Summary of Highlights: WBG Climate Change Action Plan 2021-2025

SUMMARY OF HIGHLIGHTS

WBG Climate Change Action Plan 2021-2025 Supporting Green, Resilient, and Inclusive Development Delivery Review Meeting January 2020 1 Confidential

Overview 1

Introduction and Overview of the Climate Change Action Plan

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Strategic Directions

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Five Key Systems Transitions (Energy, Food, Cities, Transport, Manufacturing)

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Greening the Financial Sector

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Mobilizing Finance at Scale for Impact and Transition

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Summing Up Confidential

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Climate and Development

Climate change is the defining development issue of our time and is critical for the WBG to deliver on its ambition to reduce poverty and boost shared prosperity.

Climate change, poverty, and inequality are defining issues of our time and are interlinked. Climate change represents a serious and increasing threat to the WBG’s twin goals.

The WBG’s vision is good outcomes for developing countries and their people. Countries need to integrate climate into their development strategy, and focus on green, resilient, and inclusive development (GRID).

The WBG will work to play a leading role on climate and development challenges at the local, regional and global level.

The WBG will step up support on climate change through a combination of analytics and advisory work, a wide range of financing instruments, and a convening role for global and regional cooperation.

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WBG Climate Change Action Plan at a Glance

This Action Plan aims to increase the WBG’s impact on GHG emissions and adaptation outcomes by increasing climate finance, improving and expanding diagnostics to prioritize climate-related actions, and focusing on climate results to deliver impact. The Bank will prioritize transitions in five key systems. It will use its convening power to support a “just transition” out of coal. The WBG will become aligned with the principles and goals of the Paris Agreement.

Increase Climate Finance The WBG will increase its climate finance target to 35% on average in FY21-25, with at least 50% of IBRD/IDA climate finance for adaptation.

Improve and Expand Climate Diagnostics The WBG will build a strong analytic base at the global and country-level, including introducing new Country Climate and Development Reports.

Focus on Climate Results and Impact The WBG will focus on achieving and measuring impact, through a greater focus on GHG reduction, adaptation and resilience goals, and through new metrics.

Climate Change Action Plan 2021-25

Reduce Emissions and Climate Vulnerabilities in Key Systems The WBG will support transformative investments in 5 key systems transitions that contribute over 90% of global emissions and have significant climate vulnerabilities.

Support a Just Transition out of Coal The WBG will significantly increase its programmatic support for the transition away from coal in client countries that request assistance.

Align with the Paris Agreement The WBG will align its financing flows with the objectives of the Paris Agreement.

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Global CO2 Emissions

The world’s poorest countries are the lowest emitters but are most impacted by climate change. A Just Transition must include high-emitting IBRD countries.

Highest Emitting Countries, 2019

Share of Global CO2 Emissions, 2019

(% of global CO2 emissions) 30 25 20

36%

36%

15 10 5 0

4%

Source: Our World in Data based on the Global Carbon Project

China and India IDA (including Blend)

24%

IBRD (excluding China and India) Non-WB Borrower Countries

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Global GHG Emissions by Sector

A few key sectors account for the majority of global greenhouse gas emissions.

Global Greenhouse Gas Emissions by Sector, 2016 3.2% 5.2%

Waste Industry Agriculture, Forestry, & Land Use

24.2% 18.4%

Energy - Use in Buildings

Energy - Use in Transport

16.2%

17.5%

Energy - Use in Industry

Source: Climate Watch, the World Resources Institute (2020)

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Achievements under the WBG CCAP 2016-2020

The WBG has exceeded its target for the last three years to increase climate finance to 28% by 2020. The WBG delivered over $83 billion in climate finance, reaching the highest levels ever in 2020 at $21.4 billion, making it the largest climate financier for developing countries.

Renewable Energy Adaptation Finance World Bank added 18 GW of variable renewable energy into grids and 16 GW of renewable energy generation; IFC added 8 GW and MIGA added over 5 GW of generation and integration; totaling 48 GW for WBG of renewable energy to help communities, businesses and economies thrive.

