Conversations: What More Can the World Bank Group Do to Support Environmental Sustainability?
Excerpts from a panel discussion about the how the Bank Group has mainstreamed and measured projects with potential environmental benefits.
Excerpts from a panel discussion about the how the Bank Group has mainstreamed and measured projects with potential environmental benefits.
Sustainable development — particularly environmental sustainability — is a central tenet of the World Bank Group’s strategy.
IEG’s recent Results and Performance of the World Bank Group (RAP) report provides a timely review of the Bank Group portfolio performance and examines how the Bank Group has mainstreamed and measured projects with potential environmental benefits.
Earlier this month, IEG presented its findings and held a panel discussion to explore whether and how the Bank Group could continue to more to mainstream environmental sustainability into its existing work and continue business development in areas with environmental benefits.
The panelists included Julia Bucknall, Director of the World Bank’s Environment and Natural Resources Global Practice; Hernando Gómez, Director of Colombia’s Green Growth Mission; Tomasz Telma, Senior Director of IFC’s Manufacturing, Agribusiness and Services, and Manish Bapna World Resources Institute Executive Vice President and Managing Director.
IEG Senior Evaluation Officer Stephen Hutton presented the report’s findings, and José Carbajo Martinez, Director of IEG's Financial, Private Sector and Sustainable Development Department, moderated the conversation.
Below is an excerpt from the conversation, edited for brevity and clarity.
What was the impetus for the theme—Environmental Sustainability—of the latest Results and Performance of the World Bank Group report?
Stephen Hutton: A couple of years ago World Bank Group president Jim Kim was talking to our Vice President for Independent Evaluation, Caroline Heider, and he said, “People keep telling me we're doing more on environment than we used to. Can you tell me if that's true?”
So we went and found out and the answer is yes, by about four percentage points.
What are the main findings of the report?
Stephen Hutton: The main story across the whole World Bank Group is an increase in climate change mitigation and climate change adaptation, where there have been high-level corporate priorities and specific targets, but a decrease in support for some other types of environmental benefits.
More projects with environmental benefits are in higher income countries than lower income, and this gap has been widening over time. Upper middle-income countries increased their support for environmental benefits by eight percentage points, low-income countries only by one percentage point. Low-income countries have increased support for climate change mitigation and, in particular, climate resilience, but have decreased support for other environmental benefits.
Our largest client countries are also over-represented in their share of environment support as compared to smaller and medium-sized client countries, which are underrepresented. The 10 largest borrower countries by volume had roughly one third of all of the project components, but half of the project components with environmental benefits.
Based on these findings, I want to leave you with three messages and three questions to think about. The first message is that all three institutions of the World Bank Group have increased their support for environmental sustainability- for the World Bank and IFC, both by four percentage points.
In the report we asked, is this enough? We didn't draw a conclusion. We posed this question back in June when we launched this to the World Bank Group CEO Kristalina Georgieva and she had a simple answer: Clearly, given that we have only one small planet, the answer is no, and we have to strive to do more.
The second message is that the composition of activities has changed... The World Bank Group has committed already to go further on climate and this addresses a critical development challenge. But what about the rest, the parts of environment not directly linked to climate? On biodiversity conservation, natural resource management, water, land and others?
The third message is about where we're during this work on environment—increasingly, in upper middle-income countries and in the World Bank's largest clients. Is this the right choice? Low-income countries have many competing development priorities but also face high vulnerability. Smaller countries may have room in their portfolio for only a few priorities. When should environment be one of them?
What would it take for the World Bank to do more on environment?
Julia Bucknall: I think this is an existential question for the Bank. I do feel like the future of the Bank should depend on us doing more on public goods issues, because that's an area where there are few institutions that can help. If we're positioning ourselves for the next 50 years, I would argue that public goods, environmental issues and sustainability issues would be part of them.
For our clients, a world of 9 billion people, with climate change, is going to need a lot more effort to make things sustainable. And I don't think our country programs, I don't think our clients are really doing that. I still think we're building things that were a really good idea in 1975, they're still a good idea [but] the importance of sustainability is much higher relative to those things now than it was in 1975.
Talking of 1975, since then, the world has lost nearly 50% of its biodiversity from what we understand. We have crises of sustainability—beyond the climate change crises [we hear about] in the news—we don't even really know what the implications of those are. We're losing forests..., we have health crises—15 times more people die as a result of pollution than die from war and terrorism—and yet the amount of effort that we put into reducing that, I suspect, is significantly lower.
