Having recently been designated the interim manager of the Green Climate Fund in Cancun, the World Bank along with other international financial institutions are receiving renewed attention on their approach to financing clean energy in emerging markets. Faced with trade-offs between sustainable development and raising living standards, the Bank's decisions over the management of the fund, as well as its other energy lending programs, will have enormous impacts on the energy choices made in some of the fastest growing regions of the world. In this Expert Brief for Garten Rothkopf, Jesse Petersen discusses the Bank's role in the wake of the financial crisis, as well as how its energy lending practices are affecting the broader issue of climate change finance.

At the conclusion of the recent COP16 meetings in Cancun, the World Bank became the designated administrator of the Green Climate Fund, potentially managing hundreds of billions of dollars for climate adaptation and mitigation efforts in developing nations.   The World Bank is currently preparing a new energy lending strategy; according to inside sources involved in the negotiations, this strategy is perhaps no more than a month from being finalized and is right now subject to intense negotiations between the United States and BRIC countries in particular.  In the negotiations, the United States has made energy-related lending activity in particular a high-profile issues in the debate over appropriate levels of multilateral loan issuance and development objectives.  This GR Energy and Climate Brief will explore the role of international financial institutions in the post-crisis economic climate, with a special focus on the development impacts of the World Bank’s energy financing activity and its new role as the institutional manager of the UNFCCC’s Green Climate Fund.

The Impact of the Crisis

In the wake of the global financial crisis, both public and private international financial institutions have become more relevant in managing economic recovery efforts. At the height of the crisis, the G20 agreed to triple World Bank and IMF lending resources for the developing world and these institutions discovered renewed mandates in a variety of incarnations: as lenders of last resort, emergency aid providers, and as key leaders for urgent development assistance. U.S. Executive Director, Ian Solomon, who is at the center of these negotiations, made reference to the new roles IFIs are playing in developing market economies in his testimony before the Senate Foreign Relations Committee, citing a 25% increase in lending for fiscal support by the World Bank’s concessional lending arm, the International Development Association (IDA), as well as the International Finance Corporation’s (IFC) 50% increase in IDA countries to “catalyze additional private-sector growth and improve the business climate.”

At the same time, developing countries that had initially been deeply affected by capital flight and foreign direct investment (FDI) divestitures have begun witnessing new capital inflows and investors expect robust economic growth in segments of the developing world relative to the U.S., Europe, and Japan. Investors around the world have actually pulled $203 billion or (8.5% of $2.4 trillion) out of developed-market stock funds since 2008 and have been investing in equity elsewhere.

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