Why steering the IMF toward climate action is a financial imperative  

In the wake of the Annual Meetings of the World Bank Group and the International Monetary Fund, world leaders must also grapple with a grim reality: The climate crisis is not just an environmental concern, it’s a financial ticking time bomb.  

The damages are already manifesting: extreme weather events, rising seas and escalating temperatures are destroying lives and property globally, accounting for losses in the hundreds of billions each year. As the physical impacts of climate change intensify and compound, secondary threats emerge in the form of crop failures, energy shortages, disrupted supply chains, insurance deserts and devalued assets, further destabilizing the global economy.  

If the current emissions trajectory persists, risk experts at Swiss Re predict a potential 10 percent reduction in global GDP by 2050. Research from the University of Exeter emphasizing the potentially catastrophic economic impacts of rapidly approaching and irreversible climate “tipping points” like melting ice sheets suggests that true losses could be even higher.  

Central to this impending financial crisis is an often-overlooked player: the International Monetary Fund (IMF).  

Commanding nearly $1 trillion and exerting influence over 190 countries, the IMF is mandated to foster global economic growth and stability. This powerful institution could be a linchpin in steering the international community toward a more sustainable economic future. Yet, its current efforts are woefully inadequate.  

While the IMF recognizes the gravity of the situation — its managing director, Kristalina Georgieva, frequently addresses the financial threats posed by climate change and promotes policies such as an international carbon price floor — its action has been too timid. For example, the fund’s hallmark climate initiative, a $100 billion loan fund aimed at assisting low- and middle-income countries, falls significantly short of the approximately $2 trillion per year required to curb emissions and adapt to natural disasters in those nations.  

Instead, the IMF’s most significant climate contributions are not climate policies at all, but archaic lending and advising practices that inadvertently worsen the crisis and amplify financial risk.  

The IMF clings to policies that make fossil fuel production more profitable, coupled with prohibitively high borrowing rates for developing countries, thereby blocking vital investments in renewable energy and fostering debt distress in the Global South. As the climate crisis accelerates, these nations find themselves ensnared in a vicious cycle of escalating risks and mounting debts, leaving scant resources for essential recovery, adaptation and mitigation efforts.  

This trajectory is not only detrimental to developing nations, which until recently have contributed least to climate change, it also undermines our collective ability to secure a prosperous and livable future. Considering that developing countries now contribute to 66 percent of global emissions, achieving Paris Agreement climate goals is unattainable without decarbonizing emerging economies.  

Moreover, disaster fallout in the Global South, like mass migration and civil unrest, will resonate globally. The U.S. Pentagon has declared the climate crisis an “existential threat” to national security, and the Office of Management and Budget projects immense drops in U.S. GDP and federal revenues under the status quo, potentially fueling inflation, impacting property values, and promoting economic decline.   

As the IMF’s largest shareholder, the U.S. has the unique leverage to harness unprecedented global momentum for international finance reform and mainstream climate resilience within the IMF’s operations, fostering both national and international prosperity. The U.S. can champion innovative IMF reforms to:  

1. Unleash greater investment in renewable energy and adaptation in developing countries by reducing borrowing rates for nations committed to green investments and creating a blended fund in which public capital reduces private investment risk.  

2. Curtail the promotion of fossil fuels by redirecting producer subsidies to low-carbon alternatives through loan conditions and technical assistance, while also advocating for viable emission disincentives, such as levies on international shipping.  

3.  Give aid to low-income nations that suffer climate disasters to recover from losses that cannot be feasibly covered by loans or insurance through Loss and Damage Funding.   

As we stand at this pivotal juncture, the U.S. can rally the IMF toward bold climate action. We already have the technology we need to limit warming and deliver trillions in economic gains instead of losses. Now we need political will and robust financing. This is not just a fiscal necessity, but a moral duty to our shared future. 

Amit Bando is chief economist and senior adviser on Just and Inclusive Economics  

Ceres.  

Ken Alex is director of Project Climate at UC Berkeley’s Center for Law, Energy & Environment. He was a senior policy adviser to California Gov. Jerry Brown.  

Kelly Varian is a policy analyst at UC Berkeley’s Center for Law, Energy & Environment, evaluating the reform of international financial institutions in light of climate change.