It's Time for the World Bank to Scrap Its Climate Finance Targets

The diversion of development dollars to climate mitigation over the past decade hollowed out aid programs for no gain

On June 22, the World Bank’s management will decide whether to remove the target to spend at least 45 percent of the Bank’s annual lending on climate change. Scrapping this target cannot come soon enough.

The World Bank’s climate spending target distorts its core development mission. Bureaucratic incentives were skewed towards satisfying climate-accounting thresholds rather than impact on poverty reduction. Spending decisions sometimes bordered on the absurd. Precious dollars were spent attempting to reduce emissions by 30 percent in Guinea-Bissau, an extremely poor country with carbon emissions of 0.1 tonnes per capita. Poor countries need growth plans, not “ridiculous decarbonization.”

These very real concerns were ignored in favor of a climate portfolio that is, at best, dubious. At the World Bank, projects related to healthcare, education, governance, and payment systems were assigned climate-benefit scores without clear explanations, proper documentation, or measurable evidence of decarbonization. Even now, climate finance accounting lacks transparency, standardized metrics, and independent verification, making it difficult to assess whether reported climate spending addresses climate change in meaningful ways. An elaborate climate scorecard does not shed light on the link between climate finance and outcomes. Climate finance bean counting is mostly a shell game.

We don’t know whether the World Bank’s lending portfolio genuinely changed because of climate targets, or whether projects were simply being categorized differently. But plenty of damage has been done. The World Bank has refused to finance fossil-fuel energy systems that are essential for industrialization and electrification in Africa. Fossil fuels are necessary to build resilient infrastructure, provide reliable electricity, and build transportation networks, air conditioning, cold storage, and other practical investments that generate economic growth. Fertilizer, made most cheaply with natural gas, is essential to raising agricultural yields and preventing famine. Reliable and cheap energy remains indispensable for development, and renewable systems, on their own, do not meet industrial and infrastructure needs in low-income countries.

It has been all but impossible for African citizens to raise concerns about the World Bank’s priorities. Faten Aggad, a prominent policymaker and negotiator in Africa, recently explained on LinkedIn:

“The messages from our non-African friends reminded me of the gaslighting many of us were subjected to whenever we raised questions that exposed contradictions. You ask questions on how to let go of fossil fuels for countries who have the endowment in a context of poor finance for renewables and sovereignty and you’re told you defend the position of the fossil fuel lobby and “petro-states” (whatever that means!). You ask questions on the Net Zero Framework and its cost implications on Africa and you are supporting the anti-NZF lobby. You ask questions on the application of Carbon Border Adjustment Mechanism and how to ensure it doesn’t impact negatively Africa and you are labelled a polluting industry lobbyist. In the process, the real question of how to safeguard African interests is never answered nor seriously engaged with.”

Removing the 45 percent climate target is all the more important following the Trump administration’s hollowing out of American development and foreign aid programs like USAID. Prior to the cuts, USAID spent roughly 1% of the U.S. federal budget—$67 billion in 2023—on various projects such as maternal and childhood health, economic development, and food aid, amongst other things.

Trump’s aid cuts were met with condemnation from Biden-era bureaucrats and foreign policy leaders. Former Secretary of State Antony Blinken warned “when America pulls back, other countries fill the vacuum—often not in ways that advance our interests or values.” Former USAID chief Samantha Power argued that development assistance is not charity, but rather a strategic investment in global stability and American security. She and others pointed out that the closure of USAID meant that ongoing programs addressing hunger, maternal and child health, clean water access, and education in low-income countries have been disrupted or terminated. Clinics dispensing HIV drugs have been shuttered, and more people are dying from AIDS.

But these same officials actively supported reprogramming precious development dollars to climate mitigation programs. For more than a decade, wealthy countries redirected development aid toward climate mitigation in poor countries, in line with the preferences of domestic environmental groups in donor countries rather than with the needs and wants of those receiving aid. Western leaders framed climate finance as a strategic investment in their own futures.

“Climate change is the greatest common threat the world faces today,” said the very same Samantha Power in 2021, then chief of USAID. Gillian Caldwell, USAID’s chief climate officer under Biden, bragged that she had turned “the largest government development agency in the world into a ‘climate agency’ in which our $30 billion+ budget is informed and in some cases driven by the climate crisis.” European politicians echoed these sentiments. “The global fossil fuel crisis must be a game-changer. So let us not take the ‘highway to hell’ but let’s earn the clean ticket to heaven,” said Ursula von der Leyen, President of the European Commission. German Chancellor Olaf Scholz framed climate policy as central to Europe’s economic and security future. Dutch Prime Minister Mark Rutte repeatedly warned that climate change is a threat multiplier in NATO and European security discussions about migration, instability, and conflict.

The diversion of precious development dollars to climate mitigation had already begun hollowing out Western aid programs well before Trump’s second term, making recent cuts an acceleration of a trend that saw poor countries’ needs being ignored. These efforts undermined both poverty alleviation efforts and US interests in the developing world without having any appreciable effect on emissions.

China and Russia filled the void when the US and other Western countries abandoned development finance that involved fossil fuels. Meanwhile, development funding provided by Western nations to address climate shocks was neither new nor particularly effective. Governments of rich countries mostly diverted money from traditional development aid budgets—such as health, education, agriculture, and infrastructure—to meet climate finance pledges.

Research from CARE International suggests that only a small share of climate finance was genuinely “new and additional” beyond longstanding development aid commitments. Countries like France, Germany, the US, and the UK—all top-ten climate funders in absolute terms—provided little to no climate finance that was strongly additional. France and the United States provided no funding above their existing commitment to allocate 0.7 percent of gross national income to development assistance. Germany contributed only about 3 percent in genuinely new funding, while the United Kingdom reached roughly 5 percent.

Some countries performed somewhat better under a less stringent measure of additionality. Germany, for example, disbursed nearly $54 billion above its 2009 level of development finance. France, however, saw little improvement: of the $47 billion in climate finance it disbursed between 2011 and 2020, only $4.8 billion—just over 10 percent—exceeded its 2009 development aid baseline. The United States disbursed $17.8 billion over the same period, with even less new funding provided in the years after the Paris Agreement. In the United Kingdom, the treatment of the 0.5 percent aid-to-GNI target as a fixed spending ceiling meant that climate finance counted as aid came at the expense of traditional development programs.

And to make matters worse, projects were labeled as climate-related despite having tenuous connections to emissions reduction or climate resilience. Projects funded as “climate finance” included airports, hotels, movies, chocolate shops and even commercial investments by private firms.

We don’t know how much development aid was diverted by the World Bank or other development finance institutions to “address” climate change and how many development projects were set aside or modified to meet climate goals. But after a decade of development banks and wealthy countries cannibalizing their own programs in the name of “climate” combined with foreign aid cuts by the U.S. government and other Western countries, the time is right for the World Bank to reject climate targets and reprioritize its efforts and funding on projects with clear economic development benefits for the poor.

With higher fuel and fertilizer prices following the Iran Crisis, the World Bank’s role as a counter-cyclical lender is more important than ever. As natural and manmade shocks increase, it is the poor that suffer the most. Counting climate change dollars is like fiddling while Rome burns. Scrapping the 45 percent target will enable the World Bank to focus on investments in agriculture, energy, and infrastructure, to meet the needs of households and businesses, and help poor countries deliver much-needed services.