The Global Environment For Sustainable Development

by
Caio K. Koch-Weser
Managing Director
The World Bank

Washington, D.C. October 6, 1997

I. Introduction

1. Mr. Chairman, Ladies and Gentlemen: It is a pleasure to be with you today.

	I appreciate this opportunity to address such a large and distinguished audience on such an important topic - at this particular moment in time.
	At a time when the world is analyzing the results of the UNGASS stocktaking in June, in preparation for the Climate Convention Meeting in Kyoto in December.
	At a time when the new millennium is fast approaching, and we need to have in place effective policies and institutions for addressing its unique challenges.

2. This morning you heard a great deal about Rio and about Kyoto. So, let me begin with a change in scenery - Hong Kong, which hosted our Annual Meetings two weeks ago. Global issues were very much on people's minds in Hong Kong:

	The global revolution in communications technology — which was everywhere apparent.
	The globalization of financial markets - worries about contagion from the turbulence in Thailand's capital markets were a recurring theme.
	The global environment - the rampant effects on air quality of the fires in Borneo and Sumatra made this a very real issue for residents and visitors alike throughout much of East Asia.

3. Clearly the world is growing smaller.

	Increasingly, we are moving towards: a single global conversation; a single global market; a single global environment.
	These trends have profound implications for developing countries - our clients.
	And in turn profound implications for the World Bank. The global context is increasingly the right context for our country assistance strategies.

4. Mr. Chairman, much has already been said today on the global environmental challenges mankind faces.

	I share the widely felt disappointment that the actions and achievements since Rio have been too meager, that the challenges particularly at the global level have grown faster than the solutions, that we have fallen behind the curve. Like others, I am worried.
	But on this I have little to add to what others have said, or will say, in the course of this Conference. Instead, I will focus on the challenges of implementation, from the perspective of World Bank Operations to see what light the practical issues of implementation can shed on the task ahead.
	My remarks this afternoon are organized around three topics: First: Bank activities in the post-Rio period. Second: Our partnerships with the private sector, donors, and civil society. Third: The role of developing countries themselves and the challenges they face in confronting global environmental issues.

II. The World Bank's Response to the Environmental Challenge

Let me start with the Bank's involvement in global environmental issues.

	Our work on the global environment began in earnest in 1990 when we responded to calls from France and Germany to establish the Global Environment Facility - the GEF.
	As many of you know, the GEF was created to deal with special problems of the global environment and to help developing countries and transition economies meet their obligations under the Climate and Biodiversity Conventions and with their efforts to manage shared water bodies and to protect the ozone layer.
	The GEF became operational in 1991 and was established as a permanent facility in 1994.

6. Since its inception, GEF financing through the Bank has risen to over one billion dollars. It includes 98 projects in 70 countries, and carries over $4 billion in associated co-financing.

	Over 40 percent of the Bank's GEF portfolio supports climate change mitigation.
	Another almost 40 percent supports biodiversity.
	Almost 10 percent supports the protection of international waters.

7. In partnership with the Multilateral Fund of the Montreal Protocol, and UNDP, UNIDO, and UNEP as implementing agencies, the Bank is the largest financier of projects to protect the ozone layer.

	We have a $250 million portfolio of 360 projects in 25 developing countries, and another US$125 million of GEF investments.
	Taken together, these projects are eliminating 30 percent of the global consumption of ozone depleting substances.
	As Jim Wolfensohn announced at UNGASS, in collaboration with the Russian Government and with funding from seven other countries, we have negotiated closure of the last CFC production facilities in the world.

8. But our interest in global environmental issues goes beyond individual GEF and Montreal Protocol projects, although they do tend to be the primary point of entry of global issues into our country assistance strategies. Another, albeit less frequently used, conduit is analytic work.

	Complementing our GEF work, the Bank in 1994 launched a donor-and NGO-sponsored "Global Overlays Program", designed to integrate global concerns into regular Bank country analytic work.
	In the Ukraine, the Global Overlays Program financed a study of greenhouse gas mitigation, and preparations are now underway for a GEF-financed project designed to capture methane leakage from coal mining.
	The Overlays Program is currently funding a biodiversity study in Vietnam, which includes the estimation of incremental environmental costs of agricultural growth in environmentally vulnerable portions of the Mekong Delta, and will facilitate the design and implementation of rural development programs that provide both biodiversity protection and sustainable agriculture.

9. Looking beyond GEF-and Montreal-Protocol-financed investments and Global-Overlays-financed studies - but often building on them - the Bank is the world's largest financier of targeted environmental projects.

	Each year, we commit over $1 billion for more than 20 environmental projects, and probably that much again for environment components in other projects.
	Our active portfolio of 166 projects in 70 countries totals almost $12 billion: 60 percent for the brown agenda, 30 percent for the green agenda, and 10 percent for institutional strengthening.
	This is a "young portfolio" which requires a close watch, and we are subjecting it to a particularly intensive screening - learning lessons and feeding them back into new operations - to ensure quality in achieving results on the ground.

