Good morning to all of you in Asia and to those connecting from around the globe. I’m very pleased to participate in this Summit to discuss global challenges and opportunities in sustainable development.
The world is facing multiple, interlinked crises. In response to Russia’s invasion of Ukraine, countries are shifting their energy policy priorities in ways that may slow down the energy transition and affect global climate goals and the achievement of electricity access.
The energy tradeoffs made in Europe will have major consequences for developing countries. The increased price of natural gas is already causing increased use of coal, diesel, and heavy fuel oil in the developing world. Meanwhile, additional fuel subsidies are being deployed to mitigate the impact of high prices. This worsens budget deficits and undercuts the longer-term objective of reducing greenhouse gas, or GHG, emissions. These broad-based subsidies distort price signals, reducing the incentives for energy efficiency and investments in cleaner energy.
These costs are coming at a time when there is considerable work yet to be done to support grid development and electricity access. There will need to be major investments in storage, new technologies and back-up capacity to integrate solar and wind into grids and compensate for intermittency.
Within this complex context, the world community is also focused on reducing GHG emissions. It will be important to identify, fund and implement the most impactful projects in terms of GHG emissions and resilience in adapting to major climate vulnerabilities. Incentive structures, tax regimes, and regulatory policies will be important components.
To help focus efforts in developing countries, the World Bank Group has launched a new core diagnostic called Country Climate and Development Reports, or CCDRs. These reports are part of our Climate Change Action Plan to integrate climate and development and help countries prioritize the most impactful actions. We published our first CCDR report, which was on Türkiye, this month. Over the next few months, we expect to publish as many as 20 more, including China. In addition to informing our own climate work, the reports aim to foster climate-oriented discussion and action in the countries and the global community.
A key challenge in sustainable development is addressing the large financing needs for the transition to lower-carbon energy. These include the large project preparation costs and financing and implementation risks that can extend for many years. To succeed, substantial funding will be needed from the global community as well as early-stage technical assistance for project preparation.
Engagement and capital from the private sector will need to increase by an order of magnitude to address these immense costs. There is growing interest by investors in financial instruments that provide sustainability outcomes. Achieving the major increases needed in the amount of financing channeled through these instruments will require robust new frameworks for measurement, reporting and verification. Transparency will be a key challenge to avoid greenwashing.
Constant innovation will be needed as the private sector applies significant funding to global public goods. The World Bank Group has provided many such innovations, such as green bonds, and has proposed more as part of our Climate Change Action Plan. One recent example was the March 2022 launch of a Wildlife Conservation Bond, or Rhino bond, to support South Africa’s conservation efforts. The bond is a first-of-its-kind financial instrument that channels investments to achieve conservation outcomes – measured in this case by a verifiable increase in black rhino populations. If targets are met, investors will receive, in addition to the redemption of their principal, a success payment at maturity, paid with funds provided by a performance-based grant from the Global Environment Facility. For a period of several years, the World Bank is bringing together investors, trust fund resources, a clear public purpose, and a significant government commitment. The approach can be adjusted and scaled to channel more private capital for other sustainable development objectives.
Looking broadly, strong Environmental, Social and Governance, or ESG, frameworks are critical to manage climate-related risks and opportunities in both development and corporate activities. There is currently significant variation globally in ESG reporting requirements, monitoring, and verification and little consensus on the priorities within ESG.
The World Bank Group is a long-standing supporter of global efforts to harmonize standards for sustainability reporting. We promote global transparency on climate metrics, targets, and outputs so that we can create opportunities, tackle challenges, and help countries maximize positive outcomes in their climate transition.
China’s role as a major global creditor gives it additional responsibility to support the global shift toward investments with high ESG standards. As a major outward investor, particularly in infrastructure, China has considerable influence in promoting the adoption of international ESG standards in its lending and investing.
In October 2021, China announced that the country will no longer build coal-fired power plants abroad. In addition, the country has also announced that it will step up support for other developing countries in developing green and low-carbon energy. These are welcome steps, but there is more that can be done.
A key future step is the adoption of an ESG policy framework that applies to Chinese banks for their foreign investments. A commitment to high standards of transparency and environmental and social risk management, similar to the standards that the World Bank Group and other MDBs follow, would help recipient countries achieve sustainable development while also significantly lowering risks for Chinese investors themselves.
With these few thoughts, I wish you a successful event and fruitful discussions.
Thank you.
