World Bank explores expanding its remit

Hello from Washington, where I am this week for the IMF and World Bank meetings. On the surface, the climate conversation was as robust as ever: transition financing and voluntary carbon markets featured prominently in the week’s agenda.

But beneath the surface, anxiety reigns; there’s talk about being in a “holding pattern” until after the US election is decided. Over drinks, a former Biden administration official expressed panic about Kamala Harris losing. Donald Trump has clawed his way ahead of Harris in recent polls. With the Senate almost certain to flip back to Republican control, the party could quite possibly control the White House and Congress in 2025, alongside a conservative majority on Supreme Court.

And a major frustration for the Democrats stems from Biden’s Inflation Reduction Act of 2022.

It is true that the IRA has been a boon for US clean energy investment. But as a get-out-the-vote tool, the former Biden official told me that Democrats see the IRA as a failure. Republican bastions have been big beneficiaries of IRA largesse, but the polls suggest the bill’s economic stimulus has not swayed voters towards Democrats.

The polls could be wrong. But with less than two weeks until election day, the mood in Washington was especially tense. 

For today, I have an exclusive on the World Bank’s unprecedented “coral conservation” bond. First, Lee looks at whether the World Bank could be poised for a major shift in its approach to nuclear power. — Patrick Temple-West

nuclear financingProposal to adapt World Bank’s status quo on nuclear gains traction

Tech companies aren’t the only big energy consumers flirting with nuclear power. Developing countries are showing interest too as they hunt for stable, low-cost energy to fuel industrial growth. That has made nuclear one of the most controversial topics behind closed doors this week in Washington, where the World Bank is holding its annual meetings.

The World Bank’s last loan for a nuclear power project was made in 1959. The Bank’s latest energy strategy explicitly excludes financing the energy source, citing a lack of expertise on nuclear safety, and opposition from powerful shareholders — notably Germany — has made the issue a third rail in policy discussions. But with more demand coming from emerging markets such as Indonesia and the Philippines, pressure is building for a change in stance.

Not only does the World Bank ban nuclear energy finance, it also explicitly declines to advise client countries on their nuclear strategy.

Advisers within the office of World Bank President Ajay Banga are keen to find workarounds, multiple sources familiar with discussions told Moral Money. One proposal to develop staff expertise on the issue has gained traction, and if adopted, could be a strong signal that the Bank is likely to evolve its stance on the energy source.

“The Bank keeps saying they don’t have the expertise. That’s not a valid excuse. The bank does all sorts of financing where they don’t have expertise — they bring in consultants,” said DJ Nordquist, who represented the US on the World Bank’s board of directors during the Trump administration.

Nordquist supports a proposal for a “trust fund” at the World Bank that would develop internal staff capacity to evaluate nuclear energy as part of client countries’ power mix. It could also enable the Bank to co-ordinate on the issue with agencies such as the US Development Finance Corporation.

The trust fund was proposed by Todd Moss, who led Africa strategy at the US state department from 2007 to 2008 and now runs a think-tank promoting energy to support economic growth in developing nations.

Currently, the Bank is being uncharacteristically modest on its ability to offer advice, Moss told me. “The World Bank is in every nook and cranny of Ghana’s budget and infrastructure planning. But they have nothing to say about nuclear, and they can’t advise the Ghanaians on nuclear because they’ve decided to stick their head in the sand.”

Asked about its sustained opposition, a World Bank spokesperson said in a statement: “We hear the call from some stakeholders to explore nuclear power to decarbonise energy and improve energy supply reliability. In that context, we continue to have conversations with our board, management and external stakeholders to understand the facts.”

The appeal of nuclear

Small modular reactors — more compact power plants which aren’t yet widely sold but might soon be available for order by the six-pack — look particularly attractive to lower-income countries. That’s because their energy consumption may not yet be high enough to merit the buildout of a large-scale reactor, but reliable power is needed for industrial development.

In Ghana, for example, business leaders such as Charles Mensa, previously the chief executive of one of the largest aluminium smelters in sub-Saharan Africa, have become convinced that nuclear energy, and SMRs in particular, could boost economic growth.

“The old idea about nuclear was that it was very dangerous. The word ‘nuclear’ itself scared people,” Mensa, who now runs an Accra-based think-tank, told me. “But times have changed.”

Valco, Ghana’s state-owned aluminium company, has historically consumed a chunky share of the country’s electricity — and it would like to expand. But it has become harder to access financing for fossil fuels, and Ghana’s oil production has fallen from a 2019 peak.

Mensa argued that the US and other developed countries have unfairly denied developing countries crucial energy, even as they continue to rely on them at home. For example, he pointed out, the US refused to sign a pact to end coal use at a 2021 UN climate summit in Glasgow, even as the White House urged developing countries to end their use of the hydrocarbon, and as financing for coal has become harder for Ghana to access.

Now, he said, “the developed communities are building nuclear but they tell us that we cannot. Well, we need energy for our industrial development. Otherwise, we remain poor, and go to them to beg for aid.”

The proposal has attracted interest from within the Bank and in the US Congress. Currently, Russia is the world’s leading exporter of nuclear power, both in terms of reactors planned and under construction. Russia last year completed Turkey’s first nuclear power plant, and earlier this year inaugurated a plant in Egypt. According to the centre-left think-tank Third Way, Russia has “hard” agreements with 45 countries around the world to build nuclear energy.

The Republican chair of the House Financial Services committee, Representative Patrick McHenry, has introduced legislation requiring the US Treasury to push the World Bank to lift its ban on nuclear power. That bill hasn’t passed, but a senior staffer on the committee told me they are “cautiously optimistic” that the Bank’s stance could change soon.

“Nobody wants to wake up 10, 20 years from now, with Chinese and Russian reactors dominating emerging markets, while the Americans, the South Koreans, the Japanese are shut out,” the staffer said.

Mensa, of Ghana, added that “if the World Bank keeps holding the lid on financing from the western countries, it is very likely that the Russians or Chinese will make deals” with more African countries for nuclear power.

Asked if he was concerned about objections to those countries’ involvement in African energy supply, Mensa said that “the colour of the cat doesn’t matter so long as it catches the mouse”. (Lee Harris)

biodiversity financing Exclusive: World Bank is finalising its first coral bond

The World Bank is finalising an unprecedented coral conservation bond for Indonesia that is expected to be unveiled in the days ahead, according to sources familiar with the matter. 

The bond is expected to fund $14mn of conservation projects, but the final bond size is being hammered out now and could fluctuate depending on demand. The coral bond would be modelled after the World Bank’s 2022 “rhino bond” for wildlife conservation in Africa and the plastics bond announced earlier this year.

Under the terms of the bond deal, investors will forego coupon payments, which will instead be used to pay for conservation initiatives, sources said. If coral conservation targets are met, bondholders will receive a principal at maturity as well as a “success payment” paid by the World Bank.

Four marine protected areas have already been selected, totalling more than 5mn hectares within the “coral triangle” region, which also includes Malaysia, the Philippines and Papua New Guinea.

Indonesia has one of the most biodiverse marine ecosystems in the world, comprising 18 per cent of the world’s coral reefs. However, warming temperatures have been devastating for the aquatic invertebrates, causing bleaching — the process by which reefs lose the algae that gives it its vibrant colours — the first sign of stress before the animal dies.

Earlier this year, the US National Oceanic and Atmospheric Administration announced the world was experiencing a global coral bleaching event, the second in the past 10 years. (Patrick Temple-West)

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