World Bank President David Malpass announced his resignation in mid-February 2023, and will step down by June 2023—about a year before finishing his five-year term. As several public officials indicated after the announcement, the climate legacy Malpass leaves behind is lacking. Indeed, the Bank itself has also been under scrutiny with recent calls for reform on climate finance.

The Biden Administration quickly announced Ajay Banga as their nominee in mid-February. If confirmed, Banga will step into this role in a high-profile moment, and his own stance on climate issues is already under close examination.

Institutional policies and attitudes are more important than ever in helping to advance progress on both on global climate and development goals. This is especially true at the World Bank, which  is an institution that provides funding to poorer countries for “sustainable solutions that reduce poverty and build shared prosperity.” The Bank’s role in combating health crises, food insecurity, and climate change effects means that a new leader who makes climate a priority could be influential.

This transition creates a new opening to shape the Bank’s agenda through 2028. These years could be critical for the Bank to make headway on development goals set for 2030, and chart a course for 2050 goals—with global climate plans chief among them.

A Controversial Record

President Malpass’s resignation was certainly influenced by controversy over a September 2022 appearance at Climate Week NYC, during which he dodged questions about his own belief in climate science. New York Times reporter David Gelles asked Malpass if he believed fossil fuels are causing the planet’s steady warming.

Malpass replied: “I don’t even know. I’m not a scientist.” 

Several prominent public officials quickly expressed doubt about his leadership, including Treasury Secretary Janet Yellen, former Vice President Al Gore, and a number of members of Congress. Twenty-seven House Democrats wrote a letter to President Joseph Biden saying “it is unacceptable for David Malpass, as President [of] this leading international development institution, to be so brazenly ignorant toward the impacts of the climate crisis.”

Yet this appearance alone was not the sole reason for criticism of Malpass—or his tenure as leader. In a moment of growing urgency over the effects of climate change, the Bank itself has come under fire for a lack of sufficient response as a major lending institution.

Growing Calls for Reform

Built nearly 80 years ago on a model to provide loans and grants to poorer countries, the World Bank’s practices sometimes leave countries with more economic burden than boost. Its loan interest based on risk also means higher repayment costs for countries most in need.

Compounding climate impacts have exacerbated development barriers, and the result is that client nations obtain financial support that ends up saddling them with high interest rates. Thus, countries cannot build their way out of poverty or advance toward a net zero future. A 2022 Oxfam study audited the World Bank’s climate finance, determining it was possibly overstating its impact by up to 40 percent.

Beyond the opacities of climate finance and unintended debt, however, the Bank has also been criticized for its continued support of fossil fuels. Another study in October 2022 by a group of nonprofits found that despite the World Bank’s 2019 ban on funding coal or upstream oil and gas projects, these fuels were still being greenlit by the institution’s officials.

Building such projects amidst a global energy transition can also endanger countries. In some cases, they may become locked into those energy sources or face stranded assets. Other nations may abandon recently-built infrastructure to pursue a clean energy source—and only deepen their financial predicament.

Global leaders have been calling for an overhaul of the World Bank for these and other reasons for years now. Many see the Bank’s model as antiquated and lacking a clear climate strategy. At the last United Nations climate conference (COP27), held in November 2022, demand for modern reform grew, with parties seeking to mobilize more funds—and make them easier and quicker for countries to access.

Climate Finance: An Evolution Roadmap

Secretary Yellen called on the World Bank to develop an Evolution Roadmap at its annual meeting in October 2022 as a means to address some of these concerns. The Bank responded with a three-part plan to review its mission and vision to institutionalize climate in its mandate. It also proposed amending its operating model and financial capacity to better address country engagement and incorporate climate change’s global challenges into its operations by October 2023.

Secretary Yellen and others see this as only the first step. “We cannot stop there. Much remains to be done to evolve incentives, reform operational approaches, and increase financial capacity,” she said of the proposal.

Some groups, like Oxfam, are calling for more transparency in climate finance reporting. Others, like E3G, are skeptical of the Bank’s proposals and wonder where the additional funding will come from.

Another rising concern is that any increase in the number of nations that gain access to funds cannot come at the expense of those that need them most. The Bank’s plan would increase funding access to middle-income countries, but the institution has yet to make it clear that this access won’t detract from low-income countries that have contributed virtually nothing to climate change and most sorely feel its impacts.

In addition to any rise in financial quantity, it is important to increase its quality. E3G suggests better lending incentives, including cheaper finance, faster approvals, and more flexible borrowing. Oxfam highlights a need for approved projects to incorporate more thoughtful planning in project development, with the goal of formalizing better equity, environmental, and social risk standards, and citizen engagement strategies.

Another principal critique of the Bank’s proposals focuses on the need for more specificity in climate planning. Tangible and more ambitious targets would increase credibility in the climate strategy, notes ODI. Funding targets are essential for a financial plan to take shape and should match the global scale of the issue. These ambitions also need to be much higher, taking climate and development as a tandem issue rather than two separate agendas.

The Bank’s Evolution Roadmap doesn’t commit to anything at this time but only proposes a plan to approach reform. Actual change promises to be a slow evolution.

Leadership Change in a Time of Reform

The nomination of Ajay Banga as the next President of the World Bank comes at a critical time. President Biden’s notably climate-forward agenda suggested that this might be an opportunity to advance his goals in the arena of global climate finance.

Yet reactions to Banga’s nomination have varied widely. There has been both optimism and skepticism that he will be the step up from Malpass on climate issues that most observers have been hoping to see. 

Banga was formerly CEO of Mastercard, and he currently serves as vice chairman for General Atlantic, a private equity firm. Critics worry that Banga would represent primarily private sector interests. Kate DeAngelis of Friends of the Earth told The Washington Post that “Banga has no background in public service, mitigating climate change, promoting sustainable agriculture, reducing poverty, or supporting just energy transitions.”

Other observers see it differently. They point to Banga’s contribution to several climate initiatives while he was at Mastercard, including a carbon offset program called the Priceless Planet Coalition. He is also an adviser to the climate investment fund BeyondNetZero.

U.S. Climate Envoy John Kerry believes Banga will be a leader on these issues, and that he will “help put in place new policies that help deploy the large sums of money necessary to reduce global emissions and help developing and vulnerable countries adapt, build resilience, and mitigate the impact of greenhouse gasses.”

Supporters of Banga’s nomination also argue that he provides both a fresh outsider perspective based on his work in the private sector, as well as an insider perspective of key communities served by the Bank. They point to his deep connections with India and his understanding of living amidst some of the challenges that client countries face.

Banga’s corporate experience may be a plus, they add. Private sector involvement in climate efforts is crucial to mobilize. A World Bank that facilitated these efforts could help provide incentives to private investors to do so—as companies such as Blackrock have urged.

The World Bank leads 56 percent of all multilateral development bank climate finance, so getting this strategy right will be important: a strong climate plan will signal a path for its fellow lenders to follow suit. If he steps into the role, Banga will be in an influential position to shape this reform in its early stages.