Should the World Bank be left to manage climate change funds?

The suitability of the World Bank as the administrator of two planned new multi-billion dollar climate change investment funds was openly questioned yesterday with the publication of a new report highlighting the bank's continuing support for carbon intensive industries.

The analysis from Washington-based think tank the World Resources Institute claims that the World Bank has failed to adequately respond to previous calls from the G8 group of rich nations to better mobilise investments in clean energy and has instead continued to invest heavily in fossil fuel-based industries.

"The World Bank needs to demonstrate leadership to steer investment towards low carbon, environmentally sustainable development choices," said Jonathan Lash, president of the WRI. "This will be difficult to achieve while simultaneously investing in many 'business as usual' projects, such as coal-fired power."

The report - which also revealed similar support for fossil fuel industries from the Asian Development Bank and the Inter-American Development Bank - noted that in at the Gleneagles Summit in 2005, the G8 tasked the World Bank with establishing an "investment framework for clean energy".

But despite an increase in the bank's activity in the field of clean technology the WRI analysis found that during the past three years, less than 30 per cent of the Bank’s lending to the energy sector has integrated climate considerations into project decision-making. It also claimed that as late as last year, more than 50 per cent of the World Bank’s $1.8 billion energy-sector portfolio did not include climate change considerations at all.

The report comes just weeks before the expected announcement of two new World Bank climate change funds at the upcoming G8 summit in Japan. The bank has said it is seeking to raise $5.5bn to help enable the transfer of clean technologies to the developing world and a further $500m to support improvements in "climate resilience". Japan, the US and the UK are expected to be the main contributors to the fund, but the bank is also reported to be talking to other countries and private firms about investing in the fund.

Jacob Werksman, director of WRI’s Institutions and Governance Program, said that if the bank is to be trusted with the task of investing the funds it should do more to ensure that investments in carbon intensive sectors are curtailed. " They must demonstrate that they are consistently helping developing countries integrate climate change into economic development choices," he said. " Accounting for the cost of carbon through rigorous analysis of greenhouse gas emissions needs to drive investment choices. Progress along these lines must be made much more rapidly than it has been to date."

This is not the first time that the World Bank and the proposed climate change have attracted criticism. The proposals were attacked by a number of charities and NGOs earlier this year after it emerged some of the funds would be distributed in the form of loans rather than grants – potentially imposing more debt on developing economies.

Similarly, the bank was branded a "climate profiteer" earlier this year by a report for US think tank the Institute for Policy Studies that found that the bulk of its climate change investments targeted carbon trading schemes that benefit carbon intensive utilities as opposed to smaller scale renewable energy projects.

The study found that less than 10 per cent of all of the funds flowing through the World Bank's carbon trust funds are going to support renewable energy projects, defined by the report as wind, geo-thermal, solar, and hydro electricity power plants with a generating capacity of 10Mw or less. In contrast, around three quarters of the carbon finance portfolio has been ploughed into carbon trading schemes that the report claims subsidise energy intensive industries such as coal, chemicals, iron and steel.