Climate protection does not come for free. On the contrary, it will take trillions of dollars to replace oil, gas and coal with clean energy around the world. To cushion heat waves, floods and other disasters that are already raging in some countries as a result of climate change – and hit poorer countries particularly hard. But even in rich countries like Germany, there is a political struggle for every billion for the climate. Poorer countries, which are sinking deeper and deeper into debt anyway because of high interest rates and inflation, certainly don’t have the money.
This is where a reform of the international financial markets is to start, which will be discussed this week in Washington at the spring meeting of the International Monetary Fund IMF and the World Bank. In focus: The World Bank, whose main task so far has been to lend poor countries money on favorable terms with the aim of strengthening their economy and thus reducing poverty. If it goes according to a proposal from Germany and other major shareholders, the World Bank should now be given a new core mandate: to intervene in global crises such as climate change and species extinction.
The goal: The World Bank should help poorer countries to get cheap money through its loans and at the same time direct the financial flows to where they are needed to combat the climate crisis. Experts speak of “shifting the trillions”, a redistribution of trillions. According to UN estimates, climate investments of 125 trillion dollars will be required worldwide by 2050 if global warming is to be limited to 1.5 degrees.
What is the reform supposed to achieve?
According to the reform initiative, which came from Development Minister Svenja Schulze (SPD), the World Bank should give countries attractive interest rates that promote climate protection. “These investments have to be cheaper,” says Schulze’s State Secretary Jochen Flasbarth. The amounts provided by the World Bank are expected to increase significantly. To do this, the bank must become bolder, make better use of its equity and relax its very conservative approach. Several additional billions of dollars could be mobilized in this way.
Flasbarth does not share the fear that if the World Bank gives more money for climate protection, there will be less for the fight against poverty. “We have to make it clear that this is not a departure from the bank’s focus on development,” he emphasizes. It is precisely among the poorest countries that many suffer most from climate change, so they would benefit from the investments. In addition, the money from the World Bank should only be the lever to activate a multiple of private capital. Then state development aid could be directed more towards the poorest countries.
But this is precisely where development organizations see a danger: the reform shouldn’t take the pressure off rich countries to increase their development budgets, warns Oxfam expert Jan Kowalzig. The aid from the World Bank looks like a lot of money on paper, but ultimately it is only loans. And here it depends on whether, for example, the development of renewable energies is being promoted or whether a country is adapting to floods and droughts.
In the case of renewable energy, the loans could fuel growth and move a country forward. Early warning systems against storms, houses on stilts, dams or irrigation systems are about maintaining the status quo – Kowalzig demands that there should be grants instead of loans for something like this. “Lending money to countries to adapt to consequences of a climate crisis that they are least responsible for is very problematic from a climate justice perspective.” It only drives poorer countries deeper into the debt trap. In addition, the World Bank itself is currently still massively supporting fossil fuels.
What changes has the World Bank already promised?
Climate activists also criticize this. According to a report by the NGO coalition The Big Shift Global, the World Bank has mobilized $15 billion in private and public capital for the expansion of coal, oil and gas since 2015. The World Bank has been promising changes here for a long time. The bank’s proposal to change its mission statement is also aimed at this. The aim is to focus on an expanded concept of prosperity that is not only based on classic parameters such as gross domestic product. In future, in addition to ending extreme poverty, it should be much more about promoting common prosperity through “sustainable, resilient and integrative development”.
“We must continue to focus on the poorest countries – but we need an integrated approach,” says Axel van Trotsenburg, who has worked for the World Bank for around 35 years and is now Senior Managing Director there, at the talks in Washington. “An organization that defines itself statically is irrelevant,” he emphasizes. Therefore, after the corona pandemic, it is important to reflect on what the current challenges are. A pandemic or the climate crisis would plunge poor countries even deeper into poverty. The World Bank therefore argues that it makes sense to think about such crises from the outset.
Manager Ajay Banga becomes the new head of the World Bank
But such a deep reform of a big tanker like the World Bank is not an easy task. “You have to manage a reform,” says Van Trotsenburg. The World Bank is a large multilateral organization, tax money is involved, there are interests – you have to know how to do it. “But if you run a large company in Germany, you also have to know your business.” It is important to have ambitions. And Van Trotsenburg also makes it clear: “It is unthinkable for the World Bank to move away from the goal of fighting poverty.”
The reform now coincides with the change at the top of the bank. World Bank chief David Malpass surprisingly announced his resignation in February. The US economist was criticized for a statement on the climate crisis. He is now to be followed in the middle of the reform process by the Indian-American manager Ajay Banga. Van Trotsenburg emphasizes: “Every new president will probably set new accents – and that’s a good thing.”