Boosted adaptation support from 40% of climate finance in 2016 to 52% in 2020.

IFC and MIGA diversified their support for climate financing, expanding beyond the renewable energy sector.

Hydromet Ensured that 120 million people in 50 countries gained access to hydrometeorological data and early warning systems crucial to saving lives in disasters.

NDCs Supported 30 countries to implement or enhance NDCs and supported over 35 national or sub-national governments in their efforts to put a price on carbon.

Green Bonds World Bank issued $5.9 billion equivalent in green bonds in 17 currencies; IFC issued more than $6.6 billion equivalent in green bonds in 18 currencies; and MIGA’s issued its first greenfield infrastructure project bond in Turkey.

Green Buildings & FIs IFC and MIGA advanced certification programs, and scaled investments in green buildings, and continued to green the financial sector through investments in Financial Intermediaries (FIs) and through the Sustainable Banking Network.

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Mainstreaming Climate with Development

The WBG will assist countries in navigating crisis response, recovery, and growth and mainstreaming climate action in their development strategies. It will support climate action as a key element of broader strategies for green, resilient, and inclusive development (GRID).

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Support policy reforms, technology, and innovation

Mobilizing transformative investments at scale

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GRID

Financing using all WBG instruments

3 WBG convening power for global coordination

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Section I:Principles Targets and Metrics for Climate Underlying theAction WBG

Climate Change Action Plan

The Action Plan is underpinned by six principles.

People must benefit from systems transitions

A focus on impact will drive emissions reductions

Adaptation is as critical as mitigation

Climate is central to Development

A wide range of partners is crucial to our success

Natural capital is critical to address climate change

Resources need to be mobilized at scale

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Ambitious New Climate Finance Targets and Commitments

WBG climate finance target of at least 35% on average in FY21-25 for clients in support of green, resilient, and inclusive development. WBG will develop new products and platforms to mobilize climate finance at scale.

WBG Climate Finance (%)

WBG Climate Finance ($bn) 21.4

35 16.7

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FY16-20

FY21-25

FY16-20 Annual Average

Targets are ambitious given: • composition of our financing portfolio; • low GDP of client countries and per capita other development priorities for which they must borrow; •35private capital investment 50% of Bank climate finance markets; for adaptation constraints in emerging • increased focus on IDA and FCV countries.

FY20

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Ambitious New Climate Finance Targets and Commitments

The WBG has delivered an increasing amount of finance for adaptation, including for our poorest country clients, totaling more than half of all MDB adaptation finance combined in 2019. For IDA and IBRD, the World Bank will be allocating at least 50% of climate finance to adaptation over the next five years.

World Bank Adaptation Finance ($ bn)

World Bank Adaptation Finance (% of climate finance)

9 49

40

6.2

49

WBG Share of MDB Adaptation Finance, 2019 (%)

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12.1%

42

10.1% 52.5% 50% of Bank 4.1% climate

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finance for adaptation 6.7% 13.1%

1.6% AfDB

FY16-20

FY20

FY16

FY17

FY18

FY19

FY20

ADB

EBRD

EIB

IDBG

IsDB

WBG

Note: Total direct MDB adaptation finance from own account for lowincome, middle-income, and high-income countries.

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Focusing on Impact and Outcomes

The WBG reiterates its commitment to other previously stated targets to integrate climate considerations in operations and country strategies.

Focus on Impact and Results

Expand Existing Commitments ✓ Climate and disaster risk screening continues for all World Bank operations. ✓ All IFC investments and MIGA guarantees will be screened for physical climate risk by end FY23. ✓ WBG investment financing operations will conduct GHG accounting, in sectors where such methodologies exist, and use a shadow price of carbon in the project appraisal by end-FY24.* *IFC and MIGA will disclose aggregate gross and net GHG emissions across all direct investment projects that emit greater than 25,000 tCO2e annually and are committed during the fiscal year.

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Climate and Development

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✓ Incorporate a climate result indicator in all IDA and IBRD operations that have more than 20% climate finance, building on the IDA19 policy commitment.

✓ Focus on new metrics that better capture resilience, alignment with country-owned long-term pathways, and our actual impact, and share these publicly.

