close
close

Association-anemone

Bite-sized brilliance in every update

Multilateral banks are essential to finance the fight against global warming. Here’s how it works
asane

Multilateral banks are essential to finance the fight against global warming. Here’s how it works

That climate change leads to a seemingly endless stream of weather disasters around the world, countries struggle to adapt to the new reality. Preparing to better withstand hurricanes, floods, heat waves, drought and wildfires will require hundreds of billions of dollars.

And then confronting the root cause of climate change – the burning of fossil fuels like coal, gas and oil – by transitioning to clean energies like wind and solar.

That will take trillions of dollars.

Enter climate finance, a term for how to pay for projects to adapt and tackle the cause of climate change. It is especially important for developing countries, which do not have the same resources or access to credit as rich countries.

International mega-banks, funded by taxpayer dollars, are the largest and fastest growing source of climate finance for the developing world. Called multilateral development banks because they receive contributions from various countries, there are only a handful of these banks in the world, the World Bank being the largest.

The banks were a key reason why in 2022 the world met the goal set by countries in 2009 to provide developing nations with $100 billion annually to tackle climate change.

At the annual UN climate change conference opening in Azerbaijan on Monday, world leaders are expected to discuss how to generate trillions of dollars in climate finance. Nonprofit research group The Climate Policy Initiative estimates the world’s needs about five times the current annual amount of climate finance to limit warming to 1.5 C (2.7 degrees F) since the late 1800s. Currently, global average temperatures are about 1.3 C (2.3 degrees F) higher.

A new goal must reach higher and hold institutions and governments accountable for their promises, said Tim Hirschel-Burns, an expert at Boston University’s Center for Global Development Policy.

“At the heart of it is getting a target that will catalyze action that fills the really significant climate finance gap,” he said.

The debate has also shifted to the question of where the money will come from, said Dharshan Wignarajah, director of the Climate Policy Initiative’s London office.

“Ultimately it comes down to who pays,” said Wignarajah, who helped lead the climate change talks, called the Conference of the Parties, when Britain hosted in 2021. “That forced funding to be increasingly more prominent at the COP discussions. .”

Developing countries are most dependent on multilateral banks

Developing nations depend much more on these banks for financing climate projects than industrialized countries.

In the US and Canada, commercial banks and corporations provided financing for more than half of green projects in 2022, according to the Climate Policy Initiative. In sub-Saharan Africa, those private lenders accounted for just 7 percent.

That’s because it is harder for developing countries to get low interest rates.

“If you’re in Kenya and you want to borrow from private lenders, they might charge you 10 percent interest because your credit rating isn’t very good,” Hirschel-Burns said.

But multilateral banks have better credit ratings than many countries. For example, the International Development Association – an arm of the World Bank and the largest international aid provider to Kenya – has the highest possible rating from Moody’s Investor Servicewhile Kenya itself has an undesirable rating.

Banks lend money with this better rating, then lend in turn to developing countries, offering a more reasonable rate than governments could get if they borrowed directly from private lenders.

Some bank projects work against climate goals

The development of multilateral banks aims to improve people’s health and the environment, expand access to energy and end poverty. It means banks have also provided billions of dollars for fossil-fuel power plants, according to an AP analysis, even though their policies have improved and fewer such projects have been financed in recent years.

Investment in fossil fuels continues to grow globally, reaching $1.1 trillion in 2024, according to the International Energy Agency. And multilateral banks continue to rank among the biggest financiers of fossil fuel extension projects, helping to “lock in a high-carbon pathway” for countries, according to a Clean Air Fund reportwhich lobbies for funding for air quality improvement projects.

“It should help countries get through,” said Jane Burston, CEO of the Clean Air Fund, referring to the idea that developing countries could industrialize with renewable energy and stop developing which wealthy nations have historically done with fossil fuels.

“It’s baffling why development assistance is being given to something that continues to make people unhealthy and harm the planet,” she added.

For example, a branch of the World Bank, the International Bank for Reconstruction and Development, has lent $105 million to rehabilitate coal plants in India, their last loans for the project completed in 2018, according to an Associated Press analysis of data from the Organization. for Cooperation and Economic Development.

However, improvements have made coal plants more efficient and reduced their greenhouse gas emissions, according to the project documents.

The Clean Air Fund report estimated that the World Bank provided $2.7 billion in “fossil fuel extension financing” between 2018 and 2022. During that time, the bank also lent about 32 times more than for renewable sources.

“Support for renewable energy is always our first choice as we work to provide access to electricity,” a World Bank spokesperson said in a statement.

The bank’s policies “continue to selectively support natural gas as a transition fuel” if its research shows the project poses a low climate risk, the spokesman said. The bank’s recent policies require verification of each project to ensure that its investments reduce the impact on the climate.

The World Bank provided $42.6 billion in climate finance in the most recent fiscal year, a 10 percent increase over the previous year. And at the most recent COP, the bank promised that almost half of its loans would soon go to climate finance.

In Vietnam, about half of the energy production comes from fossil fuels, primarily coal-based energy. The Asian Development Bank has lent about $900 million on coal to Vietnam, their fossil fuel spending in the country ended in 2017. The bank’s updated climate policies “will not support the mining, processing, storage and transportation of coal, nor no new coal. – the generation of electricity”, says a statement. The bank has invested $9.8 billion in climate finance in 2023 and aims to finance $100 billion in green projects between 2019 and 2030.

The country’s biggest growth area for energy is wind. Global Energy Monitor ranks Vietnam seventh in the world in terms of planned wind power. And the Asian Development Bank has committed about $60 million in loans to wind power in Vietnam between 2021 and 2022.

Banks have made extensive commitments in recent years to align The 2015 Paris Agreement. But these promises leave open ways to continue financing fossil fuels, said Bronwen Tucker, co-manager of global public finance at Oil Change International.

According to the group’s monitoring of bank commitmentsall nine major banks tracked can finance gas projects in at least some cases.

“MDBs cannot be climate bankers if they are still fossil bankers,” she said. “Relying on fossil fuel-locked banks and the worst debt crisis isn’t working.”

___

Associated Press climate and environmental coverage receives financial support from several private foundations. AP is solely responsible for all content. Find APs sTANDARDS for working with philanthropies, a list of supporters and coverage areas funded at AP.org.

Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.