Attaining US$2 trillion per year by 2030 for Global Climate Finance: Is this possible for the World Bank?

Intan Khairiah Adilah Binte Abdullah | The Business Times

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PREPMUN HEADQUARTERS - Directors of the World Bank are facing a fast-paced

economic issue which has been plaguing all nations, climate change. Despite the emergence of the fastest and biggest economic headwind of the 21st century, global financing frameworks remain dangerously misaligned with the scale of the threat.

The Potsdam Institute estimates that climate damages could hit US$38 trillion annually by 2050, a figure large enough to reorder global markets.

However, funding for climate action remains stuck at the tens of billions.

The numbers reveal a structural mismatch. The Bank’s climate-related commitment amounts to US$31.7 billion a year, barely a rounding error next to the US$1-2 trillion in annual investments needed by 2030. It highlights a structural fatality of the institution, which results in the urgent need for reinvention of capital mobilisation and how it positions itself within a fragmented global regime.

Developing economies, including Singapore and ASEAN, bear the brunt of climate impacts despite contributing the least to historical emissions. Pakistan’s floods in 2022 inflicted US$14.9 billion in damages; Bhutan faces existential glacial melt risks despite negligible emissions.

These countries lack both fiscal space and private investor appetite. As a result, these countries require more grants and concessional loans, not just market-based instruments.

The World Bank is fixated on its AAA rating, backed by the shareholders such as the US, Japan, and the EU. This gives it unrivalled borrowing power, but its balance sheet is finite, tightly controlled by shareholder politics and capital adequacy ratios.

This is where the structure of global climate finance becomes the most problematic: capital flows to where returns are predictable, not where vulnerability is greatest.

The Issue is the Incentives

The Bank has an extensive suite of financing instruments, such as IBRD loans, IDA credits, blended finance mechanisms, guarantees, green bonds, and debt-for-climate swaps.

IBRD flexible loans offer a low-cost, long-term process that promotes economic growth for developing countries. IDA credits, which offer 0% interest for the poorest economies, blended finance mechanisms to crowd in private capital.

Additionally, guarantees to de-risk political and credit exposures, green bonds which tap into ESG-driven investors, and debt-for-climate swaps to ease fiscal pressure.

On its own, these instruments work. Collectively, they do not. Private capital mobilisation remains heavily concentrated in the middle-income markets, where bankable projects exist.

Meanwhile, least-developed countries are the ones with the most acute climate vulnerabilities which attract only 11% of blended finance globally. The core issue is not the absence of instruments, but the absence of incentives that shift private and public capital towards high-risk, low-return environments.

Reforms should shift from ‘more money’ to ‘different money’

Calling for funding will not fix the system. What the Bank needs is balance sheet innovation, such as hybrid capital, contingent instruments, and capital restructuring, which expand lending headroom without relying on politically unpopular capital increases from advanced economies.

For instance, hybrid capital gives multilateral banks quasi-equity buffers that absorb losses, potentially unlocking billions in additional lending. Debt-for-climate swap could ease the debt overhang that prevents countries with vulnerable economies from investing.

Guarantees, if used more aggressively, may be able to shift risk from private financiers back toward the institution best equipped to manage it.

Therefore, what the World Bank needs is not a larger balance sheet, but a smarter balance sheet.

If climate risks are systemic, where they affect food security, global supply chains, migration, and financial stability, then climate finance cannot be a side function of development finance. It must become its organising principle.

Therefore, the question of whether the World Bank is able to attain the current goal depends on how the conference moves forward.