Keeping Pace: Germany’s Imperative to Uphold Climate Commitments within International Financial Institutions Amid U.S. Retrenchment

A Critical Moment for Climate Finance before the upcoming Spring Meetings of World Bank and IMF

The World Bank Group plays a key role for international climate finance. Photo: shutterstock.com

As the 2025 Spring Meetings of the World Bank Group (WBG) and the International Monetary Fund (IMF) take place from April 23rd to 25th, 2025, followed closely by the Fourth Preparatory Committee for the Fourth International Conference on Financing for Development (FfD4), happening June 30th to July 3^rd, 2025, the global community stands at a crossroads. Given these institutions’ pivotal role in shaping and channeling financing, both gatherings are poised to shape the trajectory of international climate finance and the broader global financial architecture. Germany, in concert with the Biden administration, has been a linchpin in championing climate-focused reforms at financial institutions, such as the World Bank. However, the current U.S. administration’s pivot away from climate commitments threatens to derail this progress, placing the onus on Germany’s new government under Chancellor Merz to reaffirm its dedication to the global climate agenda.

Germany now faces a crucial decision: whether to stand by its commitments and push forward with ambitious reforms at the World Bank and IMF, as well as within FfD – the United Nations process to finance sustainable development – or whether to retreat in the face of U.S. opposition, jeopardizing hard-won progress on financing climate action. The reform processes at international financial institutions, and the broader push to mobilize finance to fight the climate crisis through 2025 United Nations Climate Change Conference (COP30) as well as FfD4 all provide opportunities to strengthen Germany’s leadership in international financial diplomacy. However, Trump’s renewed influence at international financial institutions is creating roadblocks, raising the risk that these processes will stall or produce watered-down outcomes. The incoming Merz government must act now to ensure that these critical reforms stay on track and can accelerate.

Opportunities for Reform vs. U.S. Pushback

Several major reform initiatives are expected to shape the future of financial institutions in 2025, and Germany has a strategic interest in ensuring their success. The Bretton Woods Institutions at 80 initiative, set to be a focal point of the Spring Meetings, will assess how the World Bank and IMF must evolve to better address global challenges. Governance reforms, new financing tools, and climate action are expected to feature prominently. Similarly, the Bank’s Evolution Roadmap has sought to expand the Bank’s role in financing ‘a livable planet’, while the IMF’s Fund for the Future is designed to modernize the IMF’s approach to long-term structural risks, the climate crisis chiefly among them. As these reforms continue to take hold, Germany can further underpin these institutions to advance its development and climate policy priorities amid unprecedented climate disasters.

The Trump administration threatens to disrupt this momentum. At the World Bank, President Ajay Banga has signaled climate finance will remain a priority, while simultaneously shifting towards a private sector approach emphasizing efficiency over large-scale public investment. If unchecked, this could dilute the ambitions of the Evolution Roadmap and weaken critically needed concessional lending for climate action. At the IMF, the future of climate-linked financial instruments such as the recently created Resilience and Sustainability Trust is in doubt, as U.S. officials have demonstrated increased skepticism towards linking IMF resources to climate action.

For the Merz government, allowing this backsliding on climate commitment to continue would be a failure of leadership. Instead, Germany must work proactively to defend and advance climate across these institutions. The Spring Meetings offer a key moment to push back against U.S. retrenchment and rally a coalition of like-minded countries to ensure that climate finance remains at the top of the reform agenda.

Defending Climate Ambitions at the World Bank

At the World Bank, Germany must take immediate steps to prevent the rollback of recent climate commitments. Last year, the International Development Association’s (IDA), the part of the Bank providing concessional financing to the poorest countries, was replenished with fresh resources. The Trump administration is now pressuring the Bank to reconsider climate provisions within IDA’s policy package, which would significantly undermine efforts to support vulnerable nations. Germany must work with other shareholders to ensure that IDA remains an instrument for climate resilience and prevent the reopening of the policy.