At the Bank level and at the country level it takes a kind of vision and determination. I want to give one example of the country of Pakistan, the country strategy of Pakistan. The Country Director has challenged every single team to do something about plastics and so every single team—the Transport, the Health, everybody—has to do something about plastics. And then their own office has also phased out single-use plastics.
So you can have a vision, you can spread these things through all of the units, all of the activities. But it takes determination, and no country team can focus on more than one or two things. So they have to decide...
I think the just-launched Environmental and Social Framework should give us a huge opportunity to improve sustainability of projects across the entire scope of what we do. If we implement that properly, it will go from being a thing that stops us doing harm to a thing that actually changes the development objective of everything that we're trying to do, if we do it properly, if we do it well with judgment and wisdom and consideration. I think that's a huge opportunity.
And I think there are also some nitty gritty things that we can do to improve things. One of the reasons that green has gone down is because our standard indicators don't catch things properly... So we miss some of the great things that we're doing in those figures, partly because we're not properly measuring them.
What does it take for a client government to establish an environmentally sustainable project with the World Bank or other IFIs?
Hernando Jose Gomez: I think there are three main reasons why there is a low demand for environmental impact loans from developing countries.
The first is the lack of weight in the cabinet of environmental authorities. Authorities are new, they're young, they have insufficient budgets, they are very much focused on adapting new regulations, in subscribing to international agreements. They are trying to do their best to implement these regulations and laws in the provinces, in the territories with very limited capacity to do outreach in the rural areas. So in general, they are very limited in their governance and in their capacity to act.
And in that respect, in the view of the finance minister and economic ministers, they are viewed as a sector that is just requesting resources, requesting funds, and they have many other requests. And other requests like from the people that are in charge of roads or airports or education areas, where they can do a much better job pleading their case in terms of, “I need these resources but I can pay back the economy in a very short term if you allocate these resources to my sector.”
So in that sense, the environmental sector has to start looking into low-hanging fruits to be seen inside their governments, not only as a sector that demands resources, but also that can be able to generate income to the country.
In that sense, I think that Costa Rica is a good example. Costa Rica right now has a very strong strategy for their ecotourism, has a very strong strategy to bring all the birdwatchers of the world—there are several billions. And in that sense, right now I suppose the environmental minister in Costa Rica has a lot of negotiating capacity inside the cabinet, because he's generating a lot of resources for the country.
The second argument is—and it's related to the first one—that there are very few well-structured projects. And if, in general, in developing countries we have very few well-structured projects for roads or for other infrastructure, we all have even less for environmental projects.
In that sense, we will have to start looking at alternatives. I found out that there is a line of loans in the Inter-American Development Bank for structuring and designing new projects that become non-refundable if this project finally becomes a loan to develop the project with the IDB. So, in that sense, I think that could be one strategy to facilitate countries to structure new projects and encourage them to get the new loans by making these small loans, these initial small loans non-refundable.
And a third reason that I think that there is low demand for environmental loans or with an impact on the environment is that there are few in existence in low-income country governments environmental public policy instruments. What do I refer to? What I am referring to, most environmental costs come from negative externalities, and we need to make them visible and to make people pay for these externalities, but we need appropriate instruments that are also applicable in the economic policy. The politics of these economic policies is not easy in our countries.
For example, in Colombia two years ago we were able to, through the fiscal reform, to introduce carbon taxes and to introduce a small tax on single-use plastic bags, to introduce also payments for environmental services for farmers. So all those are new instruments that are now in place and as soon as the public finance minister saw that the carbon tax generated half a billion pesos the first year, the environment minister got his attention. Now he can get an appointment not in two months but in one week.
In that sense, I think that these new public policy instruments are really key to increase the perceived and effective return of all these projects.
What kind of investments related to the private sector should IFC support, with environmental benefits?
Tomasz Telma: Clearly at the core of what we do is what the clients want to do. So ultimately, the business and the impact of IFC is our clients, and working with our clients to achieve various kinds of objectives- some of it is financial, some of it is developmental. Clearly, environment and social aspects and objectives are at the core of it.
But ultimately, the clients do things because either it makes financial sense or because of compliance reasons. To the extent we can customize our offering and work with the product design and project design in a way that helps the clients achieve the environmental and social objectives of environmental sustainability in a way that makes financial sense, and it helps them become compliant, clearly, it's key to our success in this space.
