generation of carbon finance mechanisms. These include the Carbon Initiative for Development (Ci-Dev), the Pilot Auction Facility (PAF), and the Transformative Carbon Asset Facility (TCAF).  

The TCAF is a $500 million initiative announced in Paris at COP21 that will help developing countries implement their plans to cut emissions by working with them to create new classes of carbon assets associated with reduced greenhouse gas emission reductions.

The WBG is also helping countries prepare to implement carbon pricing mechanisms through the Partnership for Market Readiness (PMR), which provides financial and technical assistance to 18 countries by:

  • Strengthening institutional framework and building readiness in order to facilitate a choice, design or implementation of carbon pricing instruments.
  • Carrying out technical work in order to facilitate experience and knowledge sharing, develop practical guidance on common issues, identify good practice, and build necessary technical capacity.
  • Providing economic and policy analysis support in order to inform decisions surrounding the selection and introduction of carbon pricing instruments.

July 2015 saw an important milestone – the first online auction by the PAF, which auctioned carbon credit price guarantees to companies that cut their methane emissions. This auction was named Carbon Deal of the Year by Environmental Finance Magazine in March 2016. The second PAF auction is planned for May 2016.

Last Updated: Mar 29, 2016

Examples by instrument

Since 2000, $4.36 billion has been raised through the World Bank’s 18 carbon funds and initiatives, providing support for over 150 projects in more than 75 client countries. These projects are responsible for reducing carbon dioxide emissions by an amount equivalent to 196 million tons to date.

These include:

  • The Forest Carbon Partnership Facility (FCPF): Has a fund capital of $1.1 billion and finances REDD+ readiness activities in 47 developing countries along with piloted performance-based payments for emission reductions from REDD+ programs at scale.
  • The $771 million Forest Investment Program (FIP), a CIF’s program, provides direct investments in forestry to support countries’ development and to reduce emissions from deforestation and forest degradation (REDD+).
  • The Pilot Auction Facility (PAF): The joint WBG-IFC innovative fund for Methane and Climate Mitigation uses auctions to guarantee the price of future carbon credit generated by private sector companies. The Facility has a capitalization of $53 million in contributions from four participants – Germany, Sweden, Switzerland and the United States.
  • In FY15, the WBG’s Networked Carbon Markets (NCM) initiative launched a global discussion about the post-2020 services and institutions needed for an integrated international carbon market. The NCM Initiative is part of the WBG’s long-term efforts to promote and enable carbon pricing. It complements ongoing work to assist countries in designing and implementing carbon pricing systems.
  • The CIFs have allocated around $2.3 billion – that’s 28 percent of $8.3 billion total funding – to projects and programs that aim to bring in the private sector.  CIF anticipates that about $20 billion – 35 percent of total expected co-financing of $58 billion – will come from the private sector.
  • The IFC Catalyst Fund, managed by IFC’s Asset Management Company, has raised more than $418 million from institutional investors and sovereign funds interested in green growth opportunities.

Last Updated: Mar 29, 2016


$11.8 billion
was committed to climate investments by the World Bank Group in 2014
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