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Climate Impact

To complement our climate finance target, the WBG is investing in better tools and metrics to measure both the mitigation and adaptation impact of our work.

New Metrics To assess the true impact of climate action, the WBG will focus on new metrics that better capture: ➢ Resilience of WBG operations to physical climate shocks. ➢ Actual climate impact, including as measured through GHG emissions. ➢ Climate ratings that can integrate mitigation and adaptation outcomes.

Resilience Ratings The WBG is currently advancing work on a new resilience rating system, that is being developed and piloted in FY21 and FY22.

Measures both the resilience of a project’s design and how it is expected to perform given climate risks, and the contribution of the project to building wider resilience for beneficiaries.

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The WBG will be Aligned with the Paris Agreement

➢ The World Bank will align all new operations by July 1, 2023. ➢ IFC and MIGA will align 85% of new direct operations by July 1, 2023 and 100% of these by July 1, 2025. ➢ IFC and MIGA will design a Paris alignment methodology to assess investments in financial institutions and funds, and will announce the timeline for alignment by October 2021.

Definition

Adaptation

Provision of support to clients that is consistent with pathways towards equitable, sustainable, low-carbon, and climate-resilient development

Ensuring physical risk mitigation measures are fully embedded in project design

Country Circumstances

Mitigation

Paris Agreement gives countries latitude in the pathways they choose based on principles of common but differentiated responsibilities

Ensure investments support limiting global warming to well below 2 degrees, recognizing that peaking of GHG emissions will take longer for developing countries 14 Confidential

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Transition from Coal

As a high priority for the Action Plan, the WBG will support a move away from coal to lower carbon growth through a Just Transition and through a focus on energy access.

Support to Coal-Dependent Countries The WBG will increase its programmatic support for the transition away from coal in client countries that request assistance, specifically in coaldependent regions. On the supply side, this involves accelerating the closure and repurposing of coal mines and coal-fired power plants, with due attention to distributional effects and the promotion of new sources of employment and economic growth for affected people and communities/regions. On the demand side, this requires displacing, or avoiding, coal through increased energy efficiency, low-carbon fuels, and substantial scaling-up of renewable energy investments.

In the course of the transition, natural gas for power generation and energy access may be consistent with development objectives and net-zero pathways. On a case-by-case basis, and accounting for unique national circumstances, investments in gas infrastructure will be assessed to ensure consistency with NDCs and LTSs.

Just Transition The WBG will mobilize significant resources, including new private and public capital, new concessional resources at scale, new climate and energy trust fund resources, and dedicated deployment of our existing capital resources for a Just Transition.

A Just Transition ensures attention to the distributional effects of policies, sustainability, decent work, social inclusion, and poverty reduction, and helps create new skills, jobs, and a more equal, resilient economy.

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Country Climate Policy and Planning

The WBG will produce its own dedicated country climate and development diagnostic and will support the development and implementation of clients’ NDCs and LTSs for low-carbon and climate-resilient development, including carbon pricing, using a whole of economy approach.

Country Climate and Development Report (CCDR) The CCDR will be introduced in FY22, providing a strong analytic base to inform future SCDs and CPFs, with links to poverty and shared prosperity. IFC will use the CCDR to identify new opportunities for climate business.

Country Engagement All WB country engagement products and IFC’s new Country Private Sector Diagnostic (CPSDs) will incorporate climate risk considerations.

NDCs and NDCs and LTSs LTS

CCDR CCDR

Whole of economy approach Country Country Engagement Engagement

Carbon Pricing and Markets

NDCsCountry andClimate LTSs

The WBGDiagnostics will support countries in updating and implementing their NDCs and in developing ambitious plans for 2025. Countries will be supported in developing their LTSs with funding and technical support.

Carbon Pricing and Markets The WBG will provide technical assistance to countries to prepare for and implement carbon pricing and markets.

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Country Climate and Development Report (CCDR)

The CCDR will provide a strong analytic base to inform future Systematic Country Diagnostics (SCDs) and Country Partnership Frameworks (CPFs), with links to poverty and shared prosperity.

