The significance of the World Bank’s climate retreat

When the World Bank, which has been doing remarkable climate work, retired its target of making 45% of its loans to climate projects this year, the move not only constituted a reversal of priority but also called into question the institution’s raison d’être. Keynes had famously posited that the rationale for governments was not to do things which businesses are doing, and to do them a little better or a little worse, but to do those things which are not being done. Analogously, the purpose of a global public institution is to tackle concerns that national governments fail to address. Topping a checklist are “global public goods” like climate change and public health involving cross-border spillovers that throw off the investing country’s benefit-cost calculus.

A unique climate role

The World Bank, the biggest multilateral development bank (MDB), is uniquely equipped to unlock long-term capital for climate action. Climate response involves mitigation or prevention, for example, by switching from polluting fossil fuels for energy to clean renewables that decarbonize economies. It also includes adaptation or coping, for instance, by building drainage systems or sea walls. The classic case of a global public good is climate mitigation, whose benefits and costs cross country borders. Adaptation, in comparison, stays within borders, although it too can have regional if not global features (as in the case of disaster management). Mitigation and adaptation can overlap, for example, in forest protection or better use of degraded land.

Indicating the institution’s priority for climate investment is important in creating the motivation for country clients to seek the World Bank for dealing with cross-border spillovers. This intention is especially essential to convey as it goes beyond the MDB’s country-based modality to a treatment of a global public good. Knowledge products and analysis are a central part of the climate agenda: An example of influential analytical work is the recent Country Climate and Development Reports.

The other part of the agenda is financing. The organization deploys traditional loans, trust funds, blended finance, and balance sheet optimization to bring in private capital. It provides public seed money to take early risks and subsequently mobilize multiples of it, as some programs of the International Finance Corporation (IFC), Climate Investment Fund, and Climate Infrastructure Fund demonstrate. The IFC’s innovations include bundling loans to companies that can be sliced into securities sold to private investors, allowing funds for more projects.

Meanwhile, the urgency to act has risen sharply since the 2015 Paris climate summit. The years 2015-2025 were the hottest on record. The Greenland and Antarctic ice sheets have been melting faster than at any time on record. Sea level rise is more than twice that in the 20th century. Studies attribute extreme heatwaves, droughts, storms, and floods to global warming. These events, of course, are salient to bank portfolios and global risk assessments.

Fortunately, there is now a precious window of opportunity for MDBs to act. While atmospheric CO₂ has been climbing for decades in step with GDP, that association, while still positive, has weakened, with some high-income countries showing a reversal. In the developing world, Brazil, Colombia, and Egypt have grown their economies while cutting emissions. The World Bank can capitalize on the rising prospects of renewables, as Pakistan and Uruguay show in distinct ways. This is the time to decisively decouple trends in GDP and emissions—including in China, the U.S., and India, the top three emitters.

But the decade since 2015 also witnessed wild swings in climate politics. They showed that overstating the danger does not help. Notably, scientists just retired the extreme Representative Concentration Pathway 8.5 scenario, or the “worst-case,” which sometimes was misleadingly labeled “business-as-usual.” The extreme case was based on a massive return to coal, which is unlikely thanks to falling solar and wind costs.

That said, coal use in China, India, and Southeast Asia is currently taking up the slack from the oil price increase due to the Middle East war. While renewable energy is scaling faster than ever, the global demand for energy is rising even faster, including to feed data centers. Rather than replacing fossil fuels, renewables are adding (still marginally) to the energy matrix. The MDBs must help rein in the use of coal and replace fossil fuels with renewables.

Targets matter

Since 2021, the World Bank’s Climate Change Action Plan (CCAP) has delivered impressive levels of finance. MDBs ​committed a record $162.5 billion in 2025, in line with climate finance targets announced at the COP29 U.N. summit in Baku in 2024. Within that, 10 of the biggest development banks put in almost $103 billion of the total, with the World Bank Group providing half of it, to the tune of $51 billion. Importantly, CCAP finance has been for both mitigation projects that help countries avoid being locked in fossil fuel pathways, and adaptation loans contributing to climate resilience.

The MDBs’ data for projects in general show that targets and preparation at entry improve results on the ground. Targets help deliver priorities as shown, for instance, by the lending target of $32 billion for COVID-19 vaccination in 2020-21. Nine targets (from electricity access to social protection) are set for 2030. It is in this context of results frameworks that the World Bank removed climate finance targets, which, incidentally, contradicts the agreements made during the record-setting IDA-21 replenishment.

The scale of finance is vital for leveraging partnerships and enabling mitigation and adaptation. But to be sure, financial targets alone do not ensure outcomes. For one thing, with creative accounting, one can game the system. As a case in point, analysis of 2,554 projects during 2000-24 showed a wide range of activities, some tenuously related to climate. Policies and priorities need to help translate climate finance into meaningful impacts.

Clearly, the focus of the climate agenda must be on both inputs and outcomes. Dropping climate finance goals forgoes the essential input side of the results cycle. The World Bank says it would integrate adaptation and mitigation into projects rather than treating them separately—which usually is code for returning to business as before.  

A green bank

Time is of the essence as floods and fires aggravated by runaway climate change derail development in every region. It is one thing for the private sector and even national governments to ignore the enormity of the crisis. But if the premier global entity with public capital from countries reverses financing aimed at a primary development risk, it would be a misreading of the MDB’s very purpose.

As climate finance is an essential input to achieving crucial outcomes, its removal from the goals sets back the priority for climate action. If that is not the intention, climate finance targets could be reinstated and strengthened, and the associated input-outcome metrics further enriched. But if it is a signal of its low priority, that bolsters the case made by some for a green bank with a climate mandate to triage financing for this global public good. And as it is not practical to quickly replace the World Bank’s vast climate financing, the logic would be that the green bank could, among other things, utilize its existing public capital base targeted for climate operations.