Sustainable finance had a significant setback this week when the World Bank, which provides loans and on-the-ground help to developing countries, u-turned on its flagship commitment.
It decided to reverse a decision made under President Obama to allocate up to 45% of its funding to projects with climate benefits, having faced persistent pressure from President Trump to change its stance.
The statement said that it would in future focus “on lending outcomes rather than input goals”, and that its own long-term climate action plan would be extended, but the climbdown is another example of the sources of the largest amounts of sustainable finance feeling that they have to change foot in the face of political pressure from the US.
Political pressure overpowers climate mandates
The bank said that it has shifted its focus to "smart development", which aims to boost job opportunities, while still providing climate-related benefits such as drought-resistant agriculture or storm-resistant infrastructure and renewable energy. Most media effectively reported this as mitigation though.
World Bank lending to climate-related programmes had reached $39 billion last year, but the US government position was that the money should instead be channelled to work that countered poverty and grew economies, ESG Today reported.
The contrast with climate impacts in much of Europe could not have been starker. Following the UK’s heatwave last week and with another reportedly on the way, much of the media focus was on the prospect of climate adaptation investment, with temperatures in France, Germany and other countries topping 40 degrees Centigrade.
Reuters reported that about half of major European cities analysed had reached a level of heat stress that prevented them from sweating to cool down, noting that it is now the fastest-warming continent.
The European Union’s main green spokesperson denounced ideologically driven “lies” about the causes of climate change, pointing the finger at institutions with interests in fossil fuels, and outlining why renewable energy could both improve economic fortunes, while reducing climate impacts.
The fight for the future of sustainable finance
Many companies with long-term climate goals may be sticking to their guns amidst the intense political pressure. But the Financial Times neatly summarised the reality of the tussle between the US and Europe on sustainable finance.
“European shareholder nations, alongside many developing client countries, had argued for retaining the target and saving the climate action plan, while the US – which holds effective veto power and the largest controlling vote at the World Bank – pushed for their demise,” it published.
One source claimed the bank may be able to continue some climate project funding with “careful stewardship”. That looks to be something of an understatement.