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Climate Finance Overview

The World Bank Group’s focus on climate change has resulted in significant financing to support low-emissions and resilient development. Some recent highlights include:

  • The World Bank Group provided a total of $6.5 billion in lending with mitigation co-benefits in FY13, and $2.9 billion in adaptation benefits.   More specifically:
  • The World Bank’s fund for the poorest countries, International Development Association (IDA) maintained a steady commitment to climate action: mitigation support in IDA remained around $2.3 billion in FY13 while adaptation support was $2.1 billion.
  • Sub-Saharan Africa had the highest climate-related lending commitments among regions: World Bank lending with adaptation co-benefits in Africa totaled $1.3 billion in FY13 (second is South East Asia at $600 million), standing at 18 percent of the region’s approvals – or twice as much as in the other regions.  Lending with mitigation co-benefits in the region grew for the third consecutive year, reaching $1.4 billion (East Asia and Pacific comes next at $1.3 billion.)
  • The World Bank Group’s private sector arm, International Finance Corporation (IFC), has invested $2.5 billion in renewable energy, energy efficiency, and other climate-smart initiatives for FY13, a 50-percent increase over FY12. So far in FY14, IFC has invested more than $1 billion in climate-related projects, with most commitments to date in Latin America and the Caribbean
  • The World Bank and the IFC are the world’s largest issuers of green bonds.  To date, the World Bank Treasury has issued $5.3 billion in 61 bonds, while the IFC Treasury has issued $3.4 billion.

To adapt to a world 2° degrees Celsius warmer, developing countries will require $75–100 billion per year over the next 40 years to build resilience to these changes, and mitigation costs are expected to be in the range of $140–175 billion per year by 2030.

Against this backdrop, global financing is not growing fast. Analysis from the Climate Policy Initiative found that global climate finance flows plateaued at $359 billion in 2012, with developing countries receiving some $182billion – far below what is needed. According to the International Energy Agency, the world needs $1 trillion a year between 2012 and 2050 to finance a low-emissions transition.

Last Updated: Mar 24, 2014

The World Bank Group has scaled up its efforts to support climate-smart investments. It is deploying, leveraging, and mobilizing finance through a set of instruments that address gaps, risks, and barriers to climate-resilient development and mitigation for our clients.

Mobilize additional concessional and innovative finance

A notable success has been the $8-billion Climate Investment Funds (CIF), which are designed to provide scaled-up financing, through the Multilateral Development Banks, to initiate transformational change toward climate-resilient, low-carbon development. The CIF are leveraging approximately $55 billion for climate-resilient, low-carbon development in 48 countries.  More than 80 additional countries have expressed interest in the CIF, which is also a powerful bridge into post 2013 financing while the Green Climate Fund  is being established. The World Bank continues to actively channel funds to clients under the climate change focal area of the Global Environment Facility. To date, nearly $2 billion has been invested and recent programming reflects adoption of an integrated approach to tackle climate change.

The current (17th) cycle of the International Development Association will see more targeted investments in climate change, indicating the mainstreaming of climate concerns in the largest fund for the poorest countries. As Trustee of the Adaptation Fund, the World Bank sells Certified Emission Reductions to expand the pool of financing available for adaptation.

Broadening the scope and reach of carbon markets

Over a decade ago, the World Bank established the world’s first carbon fund to support the objectives of the Kyoto Protocol and reduce greenhouse gas emissions. To date, $3.8 billion has been raised through 15 carbon funds and facilities. Of that, $3.3 billion is earmarked for carbon purchases and is currently supporting 140 carbon reduction projects in more than 50 developing countries. These projects are responsible for reducing the equivalent of 187 million tons of carbon dioxide emissions to-date.

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.

Putting capital markets to work

With an expected increase in the intensity and damage caused by natural disasters, the World Bank offers a range of catastrophe-risk financing products and advisory services to countries as part of their broader disaster-risk management strategies. This includes sovereign risk financing for direct budget support that provides varying levels of climate protection such as weather hedges, contingent financing, and catastrophe bondsAdvisory services are provided to facilitate deployment of insurance markets and access to re-insurance markets as well as technical assistance for agricultural insurance.

Drawing from its work with financial markets, the World Bank Group has increased interest in climate change issues through the development of green bonds. The bonds support climate-related projects such as increasing energy efficiency and developing of renewable energy – with $5.3 billion issued by the World Bank Treasury in 61 bonds and 17 currencies, and $3.4 billion by the IFC Treasury, including two $1 billion benchmark offerings in 2013. 

Leveraging the private sector

IFC has invested $2.5 billion in renewable energy, energy efficiency, and other climate-smart initiatives in FY13, a 50 percent increase over FY12 and has determined that 20 percent of its long-term financing and 10 percent of its trade and supply chain financing will be climate-smart by FY15.

There has been rapid growth in the use of World Bank Group guarantees to help support climate-friendly investments and mobilize private capital into countries and sectors with a high risk perception. IFC and the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group, are working with financial institutions to help strengthen capital and financial markets and reach out to smaller clients. For FY13 MIGA issued $1 billion in guarantees supporting eight projects that contribute to reductions in greenhouse gas emissions.

 

Building readiness to facilitate access and increase impact

To maximize the impact of climate finance, the World Bank has also been active in strengthening the climate finance readiness of countries. This includes work to establish broad policy and institutional platform, for example through Development Policy Operations, such as in Vietnam, and Climate Change Public Expenditure Reviews, such as in the Philippines.

Last Updated: Mar 24, 2014

By Instruments

Carbon Finance: Since 2000, $3.8 billion has been raised through the World Bank’s 15 carbon funds and facilities.   These include:

Forest Carbon Partnership Facility (FCPF): Total investments of $750 million have financed REDD+ readiness activities in 44 countries and piloted performance based payments for emission reductions from REDD+ programs at scale.

BioCarbon Fund Tranches 1 and 2: A total of $90 million in investments (payments for emission reductions) have been committed by the BioCarbon Fund since 2004.

Partnership for Market Readiness (PMR): $127 million has been pledged from 13 donor countries to the PMR, an initiative that supports capacity building for carbon pricing policies in 18 countries.

Climate Investment Funds: A total of $8 billion has been pledged for 48 countries, leveraging about $55 billion in investments.  More than 200 projects are in the CIF pipeline, out of which 75 have been approved for CIF funding.

World Bank Treasury monetizes Certified Emission Reduction certificates for the UN Adaptation Fund, with close to 15 million CERs sold, raising $188 million to finance adaptation projects in developing countries (as of May 31, 2013)

Multilateral Investment Guarantee Agency (MIGA) Guarantees: For FY13 MIGA issued $1 billion in guarantees supporting eight projects that contribute to reductions in greenhouse gas emissions.  These projects include a windfarm and a bamboo plantation in Nicaragua; power projects in Bangladesh, Angola, Cote d'Ivoire, and Uganda; ferry transportation in Turkey, and a wastewater treatment plant in Jordan.

IFC Asset Management Company has raised more than $347 million from institutional investors through the Climate Catalyst Fund.

Last Updated: Mar 24, 2014

Around The Bank Group

Find out what the Bank Group's branches are doing on Climate Finance.