Another critical issue is the ongoing review of the Environmental and Social Framework, which sets sustainability and human rights standards for World Bank projects. A weaker framework as well as adjustments to climate requirements could allow for increased financing of projects that are non-aligned with the Paris Agreement. Since political appetite for collective Paris Alignment and human rights reporting among Multilateral Development Banks is fading, Germany must push for additional measures, such as strengthening the Bank’s Scorecard impact reporting system.

The Merz government should also help implement reforms improving coordination between public and private financing through country platforms. These platforms, if properly implemented, could align international finance with national climate strategies, ensuring that climate finance is used efficiently and avoids duplication across multiple donors and institutions.

Ensuring the IMF Remains Engaged in Climate Action

The German government has an opportunity to shape the future of IMF climate finance at a time when its role and legitimacy is increasingly being called into question. The Fund for the Future initiative, launched under current IMF Managing Director Kristalina Georgieva, has sought to integrate climate considerations into the Fund’s surveillance and lending operations. Germany must ensure that these efforts are not deprioritized in response to U.S. skepticism.

One key issue is the aforementioned Resilience and Sustainability Trust. The trust fund was designed to help countries address the climate crisis and other structural vulnerabilities, but its effectiveness has been limited by restrictive eligibility criteria. Among other things, Germany should push to remove the requirement that countries must already have an IMF program in place to access funds, which would allow more climate-vulnerable nations to benefit.

Another critical priority is the role of Special Drawing Rights (SDRs) in climate finance. SDRs are an asset created by the IMF to supplement the reserves of its members and maintain global financial stability. The 2021 SDR allocation of $650 billion provided a liquidity boost to developing countries, but tools for rechanneling SDRs toward climate finance remain underdeveloped. Germany must end its blockade of SDR rechanneling and advocate for innovative SDR use, including rechanneling SDRs to MDBs where they can be leveraged effectively. Moving forward, the Merz government should lead efforts to formalize a comprehensive toolkit for rechanneling and support discussions on issuing new SDRs targeted at financing climate resilience. This would also align with the budget-conscious promise of Merz’s conservative party.

Finally, Germany should continue advocating for improvements to the IMF’s Debt Sustainability Analysis (DSA) framework to strengthen countries’ ability to invest. At the same time as German politicians contemplate changes to the constitutional debt brake for enabling crucial investments in Germany’s future, many climate-vulnerable countries face debt burdens limiting their ability to invest in their adaptation to climate change. A more robust DSA framework that accounts for climate risk has to ensure countries are not forced into debt traps when investing in resilience, thus enabling the most vulnerable countries to make investments akin to the German rethinking.

FfD4: A Pivotal Test for Global Climate Finance

Germany’s leadership will also be critical at FfD4, which immediately follows the Spring Meetings and represents a key moment for securing systemic financing commitments and reforms. However, the latest U.S. positions indicate their push for a weak outcome that avoids binding commitments. Germany must work with other progressive actors towards meaningful progress.

Ensuring success at FfD4 requires advancing and securing governance and quota reforms at the IMF and World Bank, which would allow developing countries adequate representation in decision-making. Germany should also champion the introduction and implementation of new sources of financing, including mechanisms for international taxation and levies as well as SDR rechanneling to MDBs, which could significantly increase levels of climate finance. Lastly, debt measures, including principles on responsible lending and borrowing, creation of a global debt registry, and the integration of climate considerations into debt restructuring, must be prioritized to ensure that countries most affected by climate change are not held back by unsustainable debt, enabling them to direct resources toward investments in resilient and sustainable development.

Germany’s Responsibility in a Shifting Global Landscape

The Trump administration’s pushback on climate finance presents a serious challenge, but also offers the incoming Merz government an opportunity to reinforce German leadership in multilateral climate action and position itself as a reliable partner. By defending and advancing climate commitments at the World Bank, IMF, and FfD4, Germany can help ensure that international financial institutions remain aligned with the Paris Agreement and the sustainable development goals. A proactive stance is not only necessary to maintain Germany’s credibility, it is essential for sustaining global progress in the fight against the climate crisis.

Christian Gröber, Germanwatch