(WU BOHAO / FOR CHINA DAILY)
The world faces multiple and interlinked crises. In response to the Russia-Ukraine crisis, countries are shifting their energy policy priorities in ways that may slow down the energy transition and affect global climate goals and the achievement of electricity access.
The energy trade-offs made in Europe will have major consequences for developing countries. The increased price of natural gas is already causing increased use of coal, diesel and heavy fuel oil in the developing world.
Additional fuel subsidies are being given to mitigate the impact of high prices. This worsens budget deficits and undercuts the longer-term objective of reducing greenhouse gas emissions. These subsidies distort price signals, reducing the incentives for energy efficiency and investments in cleaner energy.
These costs are coming at a time when there is considerable work yet to be done to support grid development and electricity access.
There will need to be major investments in storage, new technologies and back-up capacity to integrate solar and wind into grids and to compensate for intermittency.
In this complex context, the world community is also focused on cutting emissions. It will be important to identify, fund and implement the most impactful projects in terms of cutting emissions and resilience in adapting to major climate vulnerabilities.
To help focus efforts in developing countries, the World Bank has launched a new core diagnostic called Country Climate and Development Reports.
These reports are part of the Climate Change Action Plan to integrate climate and development.
The World Bank published the first CCDR on Turkey in June. Over the next few months, it is expected to publish as many as 20 more.
In addition to informing the bank’s climate work, the reports aim to foster climate-oriented discussion and action globally.
A key challenge in sustainable development is addressing the large financing needs for the transition to lower-carbon energy.
To succeed, substantial funding will be needed from the global community, as well as early-stage technical assistance for project preparation. Engagement and capital from the private sector will need to increase by an order of magnitude to address these immense costs.
There is growing investor interest in financial instruments that provide sustainability outcomes. Achieving the major increases needed in the amount of financing channeled through these instruments will require robust new frameworks for measurement, reporting and verification.
Transparency will be a key challenge to avoid greenwashing. Constant innovation will be needed as the private sector applies significant funding to global public goods.
The World Bank has provided many such innovations, including green bonds, and has proposed more as part of Climate Change Action Plan.
One recent example was the March 2022 launch of a Wildlife Conservation Bond, or Rhino Bond, to support South Africa’s conservation efforts. The bond is a first-of-its-kind financial instrument that channels investments to achieve conservation aims — measured by a rise in the black rhino populations.
If targets are met, investors will receive, in addition to the redemption of their principal, a success payment at maturity, paid with funds provided by a performance-based grant from the Global Environment Facility.
For a period of several years, the World Bank is bringing together investors, trust fund resources, a clear public purpose and a significant government commitment. This approach can be adjusted and scaled to channel more private capital for other sustainable development objectives.
Strong environmental, social and governance frameworks are key to manage climate-related risks and opportunities in both development and corporate activities.
There is currently significant variation globally in ESG reporting requirements, monitoring, and verification and little consensus on the priorities within ESG. The World Bank is a long-standing supporter of global efforts to harmonize standards for sustainability reporting.
The World Bank promotes global transparency on climate metrics, targets and outputs so that it can create opportunities, tackle challenges and help countries maximize positive outcomes in their climate transition.
China’s role as a major global creditor gives it additional responsibility to support the global shift toward investments with high ESG standards. As a major outward investor, particularly in infrastructure, China has considerable influence in promoting the adoption of international ESG standards in its lending and investing.
In October 2021, China announced that it will no longer build coal-fired power plants abroad. Further, the country has also announced it will step up support for other developing countries in developing green and low-carbon energy. These are welcome steps, but there is more that can be done.
A key future step is the adoption of an ESG policy framework that applies to Chinese banks for their foreign investments.
A commitment to high standards of transparency and environmental and social risk management, similar to the standards that the World Bank and other multilateral development banks follow, would help recipient countries achieve sustainable development while also significantly lowering risks for Chinese investors themselves.
The author is the president of the World Bank. The author contributed this article to China Watch, a think tank powered by China Daily.
The views do not necessarily reflect those of China Daily.