How do you ‘End Poverty’, really?
by Sonam Velani 
World Bank Headquarters in Washington, DC. Source: Sonam Velani
This is a photo from my iPhone camera roll circa 2013, when I used to work at the World Bank and walked into the headquarters of the world’s largest development finance institution everyday - with the stated goal to “End Poverty” stamped on its front door. Job descriptions don’t get more direct than this. But, like most things in life, the devil’s in the details.
How are we doing 10 years later, circa 2023? Maybe I’ll just let the headlines speak for themselves:
🇵🇰 Pakistan was immersed underwater last summer as monsoon floods pummeled the country and caused damage across one-third of the entire country
🇨🇳 China suffered its worst drought in history, drying out the Yangtze River, which supplies drinking water to more than 400 million people
🇮🇳 India's wheat crop had 35% less yield this in 2022, decimating the output of the world’s bread bowl and worsening a global food shortage
🇿🇦 South Africa suffered from its worst rainstorm in history, killing hundreds of people in the city of Durban
One simply cannot “End Poverty” as the natural systems that underpin human life on planet earth break down. And the reality is that our global financial system both caused this demise and needs to significantly reform to handle its consequences.
First, a look back: The World Bank and the International Monetary Fund were born out of the Bretton Woods conference in July 1944, as most countries across the world were reeling from the effects of World War II. The goal was to create a new economic order focused on international cooperation, one that would help countries recover from the war and foster long-term growth. Since then, the World Bank has been joined in these efforts alongside several new regional Multinational Development Banks (MDBs), lifting billions of people out of poverty over the past 79 years.
The Bretton Woods Conference in Bretton Woods, New Jersey in July 1944. Source: The World Bank
Now, a look forward: The same ethos of international cooperation that launched the World Bank couldn’t be more necessary to reform it to handle the challenges of the 21st century, with climate change topping the list. For the past 4 years, The World Bank was led by Trump appointee and climate denier, David Malpass. The good news is that he’s finally resigned, and President Biden now has a chance to put in new leadership, increase US commitments, and hold these institutions accountable to “End Poverty.”
About $2 trillion is needed each year by 2030 to help the world’s most vulnerable countries reduce their GHG emissions and cope with the impacts of climate change. About half of that will come from local sources, but the other half needs to come from the World Bank, other MDBs, and external investment from private sector partners. As of today, total climate finance for low and middle income countries is at a paltry $38 billion per year. There’s A LOT MORE to go.
Total investment by multilateral development banks in climate adaptation and mitigation in 2020. Source: World Resources Institute
Some of the world’s major economies, including the US, have called on the World Bank to institute fundamental reforms in how it operates, specifically with a plan to scale up climate finance for developing countries. Approximately 90% of the increase in emissions going forward are going to come from developing countries, so they need access to affordable financing options to invest in resilience and transition their economies towards a clean energy future. All this needs to be done without pushing the countries to unsustainable levels of debt, which would further hamper their development efforts. Already, more than 60% of low-income countries are in debt distress according to the International Monetary Fund.
So, what’s on the docket to change? Having had a chance to experience the inner workings of the World Bank, I’ve learned the good, the bad, and the ugly and I lay out a few of my favorite reforms here:
⛽️ Stop funding fossil fuels!!! The World Bank provided more than $14.8 billion in financing for fossil fuels since the Paris Agreement was adopted. It’s way past high time for the Bank to put its money where its mouth is, period.
🏗 Fund resilience initiatives BEFORE a disaster strikes, not after the fact. For every $1 that we spend on pre-disaster mitigation, we save $6 in post-disaster losses. The math is simple, let’s act on it.
💰 Provide concessional financing to all climate-vulnerable countries, even if their income levels place them above the poverty lines for the lowest-cost instruments. This means grants and low-interest debt products for middle income countries like Turkey or Malaysia, in addition to the bread and butter of the World Bank in supporting low income states like Liberia or Nicaragua. It’s often the middle income countries that have significant energy needs as their economies grow, and end up putting more capacity online through their existing fossil fuel infrastructure rather than investing in renewable energy due to lack of funds.
📈 Take risk, that’s why the World Bank was created in the first place. The Bank needs to learn how to optimize its balance sheet while reducing minimum equity-to-loan ratios. This enhances capital utilization and provides means for financing climate transitions in a much larger range of countries.
🏛 Use public financing as a means of insurance for private investors, many of whom have regulatory and fiduciary responsibilities that don't allow them to take on the risk themselves. This means loan guarantees, first loss provisions, and a huge number of creative financial products that only the World Bank can provide given its stakeholders and access to capital markets.
I was lucky to work on some of the climate adaptation and mitigation projects the World Bank financed when it started the Sustainable Cities group 10 years ago. From launching the Open Data for Resilience Initiative as the first open-source database of urban risks and vulnerability in the world to doing early stage investments in water systems and clean transport as a part of the $8 billion Climate Investment Funds, it was an incredible place to learn and have an impact globally. The World Bank needs to double and triple down on these types of initiatives and incorporate a climate lens into ALL of its projects rather than siloed groups.
Open Data for Resilience Initiative partners mapping public transport routes in Dar es Salaam, Tanzania. Source: Sonam Velani
And last, but not least, millions of people have finally started to pay attention to climate change and innovators, entrepreneurs, policymakers, community groups, and business leaders are all signing up to do their part to “End Poverty.” It has never been a better time to mobilize large sums of public capital, combined with GFANZ commitments of $130 trillion of private sector dollars, to address the biggest challenge of the 21st century!
by Sonam Velani