What is a CCDR? A CCDR analyzes the interplay between development (including poverty reduction, growth, inequality) and climate (country’s impact on / from climate change).

Anchored in analysis of the country’s development trajectory and its interlinkages with climate change, as well as an analysis of the country’s own climate objectives and commitments.

Content of a CCDR The structure and content of a CCDR has four blocks: (i) climate and development; (ii) country climate commitments and programs; (iii) macro policies and climate, in collaboration with the IMF; (iv) selected sectoral policies.

A CCDR concludes with policy recommendations.

Climate and Development Analyzes key mechanisms by which climate change is affecting the country and key features of the economy that are affecting climate. Structured around key questions: • • •

Impact of climate change on poverty and shared prosperity?

Key vulnerabilities over the medium to long-term horizon and their expected impact on the economy, growth, poverty and inequality?

What are the opportunities for reducing impact on climate change and impact of climate change on poverty and shared prosperity?

The CCDR will be made public to inform partner and donor coordination on the climate agenda.

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Country Climate and Development Diagnostics and Planning

The Action Plan will support a ‘whole of economy’ approach to deliver growth and climate goals.

➢ Embedding climate priorities in country macroeconomic frameworks

➢ Embedding climate objectives in systems planning

that guide fiscal policy and major national investments, and account for their climate benefits and risks

Whole of economy approach ➢ Embedding climate objectives in financial sector regulations and incentives to ensure that the sector is resilient both to climate change impacts and to low-carbon transition risks, and to mobilize finance for climate action

➢ Embedding climate planning in national budgets and expenditure frameworks to provide adequate budgetary support for climate action, optimize the overall allocation of public resources, and unlock private financial flows 18 Confidential

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Key Systems Transitions

Transformative interventions are needed in 5 key systems because they account for over 90% of global greenhouse gas emissions.

Energy Energy accounts for around three-quarters of gross global greenhouse gas emissions, with coal combustion accounting for one-third. Achieving net zero emissions by midcentury is only possible with a rapid, unprecedented, shift of global energy systems from fossil fuels to renewable energy.

Agriculture, Food Cities & Urban Infrastructure & Land Use Agri-food system transformation is particularly urgent for both climate change and to feed a growing population.

Agricultural and land use change accounts for almost 25 percent of GHG emissions.

Cities consume over twothirds of the world’s energy and account for more than 70 percent of global CO2 emissions. The transformation of cities and urban systems will be critical in achieving carbon neutrality—and in making cities and human settlements inclusive, safe, resilient and sustainable in line with SDG 11.

Transport

Manufacturing

Transport emits around 24 percent of the energyrelated carbon emissions that are associated with global warming and transport emissions have grown faster than other sectors over the past 50 years. Without aggressive measures, emissions from transport are expected to grow 60 percent by 2050.

Manufacturing activities, especially the production of base materials such as chemicals, steel, and cement, contribute to about 27 percent of global GHG emissions. These sectors are building blocks that lay the foundation for a range of economic activities, create jobs along all value chains, and drive the economic growth of countries.

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Energy Systems Transition

Lessons Learned from CCAP 2016-2020

The WBG will work with clients to close the Energy Access gap, promote low-carbon power systems planning, move way from coal, advance fossil fuel subsidy reforms, and expand support for renewables and energy efficiency.

Power Supply Decarbonizing the power sector by generating more power from renewable sources and less from burning fossil fuels

Just Transition from Coal Supporting impacted people in their posttransition jobs and lives

▪ The WBG will support power system planning, invest in T&D sector, which is key to integrating renewables, ensuring private capital flows into generation, and use risk mitigation instruments to enable private renewable energy.

▪ The WBG will continue to support SDG7, which aims to provide Resources access to 800 million people without Energy electricity and clean Access cooking for 2.8 billion people.

Provide Sustainable

Reliable Affordable Modern Energy

▪ The WBG will invest to ▪ Through advisory and promote generation, financing activities, the integration and WBG will significantly enabling infrastructure Adaptation and step- up support for the for renewable energy.

