Poor Countries Need Climate Funding. These Plans Could Unlock Trillions.

The creation of the World Bank and the International Monetary Fund was done to rebuild countries devastated by World War II. A group of world leaders now say the two powerful institutions need a 21st century update to deal with global warming.

The two powerful financial institutions, which often loan or grant money from rich, industrialized nations to developing countries, would be fundamentally changed by a set of ideas. The proposals are gaining traction among heads of state, finance ministers and even leaders of the bank and the fund, who are all meeting now at the United Nations climate summit known as COP 27

The goal of the current global financial system is to alleviate poverty through loans or grants. Poor countries were saddled with high interest rates and bad terms for loans, but wealthier nations were charged less.

Poor nations have been hit by both extreme weather and financial institutions designed for a different age as a result of climate change. They need money to recover from climate disasters, but also need money to prepare for the next disaster. They need to invest in a transition away from fossil fuels in order to lower the emissions that are heating the planet and causing so much damage in the first place.

The reforms being considered would make more money available to developing nations to mitigate the effects of climate change, deploy those funds faster, give struggling countries lower interest rates and allow them to pause debt payments after major disasters. The changes would allow the institutions to attract trillions of dollars in private capital to help nations prepare for climate disasters and transition to clean energy.

Should the World Bank and I.M.F. be restructured, it would be the largest international finance effort in history to help developing countries deal with and adapt to a warming planet.

The Bridgetown Initiative was put forward this summer by the prime minister of Barbados, a heavily indebted Caribbean nation that is vulnerable to climate disasters. At last year's climate summit in Glasgow, Ms. Mottley called attention to the plight of poor and small island countries.

She gathered economists, foundation executives and the deputy secretary general of the United Nations in Bridgetown to develop the plan.

At the U.N. climate summit, Ms. Mottley's idea has gained traction even from the lending institutions' leaders themselves.

Kristalina Georgieva, the managing director of the I.M.F., said in an interview on the sidelines of the summit that the world has changed greatly. Climate change was not a common challenge when our institutions were established. They need to be addressed now.

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The president of the World Bank embraced calls to reform.

Mr. Malpass spoke to finance ministers from around the world about the recommendations made at the 27th Conference of the Parties to the United Nations Framework Convention on Climate Change. These calls are welcomed by me. Climate action to reduce greenhouse gas emissions will require a concerted global push.

The United States has a dominating position in decision making and leadership thanks to a quota system.

The World Bank will be asked by the United States treasury secretary to come up with an "evolution road map" by the end of the year.

She said that the development banks need to explore financial innovations to stretch their balance sheets.

The economic cooperation and development minister of Germany, which is a major bank shareholder, said in a statement last month that the bank's current model was "no longer appropriate in this time of global crises"

A geyser of capital that could save lives could be released if the bank and fund were reformed, according to John Kerry, President Biden's special climate envoy.

He said that if everything goes according to plan, it will result in more than $1 trillion in new funding. Those are real things.

A task force that would make recommendations for new climate financing programs before the annual spring meetings of the World Bank and I.M.F. in Washington was called for by the president of France.

The institutions need to come up with concrete proposals to use innovative financing mechanisms, to develop access to new liquidity, and to propose solutions that take into account vulnerability.

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The two institutions were created during the war. A plan for a global financial system designed to help economies rebuild from the war and bring a measure of stability to the global economy was hatched by the Allies at a meeting in New Hampshire.

Wealthy nations essentially finance loans to developing nations and hold much of their debt, and thus exercising a large degree of control over their growth and progress, thanks to the institutions that were created.

The founding conference was invoked once more as leaders called for fundamental changes to the institutions.

Former Vice President Al Gore said at the climate summit on Monday that the World Bank should be reformed and that private capital should be made available for developing countries. This is a good time to make a global decision. It is not time for moral cowardice.

Ms. Mottley spoke to world leaders on Monday.

She said on Monday that it's time for them to revisit the area. The countries that are sitting in this room today did not exist at the time of the founding of the institutions. We haven't been heard enough.

The reform of the bank and fund is being seen as the most immediate and practical way to help the developing world face the severe threats posed by climate change.

At the Bridgetown meeting in July, Raj Shah, the president of the Rockefeller Foundation, said that if the proposed reforms came to pass, it would be a monumental achievement.

This is urgent, this should happen now, there is absolutely no excuse, and if we don't do it, the next generation of youth activists should hold us accountable for trying to behave like World War II just ended.

If used to help developing nations transition to renewable energy sources like wind and solar, the money unleashed by the World Bank and I.M.F. could help keep global temperatures from rising above 2 degrees Celsius.

Warming to 1.5 degrees Celsius would increase the likelihood of catastrophic climate impacts, according to scientists. According to the United Nations, the world is on track for a temperature rise of between 2.4 and 2.6 Celsius by the end of this century.

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A new approach to risk ratings is one of the most significant changes being discussed.

The head of the World Trade Organization said her experience as Nigeria's finance minister made her support Ms. Mottley's agenda.

Nigeria borrows more money on average than wealthier countries. Paying that debt is a huge drain on national budgets, leaving governments without needed reserves when they face a crisis.

She said that the risk was completely exaggerated. Some countries are able to borrow at 3 percent and others at 14 percent.