It happens through performance standards, making sure that our clients follow that. It happens through engagement on an advisory front and making sure that sometimes we bundle properly investment and advisory products. And sometimes it also happens through simply making sure that the clients do as they say and then implement the projects the way we expect them to do from the standpoint of impact.
Clearly, there is this whole notion of how much we focus on climate change and it came across in the findings of the report very clearly, versus other environmental sustainability objectives. For us, sometimes the separation of the two is not so easy and maybe it's a matter of tagging and maybe it's a matter of how we actually look at projects. We try to look at them in a fairly comprehensive way, but there are many projects that we would see in a climate space that have significant enormous environmental benefit beyond what's purely in a clean column. And I think that's something that clearly from the perspective of the industries that I cover, it's fundamental.
Now going forward, what types of things we should be expecting to do more, to go beyond climate? I think that's one of the messages that comes out of the report to focus on this. Climate smart agribusiness, agriculture, this is a very wide range of things ... precision farming, how you use chemicals, how you use pesticides, how you use fertilizer in a way that does not destroy or hurt the environment. It's the subject of food waste, which apparently amounts to about 30% of food that's being produced around the world. How do you deal with that? The climate impact of the waste versus what's smart in terms of how things are being utilized. Fertilizer production and application, to what extent you can actually work with companies in that business, to work with their farmer clients to apply things in a smart way, in a way that does not harm the environment? So there's a whole compendium of different types of things.
And in matters such as green buildings, which for us as IFC, has grown quite a bit, and green buildings can mean any number of things. Focus on energy consumption for sure, but it's also water, it's other materials, how do you reduce the environmental footprint of what we do?
There's a company in China called Syngenta, which is a fertilizer company, which actually is building a significant network of basically extension services with the farmers, of how to teach them to apply fertilizer in a way that is smart, prudent, cost-effective. But also very good for the environment. So that's one specific example.
What role should the World Bank play to move the environmental agenda forward?
Manish Bapna: First, [the World Bank should convey] the urgency of the issue. The science is absolutely clear, the trend lines are moving in the wrong direction. This is an existential issue, Julia is absolutely right.
We're on a ... with optimistic assumptions, we're on at three and a half degree pathway. Tropical forest loss is increasing, baseline water stress is getting worse, air pollution will be, of the 169 SDG targets, air pollution is going to be the one that is most off track. Biodiversity loss, we know what's happening.
So the science is clear. Compartmentalizing climate versus forest versus water [isn’t the right approach]- these [issues] are so tightly integrated. That was one of the big things about the Sustainable Development Goals, is how they brought them together, to understand the synergies and trade-offs. To understand that you need to look at them as a system.
The World Economic Forum does an annual survey that they release on global risks—1,000 CEOs, finance ministers, economic ministers and so forth. And if you look over the past 10 years at the global risks that they consider to be most significant and most likely, 10 years ago maybe water was on that list of the top five or 10. Now, they're all virtually environmental climate issues. It's about water, it's about adaptation, it's about extreme weather, it is all.
So science has led to incredible awareness in a way that I don't think we have fully appreciated.
Point two is that the economics is becoming increasingly persuasive.
Ten years ago, the conversation was you could either focus on growth and jobs, or you could focus on the environment and climate action.
Just last month, we delivered a report by [the Global Commission on Economy and Climate] to Gutierrez in New York a couple weeks ago. And the narrative now is that these are inextricably linked. You cannot tackle climate without thinking about growth, you cannot actually sustain growth without taking into account climate and sustainability. The narrative is that the growth story of this century must be an inclusive and low-carbon story.
We did some modeling. We looked at if you were to take decisive action on climate, what would that mean in terms of growth? What we came up with, and these are conservative results, $26 trillion of economic benefits between 2018 and 2030, globally, cumulatively, if we were to take a decisive step towards climate action. And in addition, we quantified jobs, improvements or reductions in the mortality, morbidity because of improvements in air quality. We looked at what the revenue that would be generated to governments, the example that you gave about carbon pricing.
It is an incredibly persuasive story. And I think the question and the role for part of the Bank is how do we get that out? So the economics to me is increasingly persuasive.
So what does that mean now for the Bank? I mean I think this report that IEG came out with is great, but it really is good but I think it's very modest compared to what the actual challenge is before us.
President Eisenhower once said if you have to solve a tough problem, you don't break it up into small pieces, you expand the boundaries to come up with the solution.
Where can the World Bank Group do more?