Resilience transition away from This support will cover coal in client countries, on-grid, off-grid and with attention to Renewables distributed renewable supporting long-term Expanding support energy including the transition of coalfor renewable use of renewables for dependent regions. energy and new electrification of technologies heating, cooling, and transportation.

Project Preparation

Energy Efficiency Scaling-up the lowest-cost way to provide energy services.

Fossil Fuel Subsidies Eliminating or reducing energy subsidies

▪ The WBG will support energy efficiency on the supply side (generation rehabilitation, and transmission and distribution loss reduction) and the demand side (industry, public sector including municipalities, residential buildings, and agriculture.

▪ The World Bank will support just and inclusive reforms to eliminate or reduce energy subsidies by providing technical assistance through its Energy Subsidy Reform Facility and by supporting policy operations.

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Agriculture, Food and Land Use Systems Transition

Lessons Learned from CCAP 2016-2020

The WBG will support clients to transform agriculture and food systems while moving toward global food security, as an urgent global priority. Preserving forests and natural capital more generally is a key aspect of this transition.

Climate Smart Agriculture Step-up CSA support across the entire value chain via robust policy and technological interventions

Nature-based Solutions Enhancing livelihoods by supporting ecosystem functions and biodiversity

▪ By working with public and private clients, the WBG will support investments that unlock “triple-win” benefits related to rice cultivation, livestock systems, agroforestry, landscape management and restoration, and/or integrated value-chain management.

▪ Support countries to repurpose public agriculture support programs to provide better incentives to farmers to invest in nature-based solutions.

IFC to develop business models for biodiversity finance.

Resources Food Loss and Waste

Addressing policy options and tradeoffs involved in tackling food loss and waste

Adaptation and Results Resilience

Food Security Focusing on early detection of emerging crises

▪ Implement food system diagnostics in countries to identify costeffective climate Project Preparation priorities across the value-chain, including food loss and waste.

IFC’s food loss calculator will help quantify the GHG benefits/cost savings of projects and reduce Carbon Sinks food waste across supply chains.

Optimizing ▪ The World Bank will establish an Early Warning for Early Action Food Security Hub to support early detection and diagnosis of emerging food insecurity crises, in support of adaptation and resilience.

agriculture’s role as a carbon sink

▪ The World Bank will pilot a low-cost, near real-time Monitoring, Reporting and Verification (MRV) Protocol that can leverage private capital for enhanced soil carbon sequestration.

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Cities and Urban Infrastructure Transition

The WBG will support the urban transition needed for low-carbon and climate resilient cities, and help national and local governments develop, finance, and implement solutions for cities to systematically reduce emissions.

Support cities to promote integrated solid waste management and circular economy approaches across the value chain for service provision, including municipal solid waste, sustainable resource recovery solutions and waste stream management.

Support cities, including green buildings, with technical assistance in setting higher energy efficiency standards, for new and existing buildings and/or with investments for green retrofitting and green building certifications. IFC and MIGA will scale up their green building business.

Low-Carbon Cities

Support cities and towns with enhanced access to tools and support to integrate risk in urban planning and land use, strengthen capacity, increase building resilience, and access to more financing and global and regional partnerships.

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Transport Systems Transition

The WBG will support efficient mobility solutions which help decarbonize the transport sector and incorporate resilience goals.

Climate-resilient Public Transport

Support cities in developing integrated public transport systems, including the deployment of quality mass transport systems, including BRTs and metros to help transition away from highpolluting and fragmented informal urban transport services.

The World Bank will support fleet modernization, through reforms, clean fuel standards, and regulating second-hand vehicle markets.

Regulatory Reforms

Shift to Green Logistics

WBG will support countries in measures to decarbonize the freight sector by enabling long-term transition to green logistics, and modernizing the trucking sector leading to greener, bigger, fuller vehicles and lower fossil fuel intensity.

Investing in less energy intensive equipment and buildings in sub-sectors such as ports, airports, and shipping and expanding climaterelated investments in e-logistics.

