World Bank’s president survives climate gaffe, but its fossil fuel policy may not

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WASHINGTON — David Malpass’ job as president of the World Bank appears safe despite calls for his ouster by climate advocates, but the recent controversy over his climate views may have helped ram through changes to help clean energy despite his resistance.

Malpass apologized for his late September remarks downplaying the effect humans and fossil fuels have on climate change, but they provided an opening for global leaders to act on longstanding frustrations with the World Bank’s efforts to accelerate renewable energy projects.

“Institutions like the World Bank, as admirable as their founding intentions are, were not set up with the purpose of tackling an existential climate crisis. Today, climate must be at the heart of everything that we do,” Alok Sharma, the U.K. official who presided over last year’s climate talks, said in a speech Friday. “The world cannot afford for such institutions to be cautious in how their considerable resources are deployed to tackle the climate crisis.”

The consensus among officials gathered in Washington for the bank’s annual meeting was that the heat was off Malpass — for now.

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“There does not seem to be high appetite for a lot of change right now” in the bank’s leadership, said Kalee Kreider, who worked as an adviser to former Vice President Al Gore. She was working with Gore on Sept. 20 when he kicked off the most recent controversy at a New York Times event where he blasted Malpass as a “climate denier.” Malpass later declined to answer onstage whether he believed fossil fuels were the primary driver of climate change, but has since sought to affirm his acceptance of climate science in public and internally with staff.

The United States and European countries quickly piled on Malpass’ climate comments with broad calls of “fundamentally” reforming the World Bank and other multilateral development banks to, in part, speed climate finance. Those moves have been broadly welcomed, according to officials and observers at the World Bank’s meeting this week.

But some nations, particularly those in Africa, have viewed the calls to focus on renewable energy skeptically over fears it could also come with demands to strangle investment in domestic gas reserves they want to tap.

Many of the major World Bank contributors have called for varying degrees of change, with one consistent demand: That the Bank deliver more finance to fund the clean energy transition, especially in emerging economies whose growing energy consumption puts meeting global climate goals at risk.

Larger middle income countries suddenly spy an opportunity for below market rate finance from the World Bank’s group of lenders, which is normally only available to the poorest countries.

Egyptian Foreign Minister Sameh Shoukry, who will lead climate talks at COP27 next month, said in a note published Friday that it was time to “think more creatively about how to adapt services and practices to our climate reality.” That effort, he said, should include “highly concessional grant-based climate finance to the Global South.”

The broad sweep of countries calling for change — and a weakened Malpass — appears to offer an opening to climate advocates for changes in the bank’s lending practices.

“I feel like there is a bigger, broader political coalition building that will — I think this time could, fingers crossed — push through some of these reforms,” said Claire Healy, director of climate-focused think tank E3G’s Washington, D.C., office.

Although the World Bank is under fire on climate policy, it did launch a climate strategy last year to achieve greenhouse gas emissions reductions. On Monday, Malpass announced a new finance facility to offer grants for developing nations to shore up markets for carbon credits, and a spokesperson for the bank defended his record. 

“Under the leadership of David Malpass, the World Bank Group more than doubled its climate finance, published an ambitious Climate Change Action Plan, and initiated country level diagnostics to support countries’ climate and development goals,” the spokesperson said in a statement. “The World Bank Group is the largest multilateral funder of climate investments in developing countries, providing $31.7 billion in climate finance in the last year alone.”

The frustrations over the World Bank’s climate performance predate Malpass. The Bank has been criticized as out of step, too bureaucratic and unwilling to invest in renewable energy and projects to help communities adapt to climate change in developing nations that the private sector finds too risky.

Treasury Secretary Janet Yellen last week said the World Bank and other multilateral development banks must change their operations to address global challenges like climate change and offer more capital more cheaply to do that. That tone represented a “massive shift,” said E3G’s Healy.

