Background
The World Bank Action Day is organized annually by a group of international NGOs to exert pressure on the World Bank. Since the first Action Day in 2019, regular actions take place during the Spring Meetings and Fall Meetings, in Washington and elsewhere. Read on to learn more about the World Bank and some of the reason why it needs public scrutiny.
In 1944, the World Bank was founded, together with the International Monetary Fund (IMF), in Bretton Woods, New Hampshire, USA. Today, both Bretton Woods institutions contribute to the achievement of international development goals, among other things by providing financial aid, advice as well as technical assistance. While the World Bank supports long-term development and reconstruction projects through favorable loans, the IMF’s tasks are more fiscal in nature, e.g., international cooperation on and monitoring of monetary policy.
The World Bank is supported by 189 member states and consists of 5 individual organizations:
- International Bank for Reconstruction and Development (IBRD)
- International Development Association (IDA)
- International Finance Corporation (IFC)
- Multilateral Investment Guarantee Agency (MIGA)
- International Center for the Settlement of Investment Disputes (ICSID)
All five organisations together are referred to as the World Bank Group (WBG). IBRD and IDA together are commonly referred to as the World Bank.
The World Bank is a specialized agency of the United Nations. It is led by the governments of member countries. However, contrary to the UN principle of “One Flag, One Vote”, the respective voting power within the World Bank corresponds to each shareholder’s financial commitment.
The central governing body of the World Bank is the 25-member Board of Directors, staffed by so-called Executive Directors (EDs). There are seven countries that hold an own seat, such as the USA, China, the United Kingdom, France, Germany, Saudi Arabia and Japan, while other shareholders form country groups.
How does the World Bank Continue to Fund Fossil Fuels?
is how much the World Bank has spent on fossil fuel projects since the Paris Agreement, as this Big Shift Coalition report from 2022 exposed. And that does not even take into account the $10-$20 billion annually given as government budget support or other fossil fuel financing loopholes! In a world where current fossil fuel investments put us on track to exceed 3°C of warming, this cannot be. There can be no more excuses for the use of public finance to boost or prop up fossil fuels.
Despite committing to reduce its coal power investments to “extremely rare circumstances” in 2013 and stop funding upstream oil and gas in 2019, the Bank has continued to drive billions of USD to fuel the climate crisis. This financing takes different forms. Some of it is quite blatant, like direct project finance. Other investments are slightly more hidden away:
The 6 Trojan Horses for Fossil Fuel Finance
The WBG provides technical assistance in support of fossil fuel development, including through data gathering, feasibility studies, drafting of policies and regulations, marketing, and transaction advisory. From 2016 to 2020, the Bank provided over $450 million in technical assistance aimed at increasing fossil fuel investments in at least 12 countries.
In order for oil, gas, and coal to be traded around the world, the cargoes have to be financed by banks and require letters of credit guaranteeing payment. The WBG’s private sector arm – the IFC – provides such trade finance loans and guarantees. This short-term trade finance is transaction-specific, but none of these transactions are disclosed to the public. From 2019 to 2021, there were at least $7 billion in unaccountable IFC trade finance.
The WB requires countries to adopt policy reforms in order to receive budget finance. Common policy reforms such as lowering tax rates and increasing energy tariffs incentivize fossil fuel investments. From 2016 to 2019, the World Bank required energy tariff reforms in 29 countries and tax reforms in 41 countries. In Pakistan, these reforms made new coal-fired plants the most profitable in the world.
The WBG makes more capital available by lending through financial intermediaries. The projects and companies being financed through this are typically not disclosed to the public and can include projects and companies tied to fossil fuels. Additionally, many new oil, gas, or coal projects can qualify as small and medium enterprises (SME) if at the time finance is provided, they do not yet generate do not yet generate revenue.
The WBG provides billions of dollars in funding for fossil-fuel enabling infrastructure, such as transmission lines to evacuate power from coal and gas power plants; and port infrastructure to handle coal, oil, and gas exports/imports. Alarmingly, the MDBs have put such fossil fuel-enabling infrastructure on the list of project types considered to be aligned with the Paris Climate Agreement.
The World Bank provides on average $10 billion a year in budget finance to governments with no restrictions on coal, oil, or gas funding. Governments are allowed to use this finance to provide financing to fossil fuel projects and/or fund government expenses related to fossil fuel developments. From 2016-2019, 81 countries received budget finance. In many cases, these operations specifically target the energy sector in countries expanding coal and upstream oil and gas.
For a more detailed look at these loopholes and examples of where and how they are used, have a look at this briefing by Heike Mainhardt from Urgewald, 2023.
WBG's Top 10 Dirty Loans Exposed
But it’s not just about dizzying financial numbers. The Bank’s investments in fossil fuels have real-life consequences for local communities. The Big Shift Coalition report from 2022 sheds light on the top ten largest direct loans or supports going to fossil fuels by the WBG between 2018-2021, covering physical infrastructure projects as well as WBG policy advice. The report also digs more deeply into five particularly harmful fossil fuel projects that the WBG has supported. Read the full report here.
Why This Moment Matters
The 2023 Spring Meetings are a window of opportunity for global development. With a new World Bank president lined up via the usual gentlemen’s agreement led by the WB’s primary stakeholder the US, the world is waiting to see how far the Bank will go in reforms. Decisions made during these meetings will shape the agenda that Ajay Banga will inherit.
Last year, major World Bank shareholders called for a complete overhaul of the Bank’s vision and operational model. The world is facing multiple crises, and the Bank needs to step up its game. Unfortunately, the current draft of the Evolution Roadmap falls short of addressing these issues and fails to ramp up its climate ambitions. It mostly proposes expanding the current WBG model, which simply won’t cut it.
Transformational reform is needed at the WBG and across the MDBs to make them fit for purpose. The World Bank should put an end to fossil fuel finance, ditch the misguided bias towards private finance, re-evaluate regressive policy advice, and create a democratic, merit-based and transparent nomination process for future presidents. These are just some of the critical first steps needed for sustainable development solutions. Let’s pressure the World Bank to make progress on these!
Join the Fight and Raise Your Voice!
As civil society, we have a responsibility to hold institutions like the World Bank Group accountable for their actions. We must demand that the Bank lives up to its commitments to combat climate change and stop financing fossil fuels. Join us in raising awareness, putting pressure on policymakers to take action, and organizing protests – together, we can create a world that prioritizes the health and well-being of both people and the planet.