Wealthy countries must take actions at home to counter climate change while boosting the ability of developing countries to do the same, two of the world’s top economic officials said last week.

“Obviously, climate change is a global problem, and we’re not going to really be able to deal with greenhouse gas emissions successfully unless countries like the United States act domestically and then foster the transfer of resources in the financing that’s necessary for developing countries to be able to do so successfully,” U.S. Treasury Secretary Janet Yellen said April 6.

Yellen was speaking during the kick-off event for the spring meetings of the World Bank and International Monetary Fund. With World Bank President David Malpass moderating, Yellen and IMF Managing Director Kristalina Georgieva discussed how countries — specifically those in the developed world — must foster a “green, resilient and inclusive” economic recovery from the COVID-19 pandemic.

Climate risks represent “a growing threat to macroeconomic and financial stability,” Georgieva said, while actions to counter those risks provide “prospects for green growth and green jobs, critical for what we do at the IMF in supporting growth and employment.”

Calling the IMF a “latecomer in this conversation,” Georgieva said her agency now has four key focuses related to climate change: policy advice, climate-related financial stability risks, data and capacity development.

In the policy area, Georgieva said the IMF now examines “the criticality of mitigation and adaptation policies” related to climate when it engages member countries in “Article IV” consultations — annual discussions with political and central bank officials on internal economic developments.

“Naturally, we do more on mitigation in countries that are high emitters. We do more on adaptation in countries that are more vulnerable,” Georgieva said. “For example, [in] countries like China [and the] U.K. … we look primarily at carbon intensity [and] what can be done with good policies. When we go to the Caribbean, naturally, we focus on vulnerability and adaptation, or Sub-Saharan Africa for that matter.”

Georgieva said the IMF has a “big role to play” in climate-related financial stability risks, including standardizing reporting of risks, stress-testing and examining the role of supervisory authorities. She said the agency is integrating climate-related risks into financial sector assessments developed jointly with the World Bank.

“Data tells a story to finance ministers like nothing else,” Georgieva said in describing the IMF’s third focus area. The agency is working to integrate carbon intensity and other climate data into quarterly macroeconomic reports.

“So, we are going to have a dashboard that would help policymakers to see in one place their growth numbers, employment numbers [and] carbon-intensity numbers,” she said.

Regarding capacity development, Georgieva said countries must accelerate the integration of climate policies into macroeconomic policies. “And we’re here for them.”

Taking the Green Turn

President Biden is “very focused on the U.S. climate agenda” and will be proposing infrastructure and climate change investments that ensure the country makes its “own domestic contribution” to meeting the objectives in the Paris Agreement on climate change, Yellen said. (See related story, Biden Budget Seeks Major Spending Hikes on Climate.)

“And we look [forward to] working with you in order to make sure that the necessary resources for green development and finance are transferred to the developing countries that really need those resources,” she told Malpass.

As the World Bank develops a climate action plan, it is working with countries on their own “nationally determined” contributions to the Paris Agreement, Malpass said. One of the biggest challenges is how to “maximize the results” for any given country based on its available resources.

“That goes right back to the diagnostics area. What do have measurement on? How do we bring in adaptation for the poorest countries?” he said.

It’s important for the private sector to be “fully engaged” in climate efforts because “big-dollar investments” are needed in clean energy, Malpass said.

“The way we think about it at the fund is that there has to be a framework that credibly directs private sector over the medium [and] long term,” Georgieva said. “And the way that can be done is first to provide forward guidance on carbon price.”

She pointed out that the IMF has previously concluded that carbon must be priced at $75/ton to meet the Paris objectives, compared with the current global average of about $2/ton. “But we can’t go from here to there in one jump. Giving that predictable forward guidance helps the private sector to then integrate reduction of carbon intensity in their own investment decisions.”

Georgieva said the public sector can play a major role in making it easier “for the private sector to take the green turn” and that she was “thrilled” the U.S. is now pursuing that idea.

“We calculated that over 15 years, a green investment push in a modest amount can generate 0.7% boost to growth [and] create many green jobs,” she said.

Georgieva said the private sector should not be expected to solve the climate crisis “entirely on its own.”

“We are not going to win if there are losers unattended … and people in high carbon intensity sectors or regions do not get a helping hand,” she said. “So, it’s very exciting to see that a country with so much clout internationally [the U.S.] is taking on the leadership in that regard.”

Yellen agreed about the need for a mix of public and private investment to build infrastructure such as electric vehicle charging stations and a grid designed to manage an increasing volume of renewable resources.

“These core investments are critical in order to provide the infrastructure, the public infrastructure, to support private investments incentives. We’re also looking at tax incentives to stimulate private R&D. I think technological change will be important, and we want to incent in a green direction,” she said.

Yellen said financial institutions and investors around the world have “a huge and growing interest in sustainable investing” and are seeking information about companies’ exposure to climate risks. She wants to ensure that financial institutions grasp those corporate risks, rooted both in environmental changes and the potential for asset price changes or the stranding of assets.

“Those are some planks of the work we would like to see both domestically and globally,” she said.