Indian Prime Minister Narendra Modi’s government is keenly interested in boosting sustainable finance through the World Bank and other multilateral institutions when India begins chairing the G-20 in December, said Prayank Jain, special assistant to the CEO at New Delhi-based think tank Council on Energy, Environment and Water.

“The current system is not working out to solve the problems of the present,” he said. “The key reason why India is actually in favor of reform … is to solve the climate crisis.”

But that push will require the support other nations to find a place on a crowded agenda.

“Unless they have allies coming in to support them on this issue, this will not be part of the debate,” Jain said.

Yet, many of the same countries pushing for change have failed live up to their own climate finance commitments, Jain added. The U.S., for example, has not delivered on President Joe Biden’s pledge to quadruple international climate finance spending to $11 billion per year. The world’s rich countries also missed a 2020 deadline to send $100 billion in climate finance to poorer nations.

The industrialized countries’ calls for climate action while they scramble to shore up oil, gas and coal supplies has been noted by developing nations. A proposed G-7 ban on overseas public fossil fuel finance that would take effect at the end of this year and a tightening of fossil fuel finance rules for the development banks has looked increasingly untenable while rich countries are investing huge wads of public money in subsidizing their gas supplies or building new infrastructure to address the energy crisis driven by the war in Ukraine. The EU this year designated gas investments as sustainable for a transitional period, a move that baffled countries in Africa where the same investments from Europe are blacklisted.

While the World Bank has not backed new coal-fired power plants for years, it has not formally halted support for fossil fuels, leading to skirmishes over how it finances gas. Several African nations want the World Bank to offer more gas finance, and they’ve cast European opposition to gas for their nations as self-serving as the bloc scours the globe for cargoes of the fuel to offset Russian supplies.

“If you think the competition [for gas supplies] is fierce this year, the next two years are going to be even worse,” said Kreider, who is now president of public affairs firm Ridgely Walsh. “If the World Bank stiffens rules for Africa, then the Europeans could have it easier for themselves for a limited resource.”

Yet, many emerging economies whose energy systems must get greener to avoid the worst of climate change are backing the groundswell for change, observers noted, with G-7 countries reaching out to key shareholders to ensure comity.

Implementing new mechanisms could help countries like Indonesia and South Africa access better financing terms for clean energy projects, said Jake Schmidt, senior strategic director of international climate with the Natural Resources Defense Council. And taking more risks could get “tens of billions flowing without asking capitals to commit more money,” he added.

Many of the world’s largest emerging economies do not qualify for the World Bank’s cheaper financing terms because they’re considered middle-income. But there’s a new willingness to establish avenues for those countries to access better financial terms to solve global challenges like climate change.

Those efforts include Yellen’s call for “holistic reform,” Barbados Prime Minister Mia Mottley’s “Bridgetown Initiative” to deliver climate finance to the developing world, the United Nations Economic Commission for Africa’s working group on global financial architecture and a German-led, G-7 push for systemic change.

Critics also believe the World Bank’s goal that 35 percent of its investments bring some sort of climate benefits is weak compared to its development bank peers. How it defines those benefits — or even which finance counts as climate — is uncertain. Oxfam International, a global poverty group, suggested the World Bank might overstate its climate finance by as much as 40 percent, or $7 billion. The World Bank spokesperson said it stands behind its assessment and that it is “rigorous” in how it applies the joint multilateral development bank methodology it used to calculate climate benefits from its financing.

Environmental groups also want the World Bank to halt financing for all fossil fuel projects, which campaigners said totaled $5.7 billion between fiscal years 2018 and 2020, though the World Bank spokesperson said it disputes that finding. Climate campaigners also want the World Bank to more clearly describe how it aligns its financing with Paris Climate Agreement targets.

“That’s the very big first problem,” said Kyle Ash, policy director with watchdog group Bank Information Center. “Everything I think would cascade from there.”

Karl Mathiesen contributed reporting from Brussels