10. The portfolio also includes support for energy, where there are many opportunities for win-win solutions that both generate cost-effective energy supplies and reduce carbon emissions.

	Our 1993 Energy Policy has driven reductions in energy subsidies and price distortions, and in turn the carbon intensity of borrowers' energy industries and of our energy portfolio.
	Looking at the $20 billion in energy loans since 1990, the percentage of "win-win" projects rose from 27 percent in the 1990-1993 period to 63 percent for lending in 1994-1996.
	We are now preparing an Energy and Environment Strategy that will chart our course in this critical nexus of issues for the coming years, taking into account the important global externalities of carbon-based energy use.

11. What this all adds up to is the fact that the environment has become a major activity in the Bank. But though there has been progress, there is no room for complacency. Looking forward, I see three key priorities for the immediate future:

	First: Ensuring that compliance with our "do no harm" environmental policies is absolutely 100 percent. All of our projects are routinely reviewed for environmental impact. Last year, we did full or partial environmental assessments for 100 projects, representing $10 billion in new commitments. We have upgraded the quality of our environment assessments and their timely disclosure. But more progress is needed.
	Second: Ensuring that the environmental components of our country assistance strategies are of the highest quality, reflecting the most-up-to-date thinking on these critical issues. In the first instance, this is the job for our new environmental Network - which covers IFC as well as the Bank.
	Third: Ensuring that global environmental issues are fully mainstreamed in the menus we present to our clients. To this end, we have launched analytic work on the global agenda, and its links with our core mission of poverty reduction.

Ill. Partnerships and Participation

12. The Bank can only do so much working on its own - partnerships and participation are essential, and they must involve the private sector, the donor and UN community, and civil society.

13. Private international flows to developing countries have been the good news of the road from Rio, as foreign investors have responded very positively to the improved economic conditions in developing countries.

	Since 1992, net private sector flows to developing countries have tripled, and last year reached $245 billion - five times the flow of official development assistance.
	Flows of this magnitude have huge implications for their developing country recipients - for good or for ill.
	In recent months, we have seen good turn to bad on the financial side in some countries, as the domestic policy framework did not ensure the prudent use of the funds.

14. There are also major policy risks on the environmental side - although by their nature, the adverse repercussions are likely to take longer to show and be more difficult to reverse.

	Recent studies suggest that international firms tend to adhere to stricter standards and bring in newer, and hence cleaner technology. Unilever Corporation, for example, which has 40 percent of the global seafood market under several brand names, has pledged to source all of its seafood from sustainable sources by the year 2005.
	But there are still insufficient national and international environmental standards governing new investment in developing countries. And it is far from clear that the bulk of it is respecting environmental safeguards.
	Hence a major challenge for the international community is to help ensure that developing countries establish and enforce sound environmental policies and that the private or quasi-private financiers of this burgeoning private investment adopt rigorous environmental standards. The Bank stands ready to work with countries on establishing the policy framework, and with the private sector in developing voluntary safeguards.

15. But an even bigger challenge lies in the fact that three-quarters of the private flows to the developing world are going to just 12 countries.

	Excluding South Africa, Sub-Saharan Africa received just 1 percent of total private capital flows over the past three years.
	In other words, the poor countries of the world are generally excluded from this club.
	Hence the veritable explosion of private sector flows in recent years notwithstanding, it cannot be relied on to finance poverty reduction and sustainable development where it is needed the most.

16. Developing countries thus continue to need the support of bilateral donors through official development assistance, and multilateral donors such as IDA.

	Recent research confirms that aid can be highly effective in fueling sustainable growth and poverty reduction in the presence of sound policies - and conversely ineffective where a sound policy framework is lacking.
	At the time of Rio, almost all industrial countries recommitted themselves to raising their foreign assistance levels towards the target of 0.7 percent of GDP. Unfortunately, this target has not been met: In 1995, development assistance as a share of donor country GNP fell to 0.27 percent, the lowest level in 45 years.
	This downward trend urgently needs to be reversed, coupled with a more selective approach by donors to ensure a higher quantity and quality of aid, aimed at results, equity, and sustainability.

17. NGOs meanwhile continue to play a significant role in the environment, and are increasing their involvement in the Bank's environmental work.

	Over half the environment projects approved by our Board last year involved intensive participation of NGOs, piloting innovative approaches to conservation, encouraging local ownership of management plans, providing technical expertise for design and implementation.
	And on broader initiatives, we have major partnerships with WWF on forests and IUCN on dams.
	NGOs are important partners on the Brazil Rain Forest Pilot Program, which is demonstrating the importance of building partnerships that last.

