This week, President Biden nominated Ajay Banga, the former head of Mastercard, to lead the World Bank. With his vast experience in the private sector, Banga has the potential to bring constructive changes to the organization. If he effectively leverages his skills and expertise, Banga’s leadership could mean transformational reform at the World Bank, which is an urgent necessity in light of the pressing issues of extreme poverty and the climate crisis our world is facing. This is a prime opportunity for change that must be seized without delay, and some leading voices are hopeful that Banga will rise to the occasion.
Currently serving as Vice Chair of General Atlantic, Banga previously served as Chairman and CEO of Mastercard. His nomination has been welcomed on both sides of US politics; a rare feat in today’s divided world. While some are questioning Banga’s climate credentials, Lord Nicholas Stern of the London School of Economics has pointed out that, “under his [Banga’s] leadership, Mastercard was a leader in setting targets for net zero and the first such institution to gain approval from the Science-Based Targets initiative.” In the absence of government regulation, adopting a science-based target like this is considered the optimal approach in corporate climate action.
In addition to utilizing his undoubtedly vast organizational leadership skills, Banga will need to navigate divisive politics and outdated rhetoric that could potentially impede any reform initiatives. The notion that poverty eradication and climate change are mutually exclusive is a perspective that’s over two decades out of date. Although contemporary economists acknowledge the interdependence of poverty eradication and climate action, and understand that they must be addressed together, in recent months some individuals have attempted to drive a wedge between the development and climate communities.
This is a false, and very dangerous, dichotomy. The issues of extreme poverty and climate change can only successfully be tackled together.
To this end, it is crucial that any climate action agenda takes into account the developmental requirements of the world's impoverished populations, especially those experiencing energy poverty, and vice-versa. For African nations, for example, a so-called ‘just energy transition’ must involve granting them flexibility to implement climate change measures while simultaneously addressing energy poverty for over 600 million people who still lack access to dependable electricity. It is equally vital to ensure these countries can access the necessary resources they urgently need to invest in healthcare, education, water, sanitation, and other critical social needs.
We must also acknowledge that climate change, if left unaddressed, will continue to undermine all efforts to eradicate extreme poverty. This is why young people from the Global South, like the inspirational Ugandan activist Vanessa Nakate, have taken to the streets demanding that their governments increase their efforts to combat climate change. As vulnerable societies move closer to climate-related disasters with each passing day, their pleas for help have grown increasingly urgent. Climate change has already made its mark, from floods in KwaZulu-Natal to droughts in Somalia, and the impact on farming towns in Kenya of shifting weather patterns.
Do not get me wrong: currently, healthcare and development inequalities are responsible for far more deaths than climate change, particularly in low- and middle-income countries, and this trend is likely to persist for many years. (This is especially the case given that, after years of progress, the number of people living in poverty has been increasing in recent years due to the COVID-19 pandemic, the war in Ukraine and other factors). However, the consequences of climate change are expected to worsen over time, and if we wait to fully understand the scope of its impact, it will be too late to take effective and sufficient action. The impacts of climate change will eventually exacerbate existing health inequalities and threats that are already causing widespread damage to ecosystems, infrastructure, and economies, pushing entire nations deeper into debt and distress. In addition to mitigation, more financing will ultimately be needed to help communities adapt to these impacts, like investing in rural development, small holder farmers and agriculture – ‘development’ at its core.
This is both a challenge and an opportunity for Banga. Assuming he is approved by the World Bank’s board, as is likely to be the case, he will be expected to hit the ground running.
INDIA - MARCH 10: Ajay Banga, Chairman and Chief Executive Officer, Citigroups Global Consumer ... [+]
Fortunately, there is a robust and hopeful blueprint called the Bridgetown Initiative that outlines clear measures for deploying, at speed, urgent financing that is already available – but currently lying dormant – for the poorest countries and those most vulnerable to climate change who are likely to be pushed into deeper levels of poverty without support. The measures of the initiative seek to dramatically increase the money available to governments to tackle poverty, health inequities and invest in climate mitigation, adaptation and resilience.
With Banga at the helm, the World Bank could serve as a valuable partner for all types of countries seeking access to affordable long-term financing, and above all, a commitment to achieving the global goal of reaching net-zero emissions without sacrificing their developmental and economic aspirations. Such financing can and must be as diverse as the countries seeking support, from grants to market-rate financing. In many cases, the finance ministers of some of these countries are simply requesting loans at the same market rate that wealthy nations enjoy, rather than rates 3-4 times higher that they are often forced to pay. This could in part be achieved by leveraging the World Bank's AAA rating in a more effective way, dramatically increasing the amount of on lending the Bank can do.
In addition to stretching the Bank's balance sheet, Banga also has the capability to encourage greater private sector investments in the infrastructure needs of middle-income countries. These countries have significant economies, but are also home to around 70 percent of the global population living in poverty. The Bank could thereby greatly expand the overall scope to help the energy transition and investments needed for renewables without depleting the highly concessional resources available for other development needs.
At the same time, the world cannot lose sight of what is needed for the world’s poorest countries and communities to both address existing gross inequities, particularly in access to education and healthcare, and to adapt to the worsening impacts of climate change – a particularly harsh penalty to pay given they contribute very little to overall greenhouse gas emissions globally. Grant-based financing should ideally be directed to communities that struggle to access even World Bank loans.
To this end, the World Bank should push for an ambitious replenishment of its concessional arm, IDA. But we know that even a fully replenished IDA wouldn’t be enough to address the needs of the poorest and highly-indebted countries. Longer term, Banga needs to also advocate for more structural solutions to bring in additional grants (The Bridgetown Initiative does include an often overlooked solution for this: taxing fossil fuels).
Though the reform of the World Bank cannot be a cure-all for the world's challenges, Banga's success in implementing an ambitious reform agenda that unlocks additional financing can serve as a model for other institutions. By doing so, it can be a case study for driving transformative change, moving beyond divisions.
In summary, if approved by the World Bank's shareholders, Banga must act promptly to revitalize the world's largest development bank, while addressing both the climate crisis and the systemic barriers holding people in extreme poverty. This approach aligns with what the Bank’s mandate, and what major shareholders have been calling for, and is crucial to achieving its goal of eradicating global poverty. Neglecting to do so will result in the numbers of impoverished people worldwide not diminishing, but escalating dramatically, as the impacts of climate change continue to take hold.