Energy Efficient Equipment and e-logistics

E-Mobility

Supporting countries in preparing and/or implementing e-Mobility transition solutions, including e-vehicles, ebuses, micro-mobility and last-mile solutions, greening of governments’ fleet, and incentives for individual electric vehicles.

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Manufacturing Transition

The WBG will help support decarbonization strategies according to best industry practices and sustainable business models in direct operations, supply chains and sectoral policies.

IFC will work with sponsors and the private sector to support proven abatement measures and pilot innovative technologies, including on circular economy, energy and resource efficiency, and renewables.

IFC and MIGA will apply low-carbon principles to investment across heavy manufacturing principles; will IFC will work with sponsors and thenot finance new coal fired power plants; and assess climate-related private sector to leverage and drivers promote in projects.

Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation

climate financing and advisory support, pilot innovative technologies, including on circular-economy, energy and resource efficiency, and renewable energy

The World Bank will support countries and their industries in developing sectoral policies that promote low-carbon and resilient growth, while helping to improve their competitiveness.

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Greening the Financial Sector

The WBG will support governments to create stable, sound, and transparent financial sectors that align with green, sustainable, and equitable growth objectives.

Sustainable Bonds ➢ WBG to develop green and blue bond markets and scale up other innovative financing instruments to support climate goals, including sustainability-linked loans and green mortgages. ➢ IFC is starting to define criteria for its investments in transition bonds, with the goal to finance activities that will decrease their carbon intensity.

Financial Stability and Risks ➢ World Bank to engage with IMF and other partners on a program of activities, including beginning to embed climate and environmental risks and opportunity assessments into the Financial Sector Assessment Program (FSAP), and to conduct climate risk assessments and stress testing as part of broader climate-related technical assistance programs.

Private Sector Engagement ➢ IFC is implementing its approach to greening equity investments in Financial Institutions, will work upstream to green the financial sector through the IFC-led Sustainable Banking Network, and roll out the Climate Assessment for Financial Institutions (CAFI) tool, an in-house developed and managed tool. ➢ IFC and MIGA will promote the implementation of sustainable financing practices and support financial institutions to scale up climate change mitigation and adaptation finance; and MIGA will support green practices in capital relief guarantees.

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Mobilizing Finance at Scale for Impact and Transition

The WBG will work to increase all available finance, including private sector and concessional, and will promote the creation of new climate markets and continue to innovate through global initiatives.

Private Capital The WBG will increase private sector mobilization, enhance de-risking through guarantees, promote the creation of new climate markets, and boost innovation through several global initiatives. IFC will expand product offerings, including ESG-linked loans, to create opportunities at scale in emerging markets.

Blended Finance Blended finance, using small amounts of concessional donor funds, will help leverage private capital to develop and scale new climate-smart technologies and new business models in emerging markets

Domestic Resource Mobilization

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Supporting increased domestic resource mobilization through carbon pricing and taxation policy, and by supporting carbon markets and finance for mitigation outcomes.

IBRD, IDA, Concessional Finance Climate remains a special theme in upcoming replenishment discussions for IDA20.

For middle income IBRD countries, the WBG will explore options to mobilize more resources.

In addition, grant financing for climate is needed from various global climate funds for allocations to WBG for investments.

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6 1 Summing Up As a result of this Action Plan, the WBG is significantly stepping up support to client countries and the private sector on climate action. As countries recover from the COVID-19 pandemic, there is an urgent imperative to transition to a low-carbon and resilient future. Getting it right will mean a safer, more prosperous, and inclusive future for all.

Increase Climate Finance Improve and Expand Climate Diagnostics Focus on Climate Results and Impact Climate Change Action Plan 2021-25

Reduce Emissions and Climate Vulnerabilities in Key Systems Support a Just Transition out of Coal

Align with the Paris Agreement

Commitment of the WBG ➢ Set bold strategic directions for climate action on mitigation and adaptation, implement them, and be accountable; ➢ Partner with public and private clients to use resources efficiently and impactfully, and mobilize climate finance at scale; ➢ Engage in challenging policy landscapes to help clients adapt to shocks and move away from the highcarbon, damaging systems of the past and invest in new technologies, markets and innovations.

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