World Bank and IMF’s lack of climate action could make countries bystanders in their own destruction

Key points

• The World Bank and IMF are shifting away from explicit climate action towards resilience, reflecting political pressure from the US that weakens their response to global heating, argues Federico Sibaja  and Jon Sward. 

• The authors criticise the World Bank’s approach after its financing supported a Nepal hydropower project that was damaged by devastating floods despite warnings and the absence of a proper climate-risk assessment.

• Meanwhile, IMF-backed austerity and fossil-fuel policies in countries including Ecuador and Pakistan are limiting investment in climate adaptation and, in some cases, undermining the shift to renewable energy.

• With climate-vulnerable countries facing mounting damage, the authors argue that institutions must expand grant-based finance and debt relief, and ensure climate risks are built into lending decisions and economic programmes.

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In a recent interview with the New York Times, World Bank President Ajay Banga explained that the bank wants to avoid the “emotional” debate around climate change and instead focus on resilient investments.

For the leader of an institution that describes itself as the “knowledge bank”, such a desire to skirt the realities of climate science is of course the result of political calculus.

The IMF’s managing director, Kristalina Georgieva, has also shifted gears in recent years: she went from calling for an end to “business as usual” at COP28, to agreeing with US Treasury Secretary Scott Bessent on the need to refocus away from climate change. She has also cut the budget earmarked for climate work by 27%.

Meanwhile, Bessent has questioned the cause of global warming and referred to climate action at global financial institutions as driven by “elite beliefs”.

The World Bank and IMF’s change in approach comes as no surprise, as there is a potentially steep cost of them falling afoul of their largest shareholder, amid its wider war on multilateralism.

But what’s been less discussed is the wider cost of the Bretton Woods institutions’ failure to act in the midst of an accelerating climate emergency – of which the serious flooding in Bangkok, where the World Bank and IMF convene their annual meetings next week, is a stark reminder. 

The World Bank’s turn to ‘resilience’ – buzzword du jour?

 

After a prolonged debate on the future of the bank’s climate commitments in the Spring, a compromise was reached in June, when it extended its climate change action plan (CCAP) “indefinitely”, but retired its 45% climate finance target. 

As the US’s anti-climate action agenda has cast a long shadow at the institution and elsewhere since last year, bank officials increasingly say their goal is to deliver resilient investments, echoing Banga’s recent statements.

However, there are serious questions about whether the bank’s approach is advancing its aim. 

The recent flood disaster in Nepal, which killed more than 1,450 people (with around 5,800 still missing), also damaged 13 hydropower projects, including the 216MW Upper Trishuli-1 hydropower plant. Alongside other lenders, Trishuli was backed by financing from the World Bank’s private investment arm, IFC, and a US$87.4mn guarantee from its political risk arm, MIGA. Yet, despite repeated warnings from an independent expert panel, no climate and disaster risk assessment had been properly undertaken as of 2024.

The World Bank needs to ensure that “resilience” is more than an empty signifier. This means having mechanisms in place across all lending instruments to evaluate whether its actions are genuinely leading to positive outcomes for people and the planet, including ex-post assessments of projects that emphasise learning from past mistakes. 

It also means rethinking the the bank’s neoliberal era loan conditions in its policy based lending, which have promoted wholesale privatisation in key sectors like energy, and ensuring countries have the policy and fiscal space to pursue green industrial policy.

As evidenced by the Nepal crisis, with the country facing an estimated US$4.7bn in reconstruction costs, climate-vulnerable countries also urgently need a rapid scaling up of grant-based climate finance and debt relief. The World Bank could use its convening role to help move this discussion forward.

IMF wastes opportunity to address blindspot in its climate strategy

 

The IMF’s relevance has grown due to increasingly frequent shocks to the global economy, such as spikes in fossil fuel prices and extreme weather events. In July 2026, 30 countries were implementing IMF programmes with conditionalities, and 14 other countries were seeking new arrangements.

Recent analysis has shown that its programmes’ reliance on fiscal consolidation and foreign exchange accumulation can undermine countries’ climate policy goals and put macroeconomic stability – Bessent’s  “focus” of the IMF – at risk. So, while the IMF has become better at diagnosing climate risk, it is also exacerbating it. 

For example, in Ecuador, the IMF-backed programme requires primary adjustment of 6.6% of GDP. Such fiscal adjustment can make it harder to invest in climate adaptation and resilient infrastructure. At the same time, the programme explicitly aims to increase oil output. 

The same goes for Pakistan. The country has been on the frontlines of the climate crisis in the last few years, with devastating floods in 2022. Yet IMF-backed fiscal consolidation has constrained spending at a time when the country faces enormous adaptation needs. Moreover, reforms in fiscal policy are undermining the energy transition: due to IMF-led energy subsidy removal and tariff increases, the country began a rapid shift to solar, only to see it undermined by IMF-backed higher taxes on solar panels. 

Back in June, the IMF’s own independent evaluation office flagged this contradiction. It identified the review of progam design and conditionality, the process through which the institution evaluates the performance of its lending programmes and agrees ways to improve them, as a chance to address it. Yet, when the review wrapped up last month, climate was firmly excluded. 

As more countries turn to the IMF to address their vulnerability to shocks, its push for fiscal adjustment and commodity extraction risks accelerating that same vulnerability. 

At the upcoming annual meetings, we need to see serious efforts to resolve this contradiction. A good place to start would be the guidance the IMF provides to staff designing loan programmes, which will be developed in the next few months. This must clearly outline under what circumstances climate goals are central to programme success and cannot be ignored.  

Without a change of course, the IMF and World Bank will miss a key window of opportunity to stem a runaway climate crisis. In the present context, delaying action is just another form of climate denial.  

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