## Greening the Bretton Woods Institutions by Axel Weber ## Source details **Canonical URL:** [Greening the Bretton Woods Institutions by Axel Weber](https://www.imf.org/en/publications/fandd/issues/2024/06/point-of-view-greening-the-bretton-woods-institutions-axel-weber) ## Other formats - [Markdown version](/en/publications/fandd/issues/2024/06/point-of-view-greening-the-bretton-woods-institutions-axel-weber/index.md) - [Structured JSON version](/en/publications/fandd/issues/2024/06/point-of-view-greening-the-bretton-woods-institutions-axel-weber/index.json) - [Bundle manifest](/en/publications/fandd/issues/2024/06/point-of-view-greening-the-bretton-woods-institutions-axel-weber/bundle-manifest.json) ## Bibliographic details - Authors: AXEL WEBER - Published: June 3, 2024 --- ### Overview - The Bretton Woods institutions—the IMF and the World Bank—have contributed to global stability, unprecedented economic growth, increasing prosperity, and broad-based poverty reduction. - Climate change constitutes a new global challenge requiring a timely, global response; creating new multilateral institutions would take too long, so equipping existing institutions is preferred. - Any additional climate mandate for the Bretton Woods institutions must not come at the expense of their core mandates: economic and financial stability for the IMF and sustainable development and poverty reduction for the World Bank. - Recommendations draw on the Bretton Woods Committee’s Multilateral Reform Working Group publication “Strengthening the World Bank and the IMF to Meet 21st Century Global Challenges,” cochaired by the author. ### Financing - Climate action at the IMF and the World Bank needs substantial additional financial resources, not simply redirection of existing resources or depletion of financial buffers. - The IMF’s Resilience and Sustainability Facility (RSF) illustrates the financing challenge: - Repurposing billions of dollars of “unused” special drawing rights (SDRs) for climate action creates an undesirable trade-off between climate action and the IMF’s core mission. - Dedicating central bank reserves or SDRs to climate action is problematic. - Proposed financing approach: - Fund the RSF with new financial commitments from a coalition of countries willing to sponsor such climate action (ideally all IMF member countries would participate along their respective quota allocations). - Treat climate-related IMF activities in all member countries as financial obligations of the general government, which would formally increase the country’s government debt. - Clarify that IMF climate-related action is not a central bank responsibility and should be accounted for as a new IMF task financed by general government expenditures. ### Governance - A clear division of labor between the IMF and the World Bank for their additional climate mandates is essential. - Funding obligations and decision-making powers at the IMF and the World Bank need close alignment. - Executive management should execute climate policies, but shareholders must have decision-making powers to oversee and control management’s action on climate. - World Bank governance proposal: - For the World Bank’s climate agenda, an extended development and climate committee should be the true decision-making body, with powers similar to those of a general shareholder assembly. - This oversight body should be composed of member countries' finance ministers and should approve general guidelines on climate action, funding, and collaboration. - IMF governance proposal: - Create a new governing body, the “IMF Council,” charged with oversight and direction of the climate action of the board of governors and the executive board. - The IMF Council should comprise one governor from each member country, typically the country’s finance minister. - The IMF Council should meet at least once annually to steer the climate action of the IMF. - Existing advisory bodies referenced: - The World Bank Development Committee advises and makes recommendations to the governing boards of the World Bank Group and the IMF on critical development issues; it is usually composed of member countries’ finance or development ministers. - The International Monetary and Financial Committee is the IMF’s key advisory body on its core financial stability mandate and is composed of finance ministers and central bank governors. ### Mandates - The IMF and the World Bank should leverage their historical strengths and 80-year global experience. - Historical institutional strengths: - IMF: top-down macroeconomic policy advice and macro-financial stability assessments. - World Bank: bottom-up project support, development policy advice, and infrastructure investment guidance. - Financial assistance: IMF—concessional lending and debt relief; World Bank—development grants and project funding. - Recommended division of climate-related responsibilities: - IMF: focus on macroeconomic policy advice on integration of climate considerations into fiscal, monetary, and exchange rate policies, plus macro-financial stability assessments. - World Bank: offer policy advice on climate-related development policies and infrastructure investments. - IMF climate-related financial assistance: provide concessional lending to help countries address immediate balance of payments and fiscal challenges exacerbated by climate-related shocks. - World Bank climate-related financial assistance: mobilize climate financing through concessional and nonconcessional lending, grants, and innovative financial instruments to support climate-related projects and programs, particularly in low-income and vulnerable countries. ### Recent IMF and World Bank Actions on Climate - World Bank: - Increased financing for climate-related projects with focus on renewable energy, energy efficiency, sustainable transportation, climate-resilient infrastructure, and natural resource management. - Issues green bonds to finance climate-friendly projects and programs. - Provides technical assistance, policy advice, and policy-based lending to help countries design and implement carbon pricing mechanisms, such as carbon taxes and emissions trading systems. - IMF: - Conducts assessments of climate-related risks to macroeconomic stability, financial systems, and economic growth, providing analysis and policy recommendations. - Offers policy advice on integrating climate considerations into fiscal, monetary, and structural reform agendas. - Includes climate-related risks in financial sector surveillance and supports development of green finance markets and instruments, including green bonds, climate insurance, and carbon pricing mechanisms. ### Key Policy Recommendations (summary) - Mobilize substantial new financial resources for climate action at the IMF and World Bank rather than repurposing existing SDRs or central bank reserves. - Fund the RSF through new commitments from a coalition of countries aligned with quota allocations. - Account for IMF climate-related activities as general government obligations. - Establish clear governance structures: - An extended development and climate committee at the World Bank with decision-making authority composed of finance ministers. - An “IMF Council” composed of one governor per member country to meet at least once annually to oversee IMF climate action. - Preserve the IMF’s and World Bank’s core mandates while aligning their comparative advantages to climate-related policy advice and financing. *Axel A. Weber, F&D Magazine, June 2024. Opinions expressed are those of the author and do not necessarily reflect IMF policy.* --- _Source: https://www.imf.org/en/publications/fandd/issues/2024/06/point-of-view-greening-the-bretton-woods-institutions-axel-weber_