IV. Developing Countries

18. But let's face it. None of our partnerships will go very far or last very long without the developing countries themselves.

	As Jim Wolfensohn said in Hong Kong, they must be in the driver's seat.
	Without their buy-in, all of our well-laid plans will lead nowhere.
	Where do they stand on the critical issues of the environment, and particularly the global environment?

19. I am happy to see that many developing countries are represented at this Conference, and can therefore speak for themselves. As a group, the developing countries have given formal recognition to the importance of the environment through their commitments to Agenda 21 and their actions to implement those commitments.

	100 developing countries have prepared national environmental strategies, setting priorities for action. In half of these countries we are beginning to see implementation, although there is still a very long way to go.
	This embracing of the environmental agenda as central to these countries' own development agendas augurs well, I believe, for ownership and sustained implementation.
	Indeed, the mainstreaming of environmental issues in our country assistance strategies comes with the full support of our clients.

20. Developing countries have also signed and ratified the global environment conventions:

	143 developing countries have ratified the Biodiversity Convention.
	138 have ratified the Framework Convention on Climate Change.
	119 have ratified the Montreal Protocol of the Vienna Convention to protect the ozone layer.

21. But in terms of actions, the priorities for developing countries are less clear cut.

	Even "win-win" opportunities that simultaneously internalize global environment externalities and promote national development objectives must be vetted against the many other competing claims developing countries face for their very scarce financial and institutional resources.
	And in the "win-lose" or tradeoff options, in which the gains are global but the costs are local, it is difficult to imagine or encourage strong action by developing countries at all - without compensation. Indeed this was the rationale for the GEF - to compensate developing countries for the costs they were bearing in the pursuit of benefits that accrued more globally.
	This year will see the replenishment of the GEF. It deserves your full support - as a tried and true method for making real-time progress on global environmental issues here and now. But let's be honest: As good as the GEF is - given its voluntary nature - it will never be large enough to deal with the scale of the problem we face on climate change.

22. In this area, much will thus depend on whether international agreements are reached at Kyoto - in particular on (1) limits for CO₂ emissions and (2) reliance on investments in Carbon Offsets in economies in transition, in the first instance, and soon after in developing countries, for meeting a part of OECD emission-limits obligations.

	If so, the way will be opened for carbon trading and market-based compensation for developing countries for both the 'win-win" and the "win-lose" options they face on carbon use.
	We stand ready to facilitate the implementation of agreements reached at Kyoto through our recently established Global Carbon Initiative.
	Prospective private sector and government investors in the GCI's first Carbon Investment Fund of $100 million met last week and agreed on the key issues for the Fund's design.
	But without supportive agreements at Kyoto, the scale of this effort like the GEF - will inevitably remain small. The larger consequence is that the world will have missed an important opportunity.

23. Clearly, we stand at a difficult juncture on the eve of the new millennium.

	The world faces a grave problem: we have been discussing it all day. We know how to solve it technically.
	The roadblock to solving it - as in so many development issues lies in the political economy of change: Who will gain from it? Who will lose? How should the burden of adjustment be shared? In this case, across countries? And in particular, as between developed and developing countries?
	Cutting through this Gordion Knot will require courageous leadership in developed as well as developing countries to establish grounds rules and formulae that embody fair and just burden-sharing.

V. Conclusion

24. In conclusion, Mr. Chairman, we all have much to do on the environmental front. The private sector, developing country and donor governments, civil society, and international agencies all have important roles. And we must act together - both jointly and severally. The challenges are simply too great for any of us to go it alone.

	The private sector must exercise corporate responsibility, and leadership, respecting environmental laws and regulations when they exist and voluntarily adhering to sound environmental standards when they do not.
	The challenge for national policies will be to establish credible environmental legal regulatory systems for private investment - both foreign and domestic - to make it environmentally friendly in a cost-effective way.
	The challenge for international policies will be to ensure that the incentives are in place for all of us to behave in ways that help to preserve the global commons - so we can think globally but act locally, confident that others are doing the same.

25. Speaking for World Bank Operations, I pledge our assistance to all partners in playing their respective roles, given the central importance of sustainable development to our central mission of poverty reduction. Indeed, poverty is both the biggest cause and the biggest effect of environmental degradation.

	And, as the new millennium approaches, we must step up our efforts to work together as partners in these critical pursuits.
	Together we must take steps to maintain the funding of IDA and raise the level of development assistance - bilateral, IDA, and GEF - to help developing countries address national and global priorities. We must also be prepared to look beyond existing instruments, to deal with the new mainstreaming requirements that hopefully will emerge on the road from Kyoto.
	Nor can we afford to wait. No less than the future of the planet and the quality of life it affords mankind are at stake. The time to act is now - on the road to Kyoto.