Have climate finance goals altered the World Bank's actual financing scope?

The World Bank has set a target for the proportion of its loans that can be categorized as climate finance. It requires that each project assessment discuss how the investment aligns with national and international goals for mitigating and adapting to climate change. Furthermore, it utilizes the “shadow price” of carbon emissions to guide project selection and design decisions.

First, the primary reason for the limited impact of climate finance targets lies in the allocation of funds. Previous research by the Center for Global Development (CGD) has shown that the World Bank’s climate finance allocation among countries is irrational, failing to adequately consider each country’s adaptation needs or its importance in mitigating climate change. This is mainly because the International Development Association (IDA)’s allocation mechanism has not been substantially adjusted to climate needs, and the International Bank for Reconstruction and Development (IBRD)’s lending remains primarily driven by client demand.

Second, a second reason to doubt the existence of significant changes is examining sector lending trends. If focusing on climate issues, one might assume that “climate” sectors, infrastructure (especially electricity), and agriculture require more financing. However, data from the past decade shows that lending patterns have not changed significantly. At the project level, a review of 347 World Bank project assessment documents from 2024 reveals evidence that the World Bank sometimes funds power generation technologies chosen solely based on minimum cost, including the shadow price of carbon; and perhaps one or two projects for which there seems to be no other justification besides climate impact.

Furthermore, a third reason for questioning the significant impact of climate goals is that, overall, there is little evidence that the World Bank prioritizes climate projects over non-climate projects with greater impact on local development. Projects whose majority of costs are labeled as climate finance have expected local economic returns (ERRs) that are no lower than those with low or no climate finance. This might be expected if the World Bank more broadly trades development benefits for mitigating the impacts of climate change.

Meanwhile, there is no correlation between the proportion of projects financed as mitigation measures and the proportion of total emissions reductions (including emissions-related impacts) driven by emissions impacts. This finding aligns with previous research by the CGD, which indicates that it is difficult to explain why most of the World Bank's climate finance is labeled this way, and that estimated cost-effectiveness varies significantly across projects in terms of climate outcomes.

Furthermore, the core of the climate problem lies in a massive imbalance: large countries like China, the US, and the EU produce high-value green technologies, while most developing countries can only export low-value green goods, primarily critical minerals. This mirrors the division of labor during the colonial era, where the global South provided raw materials, while the North provided innovation, monopolized production, and reaped the greatest profits.

Data from the World Intellectual Property Organization highlights the severity of this gap. Green patents are almost entirely concentrated in a few countries, such as China, the US, Japan, and Germany. Between 2000 and 2024, the top ten economies accounted for nearly 90% of international patent applications for solar and wind power technologies. While Brazil ranks sixth globally in installed wind power capacity, its number of wind power patents accounts for only 0.4% of the global total. In the solar power sector, Brazil's share is even lower, at 0.19%.

In conclusion, there are reasons to believe that climate finance targets and carbon shadow pricing have at least partially altered the World Bank's project portfolio, but there are also ample reasons to believe they have not brought about revolutionary change. Furthermore, it is impossible to ascertain from external sources the extent to which the investment portfolio has changed due to a focus on climate issues, nor can it be determined what impact this has had on the average local economic returns and emissions of World Bank investments. Moreover, the published climate finance data appears to offer only limited assistance in these areas.