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International Monetary Fund, World Bank emphasize climate commitments
Leaders of both the International Monetary Fund (IMF) and World Bank emphasized this week during their joint spring meetings that climate change remains at the top of their agenda as they support global economic recovery from the COVID-19 pandemic and pursue their traditional economic development missions.
The World Bank updated its climate change action plan on 2 April, calling "our collective responses to climate change, poverty, and inequality … defining choices of our age."
First announced in 2021, the plan dedicates the World Bank's attention to ensuring that a rising proportion of its development investments also help to reduce or offset carbon emissions or provide local resiliency. From 2016 through 2020, the bank said its support enabled the addition of 34 GW of renewable energy projects and supported more than 30 countries in implementing or enhancing their nationally defined contributions to reducing their carbon emissions.
In that period, the World Bank said it "delivered over $83 billion in climate finance to support developing countries to invest in low-carbon, resilient opportunities," which World Bank President David Malpass said on 2 April makes it "the largest multilateral provider of climate finance for developing countries."
Under previous guidelines, the bank said that at least 28% of its project financing had to demonstrate "climate co-benefits," but it has raised that goal for 2021-2026 to 35%. In 2020, it said that 62% of its financing met the co-benefits standard. It defines climate co-benefits as those "that support climate action while also furthering development objectives."
Malpass was the moderator for a discussion with IMF Managing Director Kristalina Georgieva and US Treasury Secretary Janet Yellen on 6 April, and he asked Yellen about the Biden administration's commitment to addressing climate change globally.
"Obviously, climate change is a global problem, and we are not going to really be able to deal with GHG emissions successfully unless countries like the United States act domestically and foster the transfer of resources and financing to developing countries to be able to do so successfully," Yellen responded.
President Joe Biden is focused on a domestic climate agenda, Yellen said, while recognizing that "both of your organizations have a very important role to play ... and the availability of green finance is critical to that."
Georgieva said that the private sector and public sector will have to work together to solve the problem, and she identified carbon pricing as a key signal that the private sector would respond to with investment and innovation. IMF research has found that the current carbon price of about $2/mt is "multiple, multiple times lower than where it should be, at least" $75/mt, she said.
Both Georgieva and Yellen said green investment can deliver good jobs as well. "I believe some work by the IMF shows that green investment tends to stimulate more jobs; it's more labor intensive than any other forms of investment, so there are good opportunities," Yellen said.
And in some areas, such as electric vehicles, Yellen said that tax incentives can influence purchasing by consumers and help the industry grow.
From an international perspective, Georgieva said that equity is part of the jobs and economic development equation, too. The IMF has calculated that over 15 years a green investment push can boost economic growth by 0.07% annually, through bringing in private investment and creating jobs, she said. "We are not going to win if there are losers unattended," she said, later adding: "If people in high-carbon-intensity sectors do not get a helping hand … we should not expect the private sector to sort this out on its own."
This is why she termed it "thrilling" that the US, "a country with so much clout," is returning to international engagement.
Speaking a day later at a press conference, Georgieva returned to the climate change theme, saying that she sees a supportive attitude and sense of obligation from the world's wealthiest nation.
"2021 has the potential to be the year of climate action," she said. "We have the G7 presidency making it a priority; G20 making it a priority; COP26; science speaking loud and clear on the need for action; and a multilateral environment in which countries are stepping up with their commitment to net zero in 2050 and, in China's case, 2060."
In thinking about climate change, the IMF emphasizes four themes, she said:
- The need for collective action to define how the world can meet its objective for net zero by 2050, which Georgieva said must be supported "with actions taken … in this decade."
- Identify how to transition to a low-climate economy in a way that supports growth and green jobs. "This includes putting a price on carbon, investing in green infrastructure massively, making sure that those who are affected by shifts are given a fair stake … [and] that there is a just transition," she said.
- Sharing of the cost burden. Georgieva said that pledges by wealthy nations to the Green Climate Fund were a key component. At the group's most recent meeting on 26 March, the IMF approved 15 new projects for an investment of $7.5 billion.
- The final aspect is an "all-hands-on-deck" attitude, she said. "Everybody has to do what is in their capacity. For IMF, our comparative strengths are surveillance, capacity development, integrating climate risk in financial stability assessments, and data."
Among the IMF's key roles are Article 4 consultations, through which it can help nations look at their climate mitigation and adaptation policies, and collection and use of data to help assess progress, Georgieva said.
She also said the IMF will play a big role in the fast-evolving area of climate-related financial risk. The IMF supports "standardized reporting of these risks, stress tests, and [the] supervisory role of these authorities. We have an instrument with the World Bank called financial assessments, and we are integrating climate-related risks in these assessments," she said.
Concurrent with the IMF and World Bank meetings, the Coalition of Finance Ministers for Climate Action held its own meeting, and the finance ministers pledged to keep the issue at the forefront of cooperation. Now numbering 60 member nations, the coalition's members, which now include the US, represent 39% of global carbon dioxide emissions and 63% of global GDP.
"Perspectives were shared on transitioning to a low-carbon and climate-resilient global economy, mitigating climate-related financial risks, and pursuing pathways towards decarbonization," the coalition said in a statement.
In a report issued in July 2020 about recovering from the impact of the COVID-19 pandemic, "Better Recovery, Better World," the coalition listed a number of features of what it said should be projects that are "fast, labor-intensive in the short run":
- renewable energy assets and grid modernization
- building efficiency investment
- education and training in the skills of the future
- research and development in clean technologies
- rural support and investment in climate smart agriculture
- natural capital investment to improve ecosystem resilience and restoration of degraded land and habitats.
Also this week, Ceres, a network of sustainable investors, urged US financial regulators to take urgent action to catalyze a move toward a low-carbon economy in a 6 April report, "Turning up the Heat: The need for urgent action by US financial regulators in addressing climate risk."
Taking heart from Yellen's promise to work with financial regulators across the globe to provide standardized approaches to assessing and reporting climate risks, Ceres said the US should not stand behind its global counterparts. Rather, US financial regulators should engage and coordinate with their global peers to build on lessons learned and experiences to date, as well as developing a shared global playbook for action.
"The coming months are a unique opportunity for US financial regulators to leapfrog into global leadership on the climate crisis," Ceres wrote.
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