World Bank's retreat from climate financing commitments

For over three decades, the World Bank has sought to reposition itself as a champion of sustainable development, repeatedly emphasising that poverty reduction and economic growth cannot be secured without addressing climate change, environmental degradation, and the need to build resilience. This trajectory now appears to be shifting. In June, the Bank announced that it is ending one of its most prominent climate commitments which required 45 per cent of its financing to generate "climate co-benefits".

The World Bank claims that rather than tracking how much finance is labelled as climate-related, it is more important to focus on whether projects being financed by it achieve their stated development outcomes. On the surface, this appears to be a sensible proposition. Yet, this powerful financial institution's decision to abandon climate finance targets reflects troubling political realities.

The US, the World Bank's largest shareholder, has dramatically altered its climate policy under President Trump, who has dismissed climate change concerns and instead prioritised expanding fossil fuel production. Earlier this year, the US treasury secretary directly urged the World Bank to abandon climate finance targets, arguing that these measures breed inefficiency, distort economic decision-making and distract the institution from its core mission, which, ironically, is to end extreme poverty and promote shared prosperity on a liveable planet.

For decades, the World Bank promoted structural adjustment reforms compelling developing countries to liberalise their economies, privatise state assets and slash public spending. In many post-colonial countries with weak institutions and economies dominated by elites, such reforms generated economic growth at the cost of widening inequality and reducing access to essential public services.

The World Bank also financed many large dams, fossil fuel projects and other infrastructure with relatively limited attention to their environmental or social consequences, especially during the earlier decades of its operations.

The World Bank's attention to environmental concerns was prompted by growing criticism from civil society, environmental organisations and researchers who highlighted the ecological and social costs of large development projects. In response, the World Bank began gradually putting in place environmental safeguard policies. By 2008, the World Bank's Strategic Framework on Development and Climate Change formally integrated the need to contend with climate-related risks associated with its development operations. In 2019, it committed to aligning its financing with the goals of the Paris Agreement, and in 2023, the Bank explicitly linked poverty reduction with environmental sustainability within its mission statement. As a result, during this past year, 48 per cent of the World Bank Group's financing (more than $50 billion) was intended to generate climate co-benefits.

The World Bank is now insisting that it will not only continue reporting the climate impacts of its projects but also give priority to financing renewable energy, climate adaptation and disaster resilience. However, skeptics argue that removing explicit climate finance targets will make it more difficult to hold the World Bank accountable for its climate commitments. Without measurable benchmarks, climate-financing needs could be increasingly sidelined in favour of policies promising more immediate economic gains.

History also offers important lessons. Markets, left to themselves, have repeatedly failed to protect public goods such as climate stability, biodiversity and clean air. The real question, therefore, is not whether the World Bank should focus on outcomes rather than inputs. It is whether greater flexibility, in the absence of clear and measurable commitments, will strengthen climate resilience or gradually erode accountability at precisely the moment the world can least afford it.