World Bank Leads Energy Transition Finance in Developing Nations

In recent years, the World Bank has increasingly taken centre stage in financing global energy generation, stepping into a leadership role that was long associated with China. As Beijing scales back its outbound lending, the World Bank has been reshaping the future of infrastructure finance, particularly in the realm of renewable energy. However, its capacity to position itself as a genuine catalyst for just energy transitions hinges on how well it can address three critical challenges: implementing robust environmental and social oversight, avoiding the mineral-driven pitfalls of the so-called resource curse, and offering debt relief during economic shocks.

China’s Retreat and the Rise of the World Bank

While many anticipated that China, through its Green Belt and Road Initiative, would dominate climate finance in the developing world, the reality is shifting. China has steadily reduced its official development finance since its 2016 peak, even in sectors it once heavily supported, like power generation. Instead, Chinese investments have tilted towards foreign direct investment (FDI), a model more accessible to higher-income nations. Although the Green BRI continues to evolve in policy and guidance, lower-income countries are left struggling to attract this type of investment. As of 2023, a staggering 94 percent of China’s overseas equity investments were directed toward high-income nations.

The World Bank’s Return to Energy Leadership

This gap in concessional lending has left many lower- and middle-income countries searching for viable financing alternatives that won’t burden them with high-interest debt. The World Bank is re-emerging as a credible and relevant partner. While the scale of its current renewable energy investment is modest compared to the estimated $1 trillion annually needed in climate finance, the Bank’s renewed commitment is evident. It has embraced a new mission aligned with building a "livable planet," reversed its long-standing nuclear energy restrictions, and signalled openness to supporting upstream gas projects, suggesting a broader, more pragmatic energy portfolio in the future.

China’s Role within World Bank Projects

Though China’s direct energy lending has waned, Chinese firms remain influential through their participation in World Bank-funded renewable projects. Data from the Centre for Global Development indicates that over the past decade, Chinese contractors have secured nearly one-third of all World Bank contracts, by value, related to renewable and hydropower generation. This partnership structure brings together China’s technical strengths and cost efficiencies with the World Bank’s institutional frameworks for environmental and social governance, creating a powerful, if imperfect, model for sustainable development.

Balancing Standards and Capabilities

The benefits of this hybrid approach are significant. While China has introduced its own Green Finance Guidelines, mirroring some elements of the World Bank’s environmental and social frameworks, key metrics to evaluate implementation remain absent. This makes World Bank oversight all the more crucial. Moreover, Chinese contractors have not been shown to negatively affect World Bank project outcomes, reinforcing the case for continued collaboration. The Bank’s AAA credit rating further allows it to offer loans at much more favourable terms than China’s development finance institutions, providing fiscal breathing room for its borrowing partners.

The Mineral Boom and the Risk of Repeating History

As the global shift to clean energy accelerates, it demands an increased supply of transition minerals like lithium, nickel, and chromium, resources heavily concentrated in developing regions. The spectre of the "resource curse," wherein mineral wealth fuels cycles of inequality and stagnation, looms large. While one of development finance’s core goals is to help nations escape such traps, the World Bank has historically distanced itself from industrial policy. Now, as the mineral economy becomes essential to the green transition, the Bank must rethink this stance and help resource-rich countries craft strategies that ensure long-term, diversified, and equitable economic growth.

Reforming Oversight without Weakening Accountability

In 2024, the World Bank launched efforts to refine its Environmental and Social Framework (ESF) by allowing greater reliance on borrowing nations' domestic standards. While this may ease administrative burdens, it introduces new risks. Experience from the Andean Amazon suggests that neither government regulations nor development finance institutions' safeguards alone are sufficient, both are needed for successful project execution. If the World Bank delegates oversight too heavily to national systems without maintaining active engagement, critical safeguards may erode. Continued collaboration with civil society and local stakeholders will be essential to maintaining accountability.

Addressing the Governance Gap in the Mining Sector

Regardless of who funds renewable energy development, demand for critical minerals is surging, placing immense pressure on governments in resource-rich countries. Yet, the World Bank’s own Climate and Country Development Reports (CCDRs) rarely consider the governance challenges posed by this boom. Additionally, current Bank lending practices often overlook mining-specific policy support for these countries. For the institution to fulfil its broader developmental role, it must prioritize inclusive, sustainable mining policies that prepare nations for long-term success in managing this new economic frontier.

Managing the Debt Risks of a Green Future

Perhaps most critically, the rapid growth of mineral-dependent sectors increases the likelihood of future debt crises due to fluctuating commodity prices. The World Bank must prepare to help countries navigate these shocks without undermining its own financial integrity. With its already low lending rates, the Bank is well-positioned to participate in debt relief frameworks without risking its credit standing. Advocates have suggested embracing the principle of “fair comparability of treatment,” which would allow the Bank and other multilateral lenders to support restructuring negotiations more equitably than private bondholders, ensuring that developing nations aren’t left to bear the burden alone.

A New Role for a Changing Institution

The World Bank’s expanding role in the global energy transition marks both a strategic shift and a moral imperative. With China recalibrating its foreign finance strategies and private capital reluctant to enter riskier markets, the World Bank is one of the few institutions capable of balancing ambition with accessibility. Whether it becomes a cornerstone of a just energy transition will depend not only on how much it lends, but how wisely it governs, collaborates, and innovates. The transition to clean energy is as much about institutions as it is about technology, and the World Bank’s evolution is now central to that story.