August 10, 2023

With six years to halve global emissions, is it time for a sixth member of the World Bank Family?

There is an emerging consensus that the international financial architecture needs a rethink and an upgrade 80 years after the creation of the Bretton Woods institutions. This was the focus of the recent leaders-level summit in Paris for a ‘New Global Financing Pact’ and, since last Fall, has driven World Bank shareholders to ask its senior staff for an “Evolution
Roadmap” as to how the institution needs to evolve.

Meanwhile, a new President has just taken the helm of the World Bank Group. Ajay Banga is expected to amplify the World Bank’s resources, build new partnerships, and develop a new playbook to integrate the Bank’s work on traditional development challenges – which are particularly acute after a global pandemic, spillover effects from an on-going war, and  in a high-interest environment where debt burdens are more pronounced – and global challenges like climate change and pandemics.

Mr. Banga has suggested the Bank’s new mission should be to “create a world free from poverty on a liveable planet”. To achieve this, the World Bank needs a robust replenishment of the International Development Association (IDA) and recent moves to increase the balance sheet of the International Bank for Reconstruction and Development (IBRD) are welcome, as is the effort to better integrate global challenges – especially climate change — across the Bank’s operations. This must continue apace. But these measures don’t go far enough and fast enough. The urgency and scale of the climate change challenge are well documented. It is time to coalesce around a commensurate solution.

In addition to mainstreaming climate goals across the World Bank Group, a new mechanism is required to mobilize the step-change in concessional finance, from traditional and non traditional sources, that signals a resoluteness that has been lacking thus far. Having considered other options on the table, all of which have merits – including a scale-up of the IBRD GPG Fund – we conclude creating a sixth member of the World Bank Group with its own balance sheet, dedicated specifically to global public goods, is likely to be the best path to provide the scale of additional and concessional resources to realistically have a shot at bending the emissions curve to safer levels. In this paper we explain our rationale, suggest a financing and capitalization model, and propose a governance structure and funding allocation mechanism.

We offer this proposal for consideration by the new President as part of the Bank’s Evolution Roadmap exercise, and of the larger efforts to rethink the global financial architecture. The original Bretton Woods conference lasted three weeks, and the IBRD came into existence 18 months later. With the same resolve, we suggest that the new World Bank Group financing window — the GPG Facility — could be operational by November 2025, the 10th anniversary of the Paris Agreement.

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