Climate Change Requires New Strategy From Development Banks, Says Yellen: NPR
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US Treasury Secretary Janet Yellen said on Thursday that international development banks needed to change their investment strategies to better respond to global challenges such as climate change.
The International Monetary Fund (IMF) and the World Bank are among the largest and most active development banks. While banks have a “strong track record” of financing projects that create benefits in each country, investors need more options to solve problems that cross national borders, Yellen said.
“In the past, most poverty reduction strategies were country-driven. But today, some of the most powerful threats to the world’s poorest and most vulnerable require a different approach,” Yellen said. in remarks prepared at the Center for Global Development in Washington DC
Climate change is a “great example of such a challenge”, she said, adding: “No country can face it alone”.
Yellen delivered his remarks a week before the annual IMF and World Bank Group meetings in Washington.
World Bank President David Malpass recently came under fire from climate activists for refusing to say whether he accepted the mainstream science that burning fossil fuels causes climate change.
At the meetings, Yellen said she would ask the World Bank to work with shareholder countries to create an “evolutionary roadmap” to address global challenges. Shareholders should then push for reforms in other development banks, she said, many of which are regional.
A World Bank spokesperson said the organization welcomes Yellen’s “leadership on the evolution of [international financial institutions] as developing countries face severe resource scarcity, the risk of a global recession, capital outflows and a heavy debt service burden.”
The World Bank said climate action financing accounted for just over a third of all its financing activity in the fiscal year that ended June 30.
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Among other potential reforms, Yellen said development banks should rethink how they encourage investment. That could include using more funding like grants, rather than loans, to help countries reduce their dependence on coal-fired power plants, she said.
Yellen also said cross-border challenges like climate change require “quality financing” from advanced economies that doesn’t create unsustainable debt or fuel corruption, as well as private sector investment and technology.
As part of the U.S. effort, Yellen said the Treasury Department will contribute nearly $1 billion to the Clean Technology Fund, which is managed by the World Bank to help pay for low-carbon technologies in developing countries.
“The world must mitigate climate change and the resulting consequences of forced migration, regional conflicts and supply disruptions,” Yellen said.
Despite these risks, developed countries have failed to meet their commitment to provide $100 billion in climate finance to developing countries each year. The issue is expected to be at the center of negotiations at the UN climate change conference (COP27) in Egypt in November.
The climate investment gap is linked to “systemic problems” in global financial institutions, said Carlos Lopes, a professor at the University of Cape Town’s Mandela School of Public Governance.
“We have seen that the international financial institutions, for example, do not have the tools and the instruments to act according to the level of [climate] challenge,” Lopes said Thursday during a webinar hosted by the World Resources Institute.