As climate change leads to a seemingly endless stream of climate disasters around the world, countries are struggling to adapt to the new reality. Preparing to better withstand hurricanes, floods, heat waves, droughts and wildfires will require hundreds of billions of dollars.

And then there’s tackling the root cause of climate change – the burning of fossil fuels like coal, gasoline and oil – by transitioning to clean energy like wind and solar.

This will require trillions of dollars.

Enter climate finance, an umbrella term that means different things to different people but boils down to: paying for projects to adapt to and combat the cause of climate change. Climate change financing is especially important for developing countries, which do not have the same resources or access to credit as rich countries.

International megabanks, funded by taxpayers’ money, are the largest and fastest-growing source of climate finance for the developing world. Called multilateral development banks because they receive contributions from several countries, there are only a handful of these banks in the world, with the World Bank being the largest of them.

How these banks allocate resources is one of the most important decisions made in defining how poorer nations can respond to climate change. They were one of the key reasons why, in 2022, the world met the goal that countries had set in 2009 of providing developing nations with $100 billion annually to address climate change.

At the annual U.N. climate conference that opens Monday in Azerbaijan, world leaders are expected to debate how to generate trillions of dollars in climate finance in the coming years. The non-profit research group. Climate Policy Initiative estimates global needs about five times the current annual amount of climate finance to limit warming to 1.5 C (2.7 degrees F) since the late 19th century. Currently, global average temperatures are about 1.3 C (2.3 degrees F) higher.

A new goal must reach higher and hold institutions and governments accountable for their promises, said Tim Hirschel-Burns, an expert at the Center for Global Development Policy at Boston University.

“The key thing is to get a goal that catalyzes actions that fill the really significant climate finance gap that developing countries face, which is much larger than $100 billion,” he said.

As the international community has come to accept the reality of climate change, the debate has shifted to the question of where the money will come from to finance the energy transition, said Dharshan Wignarajah, director of the London-based office of the Climate Policy Initiative.

“The question is not ‘are we going to transition?’, but ‘how quickly can we engineer the transition?’” said Wignarajah, who helped lead the climate talks, convened as the Conference of the Parties, when the United Kingdom was the host in 2021. “That has forced finance to play an increasingly prominent role in COP discussions, because ultimately it all comes down to who pays.”

Developing countries most dependent on multilateral banks

Developing countries are much more dependent on these banks to finance climate projects than industrialized countries.

In the United States and Canada, commercial banks and corporations provided financing for more than half of climate-friendly projects in 2022, according to the Climate Policy Initiative. In sub-Saharan Africa, these private lenders represented only 7%.

This is because it is It is more difficult for developing countries to achieve low interest rates.

“If you are Kenya and you want to borrow from private lenders, they may charge you 10% interest rates because your credit rating is not very good,” Hirschel-Burns said.

But multilateral banks have better credit ratings than many countries. For example, the International Development Association (an arm of the World Bank and the main provider of international aid to Kenya) has the highest possible rating from Moody’s Investor Servicewhile Kenya itself has a rubbish rating.

Banks borrow money with that higher rating and then in turn lend to developing countries, offering a more reasonable rate than governments could get if they borrowed directly from private lenders.

Some banking projects go against climate goals

The development objectives of multilateral banks are broad in scope. They seek to improve the health of people and the environment, expand access to energy and end poverty. Addressing energy access has meant banks have provided billions of dollars for fossil fuel power plants, according to an AP analysis, although their policies have improved and fewer such projects have been financed in recent years. .

Investment in fossil fuels continues to increase worldwide and will reach $1.1 trillion by 2024. according to the International Energy Agency. And multilateral banks continue to be among the largest financiers of fossil fuel extension projects, helping to “set a high-carbon path” for countries. according to a report from the Clean Air Fundthat presses for the financing of projects to improve air quality.

“We’re talking about development aid, and it should help countries leap forward,” said Jane Burston, executive director of the Clean Air Fund, referring to the idea that developing countries could industrialize with renewable energy and skip such a rich development. nations historically made with fossil fuels.

“It is disconcerting that development assistance is being provided to something that continues to make people sick and harm the planet,” he added.

Seemingly contradictory actions can be seen in a loan granted by a branch of the World Bank, the International Bank for Reconstruction and Development. It lent $105 million to rehabilitate coal plants in India, and its last loans for the project were made in 2018, according to an Associated Press analysis of data from the Organization for Economic Cooperation and Development.

Coal spews carbon pollution, which contributes to climate change and creates respiratory problems for those exposed. However, the improvements made coal plants more efficient and reduced their greenhouse gas emissions. according to project documents.

The Clean Air Fund report estimated that the World Bank provided $2.7 billion in “fossil fuel prolonging financing” between 2018 and 2022. During that time, the bank also lent about 32 times the amount for renewable energy it did. for non-renewables in India, including $120 million for rooftop solar.

“Supporting renewable energy is always our first choice as we work to provide electricity access to the nearly 700 million people who are still unable to power their homes, schools, hospitals and businesses,” a World Bank spokesperson said in a statement. release.

The bank’s policies still “selectively support natural gas as a transition fuel” if its research shows the project has a low climate risk, the spokesperson said. The bank’s recent policies require rigorous vetting of each project to ensure its investments reduce climate impacts.

The World Bank provided $42.6 billion in climate finance in its most recent fiscal year, a 10% increase from the previous year. And at the most recent COP, the bank promised that almost half of its loans would soon go to climate finance.

In Vietnam, about half of power generation comes from Fossil fuels, mainly coal energy.. The Asian Development Bank lent around $900 million for coal in Vietnam, and its fossil fuel spending in the country will end in 2017. The bank’s updated climate policies “will not support extraction, processing, storage and transportation of coal, nor any new coal.” fire power generation,” the bank said in a statement. The bank allocated $9.8 billion to climate finance in 2023 and aims to finance $100 billion in climate-friendly projects between 2019 and 2030.

The area of ​​greatest energy growth in the country is wind. Global Energy Monitor ranks Vietnam seventh in the world for planned wind energy. And the Asian Development Bank committed around $60 million in loans for wind energy in Vietnam between 2021 and 2022.

Banks have made extensive commitments in recent years to align with the historic Paris Agreement of 2015. But those pledges leave paths open to continue financing fossil fuels, said Bronwen Tucker, global co-head of public finance at Oil Change International.

According to the monitoring by the green group of the banks’ commitmentsThe nine main banks analyzed can finance gas projects at least in some cases. Rich countries should step in and cover the trillions of dollars needed for climate action with donations to less developed countries “to prevent climate collapse and save lives,” Tucker said.

“MDBs cannot be climate bankers if they are still fossil bankers,” he said. “Relying on banks that are blocking fossil fuels and the worst debt crisis in history is not working.”

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