The World Bank has published a report analyzing options to enhance the transformative and catalytic impact of public climate finance by addressing systemic barriers to low-carbon and climate-resilient investments.

Titled, ‘Transformative Climate Finance: A New Approach for Climate Finance to Achieve Low-carbon Resilient Development in Developing Countries,’ the report identifies eight sets of climate levers to drive climate action: project-based investments; financial sector reform; fiscal policy; sector policies; trade policy; innovation; carbon markets; and climate intelligence. The publication recommends best practices to maximize the transformative impact of climate finance on developing countries seeking to achieve clean development targets.

Commenting on the report, Marc Sadler, World Bank, highlighted the role of the “increased realization of economic benefits from clean development pathways” in making climate finance spending more catalytic. With strategic allocation of climate finance, he said, the eight sets of climate levers identified in the report can “unlock greater value for money and help countries build back better.”

In order to achieve transformative results, the report notes, limited public funding for climate action must leverage significantly more funding from other sources. The report proposes the following recommendations to realize this goal:

  • Enhance leverage on a wider, systemic basis: public climate finance should be allocated to projects which maximize leverage from the private sector and governments. The scope and impact should extend beyond the project, achieving results on an economy-wide scale.
  • Make use of a wider variety of financial instruments: climate finance, which currently relies predominantly on grants and loans for project-level interventions, should be extended to include policy-based finance, results-based finance, equity finance, and guarantees. 
  • Long-term planning: finance should be aligned with recipient countries’ long-term strategies for low-carbon, climate-resilient development.
  • Invest in climate intelligence: low-cost tools have a significant leveraging effect by demonstrating the benefits of climate action and providing the knowledge for its implementation. Such tools include climate impact and vulnerability maps, models for long-term scenario simulation and planning, early warning technologies, and physical and transitional risk assessment tools.

The World Bank Climate Change Group published the report as part of its Kickstarting the Sustainable Recovery Series in partnership with Innovate4Climate to demonstrate ways in which sustainable finance can contribute to COVID-19 recovery efforts. [Publication: Transformative Climate Finance: A New Approach for Climate Finance to Achieve Low-carbon Resilient Development in Developing Countries] [World Bank Press Release]