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The World Bank has retired its target of allocating 45 per cent of annual lending to climate-related activities, marking a significant rollback of one of its flagship climate finance commitments, while extending its Climate Change Action Plan (CCAP) after negotiations among shareholders.
The move comes despite appeals from France and developing countries to preserve the target and at a time when multilateral development banks (MDBs) are expected to play a central role in mobilising at least $1.3 trillion annually in climate finance for developing countries by 2035 under the roadmap agreed at the 29th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP29).
The Bank said it would continue to report on climate finance and track climate-related outcomes. Still, it would no longer be bound by the 45 per cent climate co-benefits target announced at the 28th Conference of the Parties (COP28). It also retired the 35 per cent climate target under the CCAP.
In a statement issued on June 29, the World Bank said its work on climate “is and will remain firmly client-driven”, supporting countries in delivering their national development priorities and Nationally Determined Contributions under the Paris Agreement.
“Our framework has served its purpose well, embedding smart development in all we do in response to client needs and priorities. We will therefore extend the Climate Change Action Plan,” the Bank said without specifying the duration of the extension.
It also announced that its Independent Evaluation Group would undertake an evaluation of the CCAP following a request from the Board.
The Bank said it would shift its focus “from inputs to outcomes” and continue reporting progress on two scorecard indicators, net greenhouse gas emissions and beneficiaries with enhanced resilience to climate risks. It will also continue reporting climate co-benefits for projects through its existing quarterly and annual reporting mechanisms.
The Bank added that it would strengthen methodologies for measuring climate outcomes and continue collaborating with other multilateral development banks.
The decision follows sustained pressure from the United States, the World Bank’s largest shareholder, to abandon the climate finance target.
In a statement ahead of the International Monetary Fund and World Bank spring meetings in April, United States Treasury Secretary Scott Bessent said the Bank should “jettison” the 45 per cent climate finance target, arguing that it “breeds inefficiency, distorts economic decision making, and moves the Bank away from its core mission.”
Bessent said the World Bank should instead prioritise poverty reduction, economic growth and access to affordable energy, including fossil fuels such as gas, oil and coal.
He also said the Bank should shift its focus away from financing targets and towards “high-quality, durable projects” that strengthen resilience to multiple shocks.
Reuters had earlier reported that France’s Development Minister Eleonore Caroit urged the World Bank to resist pressure from the United States and retain the climate finance target.
Speaking during London Climate Action Week, Caroit said shareholders had a responsibility to ensure that the Bank remained ambitious on climate finance. “We will continue to ensure that the direction that the World Bank Climate Change Action Plan takes is the right one,” she said, adding that France would continue advocating for stronger climate commitments during the World Bank and International Monetary Fund annual meetings later this year.
A group of 19 of the Bank’s 25 shareholders had previously backed continued support for the Bank’s climate goals, although the United States, Japan, India, Saudi Arabia, Russia and Kuwait did not sign the statement, according to Reuters.
Labanya Prakash Jena, director, Climate and Sustainability Initiative, said the immediate impact on financing for commercially viable renewable energy and mitigation projects would likely be limited, but warned that climate adaptation and resilience financing could be disproportionately affected.
“There will be a limited impact on capital flows to bankable renewables and mitigation projects, since these are commercially attractive. The real risk is to climate adaptation and resilience financing, including urban heat resilience, flood defences and climate vulnerable agriculture, which relied on subsidised capital and development assistance precisely because they are harder to make commercially attractive.”
On India, Jena said the country was relatively better placed than many developing economies because it has multiple sources of capital, even though it remains the World Bank Group’s largest borrower. “India has been able to raise private capital for climate mitigation projects, although not as much as desired. The World Bank’s contribution to imported capital is not very high, hence the impact is not significant. But the world’s largest development bank offers concessionary and patient capital for climate adaptation projects. Hence, removing the quota for climate projects will be felt disproportionately in adaptation financing in India as well.”
The Group of Eleven, which represents developing countries on financial policy matters, had written to the World Bank last month urging it to extend the Climate Change Action Plan.
While the Bank agreed to continue the CCAP, it removed the lending targets that had formed a central element of the framework.
Jon Sward of the Bretton Woods Project said the outcome reflected a compromise among shareholders. “After a long and difficult negotiation among World Bank shareholders, the Bank’s Climate Change Action Plan has survived, but despite the efforts of other board members, US pressure has weakened the Bank’s climate work with the retirement of the 45 per cent climate finance target,” he said.
Sward said the Bank should clarify how the Independent Evaluation Group’s review would shape the future of the CCAP and how civil society organisations would be consulted during the process.
“While the release is light on detail, it does clarify that the Bank will continue to report on climate finance, and will deepen its focus on measuring the impact of its climate work, which is welcome,” he added.
The decision comes as MDBs assume an increasingly important role in global climate finance. According to the European Investment Bank’s Joint Multilateral Development Bank Climate Finance Report, MDBs provided a record $137 billion in climate finance in 2024, a 10 per cent increase from the previous year.
Of this, more than $85.1 billion was directed towards low- and middle-income economies, representing a 14 per cent increase over 2023. Climate mitigation accounted for $58.8 billion, or 69 per cent, while adaptation received $26.3 billion, or 31 per cent.
Private finance mobilised by MDBs for climate investments reached $134 billion globally in 2024, up 33 per cent from the previous year. Of this, $33 billion supported low- and middle-income countries.
The World Bank remained the largest provider of climate finance among MDBs.
At COP29 in Baku, MDBs collectively committed to providing $120 billion annually in climate finance for low- and middle-income countries by 2030, including $42 billion for adaptation, while mobilising an additional $65 billion each year from the private sector. They also projected $50 billion annually for high-income countries, including $7 billion for adaptation, alongside another $65 billion in mobilised private finance.
The Baku to Belém roadmap adopted under the COP29 and COP30 presidencies assigns MDBs a central role in helping countries mobilise at least $1.3 trillion annually in climate finance by 2035.
Suranjali Tandon, Associate Professor at the National Institute of Public Finance and Policy, said the decision reflects changing global priorities and could disproportionately affect adaptation finance.
“Dropping the climate finance target reflects the shifting priorities globally. Not surprisingly, among the representatives that declined to endorse the continued work on climate change are large fossil fuel producers. Abandoning the target means the flow of finance, which so far used a broader co-benefits approach, may decline, especially where the outcomes in climate change projects become less immediately discernible. As the Bank wants to focus on lending outcomes rather than input goals, adaptation-related projects may be impacted more.”
Dhruba Purkayastha, Senior Advisor for Climate and Environment at Dalberg, “While the removal of the climate finance target is being positioned as shifting from inputs to outcomes, it surely further erodes the concept of climate action as a global public good and weakens global sustainable development multilateralism. There is a need to step up regional green development banks, funds and financial institutions, such as an Asia Green Finance Institution or a supranational Asian Green Fund.”
Despite retiring the lending target, the World Bank said it would continue reporting climate finance, monitor greenhouse gas emissions and resilience outcomes, contribute to joint MDB climate finance reporting, and explore stronger engagement on adaptation, nature and pollution through future discussions under the extended CCAP.