The Bank invests billions in fossil fuels, including through various opaque channels. Unless this changes, its public soul-searching will count for little.

The World Bank recently held its 2023 Spring Meetings, in which climate change was high on the agenda. Credit: Photo: World Bank / Simone D. McCourtie.

The World Bank is supposedly going through a moment of cathartic introspection regarding its mission, finance model, and leadership. 78 years after its founding, the powerful global institution has come under pressure to reform and criticism from its government shareholders – including the US and Germany – for its inability to address global crises such as growing debt distress, increasing poverty, and climate change. It is simultaneously facing mounting calls from the likes of the Bridgetown Initiative, led by Barbados, to adopt innovative ways to provide more finance to tackle an “unprecedented combination of crises”.

In response, the World Bank released an Evolution Roadmap last December to review its mission and financial framework. This February, its president David Malpass announced, amid accusations of climate denialism, that he would be stepping down early from his position in June 2023.

These shifts have raised hopes that the international financial institution is undergoing significant soul-searching and that it will soon re-emerge, finally primed and ready to drive action on climate change. A closer look at the many opaque ways in which the Bank pumps billions into the fossil fuel industry, however, suggests that the kind of change needed is far deeper and more comprehensive than what is currently being suggested.

Giving billions to fossil fuels

In its new Roadmap, the World Bank emphasises the need to address climate change on several occasions. It warns that “impacts, ranging from floods and droughts to locust invasions, are jeopardizing hundreds of millions of lives and livelihoods” and acknowledges the need to increase climate finance.

However, the plan is silent on ending fossil fuel financing. This is significant. The International Energy Agency has calculated that there can be no more new oil and gas development if we are to keep warming to 1.5°C, the target set by the 2015 Paris Agreement. We are currently on course to produce double the levels of fossil fuels compatible with this pathway and exceed 3°C warming.

Credit: World Resources Institute.

And yet, between 2016 and 2020, the World Bank Group provided over $12 billion in direct finance for fossil fuel projects in 38 countries. The Bank likes to boast that it provides more “climate finance” than any other multilateral development bank. It is quiet about the fact it also provides more fossil fuel funding than any of its counterparts.

Moreover, this $12 billion and counting is only the tip of the melting iceberg. The bulk of the World Bank’s fossil fuel funding is channelled through less visible streams.

Take trade finance. Fossil fuels cannot be traded globally without cargoes being covered by trade finance in the form of specialised short-term bank loans and letters of credit guaranteeing payment. Likewise, the development of new oil, gas, and coal fields and power plants requires large volumes of equipment imports covered by these instruments. The World Bank provides billions of dollars in trade finance every year. But because it does not disclose the specific transactions being covered, we don’t know how much of these funds end up facilitating the fossil fuel industry. We do know, however, that countries with significant oil, gas and coal projects receive large sums. In 2019 and 2020, for instance, the World Bank provided $1 billion to cover trade in Nigeria, $500 million in Mozambique, and $755 million in South Africa.

The World Bank also provides $10-$20 billion in budget finance in any given year. This is non-earmarked funding that governments can spend on anything that is not on the Bank’s Exclusion List. This register includes nuclear power, weapons, and tobacco, but not coal, oil, or gas. Between 2016 and 2019, the World Bank gave budget finance to over 80 countries, several of which ended up promoting fossil fuel development. Indonesia, Pakistan, Nigeria, Mozambique, and Egypt, for example, all received large amounts of budget finance; their budgets subsequently covered expenses related to fossil fuel expansion or were even directly invested in coal, oil, or gas projects.

To provide budget finance, the World Bank also requires governments to enact various policy reforms – such as corporate tax breaks and higher energy tariffs – that make fossil fuel investments more attractive. For example, the Bank required tax reforms in half of the 80 countries, and higher energy tariffs in over a third. In Pakistan, a Bank-required electricity tariff reform made new coal-fired power plants the most profitable in the world.

What counts as climate finance?

The Bank’s opacity allows it to obscure much of its fossil fuel funding. That same opacity also leads to much of its so-called “climate finance” being overstated as it is not restricted to only climate expenditures.

In 2021, for instance, the World Bank categorised a $522 million guarantee for Indonesia’s state-owned power company PLN as renewable energy/climate finance despite the fact that its guarantee applies across the company’s portfolio, which is heavy in coal assets.

The World Bank similarly counts budget finance as climate finance when a government’s budget involves both climate and fossil fuel expenditures. In recent years, for example, the Bank has given $200 million in unearmarked funding to Barbados as the government has been supporting offshore oil and gas exploration. Interestingly, the Bank assigned an economist with particular expertise on resource-rich nations and oil revenue volatility to be its team leader on these budget operations. In September 2022, Barbados announced that explorations had been successful and that it was ready to offer 22 offshore blocks to oil companies. World Bank funding tranches matched Barbados’ oil-development milestones closely. Yet of the $200 million, the Bank counted $88 million as climate finance.

The World Bank’s funding inevitably supported Barbados’ fossil fuel developments. Budget finance is non-earmarked, and the Bank does not follow up on how it is used. Moreover, funding is fungible – the bigger the budget, the more money there is to spend on all government priorities.

Politics and fossil fuel interests

According to an audit by Oxfam, 40% of the World Bank’s climate finance cannot be verified. More broadly, all types of World Bank finance suffer from a severe lack of transparency and accountability that allows billions of fossil fuel finance to go undetected and unreported.

As such, there is no way for government shareholders or the public to ascertain whether or not the World Bank’s finance is aligned with the Paris Agreement. And, unfortunately, the new Evolution Roadmap does not suggest the Bank plans to curtail its financing of oil, gas, and coal, or that it intends to improve transparency. Similarly, the Bridgetown Initiative would mobilise more finance for both climate action and fossil fuels.

In a couple of months, the World Bank will have a new president and may be a few steps further along its roadmap. These changes may free up more financing for climate action, but until it adds fossil fuels to its Exclusion List and ensures regular independent audits to verify the end use of its financing, the Bank will continue to push us to well beyond 1.5°C warming. As the IPCC has repeatedly emphasised, we already have the technologies and policies needed to address climate change. The main obstacles to implementing them remain politics and fossil fuel interests.