Press Release

Ahead of Paris Summit, Leading Think Tanks Release Roadmap for Sweeping Reforms at the World Bank and Other Multilateral Development Banks to Address Climate Crisis

June 20, 2023

Contact:
Holly Shulman, holly.shulman@gmail.com, Center for Global Development

Washington, DC – In a new study released today, leading think tanks have outlined a set of crucial reforms necessary for the World Bank and other multilateral development banks to effectively address the challenges posed by climate change.

The study, co-written by researchers at the Center for Global Development and World Resources Institute, assesses MDBs’ current performance in addressing the climate crisis across key areas, including financial models, finance instruments, and impact measurement and reporting, and recommends specific improvements in each of these areas.

“Many are focused on the scale of multilateral development bank finance. This paper focuses on core changes in what the multilateral development banks do and how they do it in order to meet urgent development and climate challenges,” said Nancy Lee, a lead author of the study and a senior policy fellow at the Center for Global Development. “More finance is not enough. It needs to be combined with more effectiveness.”

Key areas for reform outlined in the study include:

  • Putting countries in charge of their own low-carbon climate resilient development and growth paths, informed by MDB analysis that integrates climate and development objectives. The strategies should go deep rather than broad and focus on transforming a few sectors critical for achieving the objectives.Countries should make policy and finance commitments under the strategy. MDBs and other development partners should also make commitments for financial and other support. Countries that meet their commitments should receive predictable flows of MDB budget and other finance, ending separate and diverse policy conditions across MDBs.They should also get MDB help in improving the terms of market borrowing.

  • A shift from a focus on financial inputs to an outcome-driven approach. The study argues that MDBs and countries should measure success based on the achievement of specific and measurable country-level development and climate outcomes instead of how much they spent on the intervention.

  • Mobilizing private finance at scale to address the gaps in capital markets. The study urges MDBs to shift their focus from maximizing their own finance to prioritizing the mobilization of private sector investments. Two core changes are critical: (1) changing financial product offerings to better match instruments to private capital market gaps; and (2) focusing more on creating portfolios of sustainable finance assets to offer private investment opportunities at scale.

The study also underscores the need for MDBs to collaborate with each other and adopt a collective approach, sharing analysis and collaborating across institutions on finance and other support. This coordination would enable MDBs to provide more efficient and targeted support to borrowing countries.

“There’s a strong and growing consensus that the World Bank and other MDBs must undergo a substantial reset to effectively tackle the climate crisis and the persistent development challenges,” said Valerie Laxton, a senior associate in the World Resources Institute’s Finance Center. “As the world faces an increasingly urgent need to transition to a sustainable future, we hope these proposals can serve as a roadmap—to reshape the system of development banks and ensure it is impactful in addressing challenges to people and the planet.”

While the proposed reforms seek to reshape MDBs' approach to development and climate finance, the study acknowledges the value and advantages of the current MDB model, and emphasizes the importance of preserving core strengths of the MDB system including leverage, financial sustainability, human capital, knowledge, and on-the-ground presence.

To read the full paper, “Imagining the Ideal Development and Climate MDB: Reinventing the Model,” visit https://www.cgdev.org/publication/what-would-ideal-development-and-climate-mdb-look.

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