What You Need to Know About Climate Co-Benefits

This financing was the result of a 5-year-long effort to aggressively mainstream climate considerations across Bank Group investments and operations – backed by a clear target to ensure that 28% of our total financing had ‘climate co-benefits’. As a result, the share of our projects with climate co-benefits rose from 25% in 2015 to 62% in 2020 for the Bank Group. And the share of our finance with climate co-benefits rose from 18% in 2015 to 29% in 2020 for the Bank Group.

In December 2020, the Bank Group announced a new, more ambitious target on co-benefits: aiming to ensure that over the next five years, 35% of the Bank Group’s financing, on average, will go to supporting direct climate action for our clients, helping them address climate change and adapt to its mounting impacts.

To understand better what these co-benefits represent for the World Bank - the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) - how they are calculated, and how this greater ambition is helping put climate at the heart of our development work, we sat down with the World Bank team that has worked on them. Their expertise ranges from the methodology behind co-benefits to working directly with task teams in assessing projects and determining their climate co-benefits: Sohee Gu, Cody Parker, Francisna Fernando, Alexandrina Platonova-Oquab, Veronique Morin, Apoorva Shenvi, Natalie Weigum, Carolina Monsalve, and their Practice Manager, Genevieve Connors.

What is a climate co-benefit? Is it the same as climate finance?

Simply put, co-benefits are World Bank financing that support climate action while also furthering development objectives.

It is more commonly known as climate finance, but we refer to this finance from our own accounts as “climate co-benefits” to distinguish it from dedicated climate finance coming from funds like the Climate Investment Funds, the Green Climate Fund, and the Adaptation Fund.

What is the history behind climate co-benefits?

The World Bank formally announced the “28% co-benefits by 2020” target in the run up to the landmark COP21 in Paris – it was a key goal of the Bank Group’s first Climate Change Action Plan, adopted in April 2016, designed to support countries to deliver on their national goals under the Paris Agreement on climate change.

 Addressing climate change has become one of the central narratives and policy backbones of the institution’s recent commitments as part of the IBRD capital increase and IDA’s past and current replenishments, with co-benefits featuring as the key metric in how the Bank Group supports countries address climate change. This is especially important because we know that climate change impacts the poorest and most vulnerable and poses a major threat to good development outcomes.

The target itself continues to evolve: in December 2020, Bank Group President David Malpass announced a new, more ambitious target of 35% climate finance over the next five years.

Why is the World Bank’s target for 2021-2025 set at 35%, and not at 100%?

We do get asked this a lot, but the current methodology just doesn’t work that way:

First, in the projects that do generate climate co-benefits, the current methodology only captures the share of financing that is directly tied to climate action. For instance, say the Bank is supporting a road development project. The team leading the project would look at boosting the overall resilience of the road, for instance, ensuring that it can withstand heavy rainfall or storm surges. The entire road project therefore may be fully “climate-proof,” but only the portion of finance dedicated to the needed drainage measures would count as climate co-benefits.

Similarly, many of our projects in the health sector, for example, are likely to have a profound impact on the climate resilience of a population. But the cost of climate activities that will climate proof the healthcare system tends to be a fraction of the cost of purchasing medical equipment, building hospitals and clinics, setting up the healthcare system, or, for COVID-19, purchasing vaccines. In other words, while small amounts of financing can generate substantial climate impacts, by design climate co-benefits will only measure those small amounts.

Second, not all World Bank projects can actually generate co-benefits. Although we’ve made significant progress in integrating climate considerations in sectors not traditionally associated with climate action, some policy lending and health, education, and social protection programs simply will not generate co-benefits. As a multilateral development bank, we have to respond to our client’s development needs first and foremost. We do work with our clients to explore all available opportunities to integrate climate considerations into their development and planning.

Where does the methodology come from and how do you use it?

The calculation for climate co-benefits is based on the joint Multilateral Development Bank methodologies for tracking climate finance in adaptation and mitigation (published in the annual Joint Report on Multilateral Development Banks' Climate Finance). The methodologies are refined regularly. For instance, a new methodology for climate mitigation finance is being reviewed with the aim to commence tracking in 2021.

Throughout the project preparation cycle, regional climate teams and we in the Climate Change Group’s Advisory and Operations team work together with project teams and sector experts, and other supporting units across the Bank, to ensure that climate considerations are reflected in project design. Once the project is finalized and goes to the Board of Directors for approval, we provide a final assessment of co-benefits.

Our rigorous internal consultation and review process ensures that the methodologies are applied consistently. And we publish a list of all projects that have been tagged with co-benefits annually (see for instance our FY19 data).

Are adaptation and mitigation co-benefits measured differently?

 For mitigation activities, a one-ton reduction of CO2 emissions has the same impact regardless of where the activities are located, and it is possible to define lists of typical activities that support a path to low-carbon development.

On the other hand, adaptation activities are project- and location-specific – the adaptation needs of one project may be different from another project depending on their location and vulnerability to climate change. Unlike mitigation activities, it is not possible to produce a standalone “list of adaptation activities” that can be used under all circumstances. So when we prepare to assign adaptation co-benefits, we ask the following three questions and look for the evidence in the project design:

1. How a changing climate will affect the project - not just climatic events that have always occurred, but also climate events that are expected in the future;
2. Whether the project intends to address these climate vulnerabilities; and,
3. Which measures or considerations the project will incorporate in its design to address the vulnerabilities.

You might think that mitigation co-benefits are assigned more easily based on this explanation. But the list of mitigation activities goes through rigorous technical review to make sure that we capture activities that contribute to long-term emissions reduction and enable a low carbon development trajectory for countries.

Despite their different approaches, both methodologies track and report climate finance in a granular manner. In other words, the climate finance reported covers only elements or proportions of projects that directly contribute to or promote adaptation and/or mitigation.

What else should we measure?

Climate co-benefits is an important metric. It tells us how much finance supported climate action – including projects that mitigate climate change, such as solar development, or projects that promote adaptation, such as rehabilitation of drought-affected farmland. And there is no doubt that setting a climate finance target drove us even harder to consider climate change across a range of development interventions, with the result that we have successfully mainstreamed climate action throughout our projects.

But co-benefits do not tell the whole story of these efforts. New metrics strive to go beyond measuring climate inputs to measuring the climate impacts and outcomes of our projects. For example, all IDA projects with at least 20% climate co-benefits must now include at least one climate-related indicator to help us gauge the climate impact of our investments and give us the confidence that what we are investing in is resulting in climate action on the ground. We are also piloting a new Resilience Rating System to rate how well a project plans for climate risk and builds the resilience of people. These new metrics strive to go beyond climate co-benefits and move towards an approach that better articulates the total value proposition of the Bank’s climate action. The development and consolidation of these next generation metrics is an important objective for the Climate Change Group in the coming months.