Manish Bapna: If you really want to look at biodiversity, look at what some of the key drivers are. One of the big things is the agricultural frontier, look at commodities: soya, coca, palm oil. How do you stem that? Look at deforestation free supply chains, where the IFC is involved. You look at how you actually restore degraded lands in order to avoid having to intrude into forested areas.
There is so much that the Bank can do more of that would protect the ... address the underlying drivers of biodiversity laws, but do so in ways that have massive climate implications. So you take something like restoration, you build resilience and you sequester carbon. Natural climate solutions are seen as about 35% of the climate solution by 2030, yet the amount of money both at the Bank and the world is putting into that space is a small fraction of what is needed.
So this co-benefit argument that many people have alluded to is real. And I think to some extent, we have to see if climate is a co-benefit in many countries, but there are a lot of other things that are more pressing or seen as more prominent that we can create a narrative around but that have major climate co-benefits.
Julia Bucknall: Forests are 30% of the climate solution and 3% of the climate finance. Just let that sink in for five minutes. I don't think I need to say any more.
And we all know the benefits that forests have on watersheds, on biodiversity, for indigenous people. So they have huge amounts of other benefits. So I think that's one clear example.
But I think the co-benefits thing is a little bit of a false hope, in some cases. I think urban air pollution is better served by focusing on urban air pollution, than on saying let's do climate and then hope we get a little bit of climate ... the children in poor countries are dying of non-climate pollution. And those are the ones that we need to be very focused on. And then say there are going to be some climate benefits to that, so we can have co-benefits in the other direction.
But I mean one in 10 people dying of pollution is a huge thing and needs to be tackled on its own. It doesn't need to be a kind of additional benefit on the side of some other objective, I think.
Hernando Jose Gomez: I completely agree with Julia on her point. Because we are seeing that in Medellin, in Bogota every day. That huge cities, 5 million population cities and a lot of a pollution by public transportation, by private transportation and basically nothing is being done about it. Not even trying to get older vehicles out of the circulation. Not even those kind of basic actions are being taken right now.
We recently finished our Green Growth technical mission, I should say, with wonderful support from the Bank—both technical and funding—we are very thankful about that. And we found out, we were a little bit surprised because we found out that at the beginning we would say, people will be saying to us, well, there's a lot of trade-offs between economic growth, social well-being and environmental activities in that regard.
But we saw after doing all this work, these two years, that there is a lot of complementarity. It's not only substitution but a lot of complementarity. And just to illustrate, this in our case for example, the new economic opportunities that arise from green growth are incredible for a country like Colombia, in the tropics. We have a great generation of biomass that can be used in economically profitable ways. Also, we have all the opportunities that a bio economy opens, thanks to our biodiversity.
So there are a lot of business models that are feasible, what they need is a little bit of capital, what they need is a little bit of visibility with the local business community. Because there is a lot that has to be done in terms of education, a lot of efforts with our business communities, just to show them all the opportunities that they are missing because of lack of understanding.
Also, we have seen that for small and medium sized enterprises, that inefficiency with which they use natural resources, energy, water, land, that if they could have better technological packages they could save a lot of money, what they are paying right now for those resources and with a great benefit to the environment. So in those terms, I would say that there are a lot of things that can be done in terms of generating more prosperity, generating more income, employment and at the same time, protecting the environment.
How do you incentivize environmental sustainability? Does it make sense, to have a country level ranking, like a “Doing Business” for environmental sustainability?
Julia Bucknall: I do think “Doing Business” for sustainability is doable. I mean we have the Wealth of Nations database and that is something that we're looking at how feasible it may be, how much it would cost. You can't start one of these things unless you're willing to go on for it for 20 years. And so it's not a small decision but it is something that we're thinking about.
Tomasz Telma: On the ranking of countries, I tend to agree. Again, we know what happened with the green business ranking over the past 20 years and then how important it became for policy makers to apply things in practice. Now, we could do this around sustainability but we have to keep in mind that for an annual ranking to be valid, some policy changes need to bring those kind of short-term results. And we're talking with a medium-term kind of at best.
And how do you actually rank one another in between different elections that our governments have to follow? And actually make policy changes that result in the changes in ranking. It's not as simple, in a way, as “Doing Business.”
Hernando Jose Gomez: Indexes, I think it's a good idea, but in general, what you can do in their environment has a lag of time in terms of its impact. And so basically I would say it would be nice to measure that index every three years or five years, something like that, just make the change.