World Bank Scraps 45% Climate Finance Target, Raising Concerns Over Future Adaptation Funding

The World Bank has formally dropped its commitment to allocate 45% of its annual financing to climate-related projects, marking a significant shift in its development strategy and raising fresh concerns over the future of climate adaptation funding in developing economies.

The decision comes amid sustained pressure from the United States, the Bank’s largest shareholder, to refocus multilateral development finance on its traditional mandate of poverty reduction and economic growth rather than percentage-based climate financing targets.

While the Bank will continue financing climate-related projects and reporting its climate investments, it will no longer be obligated to ensure that 45% of its total annual lending supports climate mitigation or adaptation initiatives—a target announced during COP28.

Return to the Bank’s Core Mission

During this year’s Spring Meetings of the International Monetary Fund (IMF) and the World Bank, member countries emphasized that the institution should remain focused on its foundational objectives.

The renewed priorities include:

• Reducing poverty and accelerating economic growth.
• Promoting country self-reliance.
• Supporting productive investments in developing nations.
• Expanding access to affordable, reliable and diverse energy technologies.
• Strengthening macroeconomic stability and the rule of law.
• Improving procurement efficiency and development outcomes.

The policy direction also called for abandoning the 45% climate finance target, arguing that rigid allocation goals create inefficiencies, distort economic decision-making and divert resources from the Bank’s primary development mission.

Adaptation Finance Faces the Greatest Risk

Climate experts believe the immediate impact will not be on commercially viable renewable energy projects, but on climate adaptation initiatives that depend heavily on concessional financing.

According to Labanya Prakash Jena, Director, Climate and Sustainability Initiative: “There will be limited impact on capital flows to bankable renewable energy and mitigation projects because these remain commercially attractive. The real concern is climate adaptation and resilience financing—urban heat resilience, flood protection and climate-resilient agriculture—which depend on subsidised capital because they are less commercially viable.”

What It Means for India

India, despite being the World Bank Group’s largest borrower, is expected to experience relatively limited disruption in financing for renewable energy projects.

Jena notes that India has increasingly mobilised private capital for climate mitigation, reducing dependence on multilateral financing for commercially attractive clean energy investments.

However, the country could feel the effects in adaptation financing.

Projects involving:

• flood management,
• urban climate resilience,
• drought mitigation,
• climate-resilient agriculture,
• water conservation,

have traditionally relied on concessional and patient capital provided by institutions like the World Bank.

According to Jena, the removal of the climate finance quota is likely to disproportionately affect these adaptation initiatives.

Climate Mandate Remains

Experts stress that the removal of the numerical target does not signify the end of the World Bank’s climate agenda.

Joe Thwaites, International Climate Finance Director at the Natural Resources Defense Council (NRDC), said: “The World Bank still has a mandate to continue providing climate finance. The Climate Change Action Plan has been extended. Losing the overarching 45% climate finance target is disappointing, but individual World Bank Group entities still maintain their own climate targets, providing an important safeguard.”

Thwaites also noted that developing countries continue demanding greater investments in clean energy and climate resilience.

Climate Change Action Plan Extended

The World Bank has confirmed an extension of its Climate Change Action Plan (CCAP), which integrates climate considerations into the Bank’s development operations and aligns its work with the Paris Agreement.

The plan was scheduled to expire on 30 June, and its future had become uncertain following U.S. pressure to scale back climate commitments.

Although the extension has been confirmed, the Bank has not yet disclosed its duration.

Developing Countries Push Back

Before the decision, the G11 group of developing countries, which represents developing economies on international financial policy matters, urged the World Bank to extend the Climate Change Action Plan for another year.

Their appeal reflected growing concern among borrowing nations over efforts to dilute multilateral climate commitments at a time when climate-related vulnerabilities continue to intensify.

Global Climate Finance at a Critical Juncture

The World Bank remains the world’s largest multilateral provider of climate finance.

In 2024, Multilateral Development Banks collectively mobilised a record US$137 billion in climate finance, with the World Bank accounting for the largest share.

The institution also occupies a central role in delivering the US$1.3 trillion annual climate finance goal agreed at COP29 in Baku, under the Baku-to-Belém Roadmap being carried forward by the COP29 and COP30 presidencies.

From Inputs to Outcomes

The Bank has described the policy shift as moving away from measuring financing inputs toward evaluating development outcomes.

However, critics argue that removing the climate finance benchmark risks weakening accountability and reducing investments in projects whose benefits are long-term and difficult to quantify immediately.

They warn that while renewable energy investments may continue to attract commercial finance, adaptation projects—particularly in vulnerable developing countries—could face growing financing gaps.

Growing Calls for Regional Climate Finance Institutions

The World Bank’s decision has also renewed discussions around strengthening regional climate finance mechanisms.

Several policy experts believe developing countries should accelerate efforts to establish regional green development banks and dedicated climate financing facilities, including proposals for an Asian Green Fund, to reduce dependence on global multilateral institutions and ensure sustained financing for resilience and adaptation.

A Defining Moment for Global Development Finance

The World Bank’s decision reflects a broader shift in global development priorities, balancing economic growth with climate action amid changing geopolitical dynamics.

While the Bank insists that climate finance will continue, the removal of a measurable lending target represents a significant policy change. The ultimate impact will depend on whether future lending patterns continue to support the adaptation and resilience projects that are often least attractive to private investors but most critical for climate-vulnerable communities.

The writer of this article is Dr. Seema Javed, an environmentalist & a communications professional in the field of climate and energy