DSEE is important for global sustainability, and the Bank Group has committed to it, but scaling it presents numerous challenges. The World Bank recently made two overarching corporate commitments: (i) to achieve Paris Agreement alignment by 2023 (World Bank) or 2025 (IFC and MIGA), and (ii) to contribute to the achievement of SDG targets, which the Bank Group has internalized as part of its overarching poverty alleviation and shared prosperity goals. DSEE is critical for Paris Agreement alignment and contributing at scale to several SDGs, including SDG 13 on climate change, SDG 7 on energy efficiency, SDG 3 on health, SDG 8 on growth and productivity, and SDG 11 on sustainable communities. Yet scaling DSEE—especially horizontally—presents numerous challenges, including limited and volatile country demand, difficulty in articulating tangible outcomes, and the complexities of leveraging global programs.

The Bank Group has been mostly effective at the intervention level but unable to scale DSEE. World Bank DSEE projects have been effective, but the World Bank has been unable to scale DSEE approaches beyond a select group of UMICs because of a variety of internal and external constraints. At the individual investment project level, IFC has been only partially effective, mostly because of overly ambitious targets for individual projects. IFC’s limited scale-up has occurred mostly thanks to the green buildings programmatic approach. MIGA DSEE approaches are limited to date, and their effectiveness could not be evaluated.

The Bank Group has supported coherent sector-level DSEE approaches, but it has exhibited limited coherence across the three institutions and with development partners. The Bank Group is internally coherent within the energy sector, within GPs (World Bank), and within industry groups (IFC). The Bank Group has weak coherence across the three institutions, except for programmatic coordination in creditworthy MICs (for example, China and India). The Bank Group has operated coherently with World Bank–administered trust funds (for example, GEF) but not with other development partners (bilateral, multilateral, or development finance institutions).

Given the growing importance of DSEE for global sustainability, yet recognizing the hurdles facing the Bank Group in supporting DSEE, the evaluation proposes a pivot for the Bank Group DSEE approaches and associated outcomes toward the decarbonization agenda. Although a decarbonization focus may temporarily slow the rate of growth of DSEE-only lending commitments in some countries, it can enable the Bank Group to reach SDG 7 and Paris Agreement targets more effectively. Such a pivot places greater emphasis on reducing GHG emissions (including both direct and indirect emissions, especially scope 3 emissions across supply chains) and broadening DSEE outcomes to include socioeconomic benefits (such as health, jobs, productivity, and security).

The weight of the global priorities and the limited scale-up on DSEE to date require the Bank Group to fully reorient its DSEE approaches and outcome aspirations from an energy savings focus to a broader decarbonization focus. With this necessary pivot of DSEE approaches toward global priorities as the backdrop, this evaluation proposes four near-term actions.

Recommendation 1 (Bank Group). Intensify DSEE support to MICs for decarbonization and wider socioeconomic benefits. By supporting MICs in scaling up DSEE, the Bank Group would make the most difference in closing GHG emissions gaps while also contributing to economic and social development outcomes. Intensifying scale-up in MICs requires an increased focus by the World Bank on multisectoral and horizontal scale-up approaches in project design. Similarly, this recommendation entails an increased role in MICs for IFC and MIGA—including through IFC upstream interventions and MIGA business development approaches—in countries that are ready for the greening of public assets and assets of SOEs (for example, China, India), subject to client demand.

Recommendation 2 (World Bank and IFC). Develop energy efficiency sector-specific approaches in a select group of LMICs that seek productivity gains alongside or via DSEE, even if energy efficiency policy reforms are in early stages. Bank Group DSEE efforts in countries with a policy environment that is not conducive to energy efficiency reforms, inefficient capital allocation to energy generation (for example, fossil subsidies), or low emissions per capita are unlikely to lead to meaningful outcomes. Select LMICs, however, are promising scale-up targets for the World Bank and IFC, especially if they focus their DSEE interventions on energy-intensive sectors or subsectors, such as the industrial market segment in Uzbekistan or the commercial construction market segment in Indonesia. In this context, productivity gains refer to firm-level productivity gains—that is, the amount of output a firm can produce with a given set of inputs. Scale up parallel technical assistance and IFC upstream and advisory services targeting new client types and cumulative investments, subject to client demand.

Recommendation 3 (World Bank and IFC). Expand DSEE approaches by incorporating reduction of indirect emissions (scope 3), including embodied and operational carbon, in DSEE project design. The current approach of designing for direct (scope 1) emissions is necessary but not sufficient for the pivot to decarbonization and for steering greater financing flows toward DSEE as part of the multilateral development banks’ Paris Agreement alignment approach. This recommendation entails incorporating scope 3 (and, in some cases, scope 2) risks for these emissions ex ante (that is, at the time of project design discussions, during postclient mandate activities, and when crafting loan agreements). This recommendation does not mean every project needs to track scope 3 emissions but suggests designing World Bank operations and IFC projects differently. It will imply, for example, focusing on horizontal scaling through longer-term, repeat-engagement, and multisector approaches (similar to what the Bank Group has achieved in India and Mexico) that cut across upstream and downstream activities. In this regard, IFC’s recent advisory services initiative Partnership for Cleaner Textile is promising.

Recommendation 4 (World Bank and IFC). Exploit untapped DSEE opportunities and help clients leapfrog—that is, develop innovative approaches that adopt and adapt digital and financial solutions from developed countries by exploring cross–Practice Group (World Bank) and cross–industry group (IFC) interventions and approaches. This would entail integrating DSEE with untapped opportunities, such as digital and financial instrument innovations, that could support leapfrogging efforts in some cases. Examples include the following: convening and supporting existing IFC clients (for example, firms operating in retail supply chains, top GHG-emitting firms, and firms owning and operating data centers) to incorporate digital solutions, such as intelligent monitoring and artificial intelligence–based energy optimization within their building portfolios; leveraging SSEE activities (for example, combining electricity utility upgrades with innovative guarantee mechanisms to promote DSEE); using multistakeholder approaches to invest in local technology start-ups (for example, Negawatt in Ghana); designing behavioral policy interventions (China); and communicating successful pilot cases. This recommendation would entail exploring integrated approaches, such as between the Energy and Extractives GP and the Digital Development GP; between the Energy and Extractives GP and the Macroeconomics, Trade, and Investment GP; between the Energy and Extractives GP and the Finance, Competitiveness, and Innovation GP; and among IFC’s Infrastructure and Natural Resources; Manufacturing, Agribusiness, and Services; and Disruptive Technologies and Funds industry groups.