Green Revolution at the World Bank

Green Revolution at the World Bank

By Jan-Henri van den Berg

The World Bank has been in the news quite a lot recently. Earlier this year, the sudden resignation of David Malpass from his role as president left many people wondering who his successor was going to be, and more importantly, in which direction the World Bank will be going in general. Traditionally, the role of the World Bank has been to fight poverty in developing countries. Now, with the likely appointment of Ajay Banga as new president, the World Bank is shifting its focus to fighting climate change. In this article, I will analyze this transition to see if the World Bank is heading in the right direction.

The World Bank, originally the International Bank of Reconstruction and Development, was founded in 1944 and served as an institution that provided loans to countries devastated by World War II. In the years after the war, the bank shifted its focus to developing countries, with the bank’s primary goal becoming the eradication of poverty. (World Bank, 2023) This is done by lending money to both private and public institutions that are in need of capital. In turn, this capital is provided through contributions of member states, with the US being the primary contributor.

In the last few years, the World Bank’s focus has increasingly shifted towards assisting countries on issues such as pandemics, forced migration and climate change. Especially the latter has become an increasingly important point in the bank’s mission. The main reason for this is that poor countries are being disproportionately affected by climate change, due to their lack of strong infrastructure, financial means, and general knowledge among the population, with the UN stating that climate change “threatens to jeopardize many of the developmental gains that have already been achieved”. Therefore, it was surprising when former World Bank president David Malpass said that he does not necessarily believe that fossil fuels are warming the planet. (Gelles & Rappeport, 2022) It is likely that the backlash he received from the media, alongside the increasing pressure from within the World Bank, has led him to resign earlier this year.

Now, president Biden has backed former Mastercard CEO Ajay Banga to take the reigns at the world’s leading economic development institution. It is likely that he will be chosen, as the US is traditionally in charge of picking World Bank presidents. In the past, Banga has been on the record saying he believes climate change is a serious challenge, and as CEO of Mastercard he has undertaken efforts to set up campaigns for a better climate, such as a pledge to plant 100 million trees. However, there have been critics stating that Banga may not have the experience necessary to handle climate change projects in developing countries. Most people do have faith in Banga, saying he knows how to get things done and foster change within an organization. (Williams, Hodgson & Raval, 2023)

Having found a presidential candidate that is more aligned with the World Bank’s new vision, many expect the World Bank to go through a major restructuring in the coming years. The idea that the World Bank’s role has to change is not new. In their 2016 paper, Clemens and Kremer argue that the world bank in its current form is mostly obsolete, with private institutions being better equipped to fight counteract ‘market inefficiencies’ in developing countries. They advocate for the World Bank’s adoption of a wider range of activities using more instruments, including fighting climate change.

Generally, most experts are happy that the World Bank is taking on this new responsibility of fighting climate change. That being said, there have been some critics saying that fighting climate change is not what the World Bank is set up for, and that their sole purpose should be eradicating poverty. Additionally, they say the World Bank needs to adopt a careful approach, and cannot take too many risks. (Williams & Hodgson, 2023)

I do not believe these criticisms are valid. Institutions should evolve over time, just as their environment evolves over time, to make sure they provide the most meaningful contribution possible. There is no point in focusing solely on economic development if there is no economy left to develop as a result of climate disasters. In line with the view of the UN, it can also be argued that fighting climate change can help prevent more people falling into poverty in the future, meaning the World Bank can still play a fundamental role in fulfilling its original goal.

All in all, recent developments at the World Bank can be considered a step in the right direction. That is not to say this transition will be easy. Aspiring new president Banga has his work cut out for him, having to convince member countries higher investments are necessary, whilst also needing to restructure the complex bureaucracy of the World Bank to cut down costs and enable the organization to take on its new tasks successfully. As with all climate matters though, action has to be taken now, because tomorrow may be too late.

03-03-2023

 

References

Clemens, Michael A., and Michael Kremer. 2016. "The New Role for the World Bank." Journal of Economic Perspectives, 30 (1): 53-76.

Gelles, D., & Rappeport, A. (2022, November 11). World Bank Leader, Accused of Climate Denial, Offers a New Response. The New York Times. https://www.nytimes.com/2022/09/22/climate/malpass-world-bank-climate.html

History. (n.d.). World Bank. https://www.worldbank.org/en/about/history

Hodgson, C., & Williams, A. (2023, February 21). The World Bank prepares for a new, greener mission. Financial Times. https://www.ft.com/content/5945ac4d-a0a9-434f-8b79-68875849b7df

Raval, A., Hodgson, C., & Williams, A. (2023, February 25). Ajay Banga, World Bank nominee must swap finance for climate. Financial Times. https://www.ft.com/content/097b3d80-5b46-4604-a5ce-9726819d9b8a

Dervis, K. (2023). Devastating For The World’s Poor: Climate Change Threatens The Development Gains Already Achieved. United Nations. https://www.un.org/en/chronicle/article/devastating-worlds-poor-climate-change-threatens-development-gains-already-achieved