We Should Eliminate Climate Finance Targets

But we haven't earned the right to do it yet.

I was reading the Financial Times this morning and was again struck by the lunacy of the World Bank dropping its climate-finance targets while the United States pressures other multilateral development banks to do the same.

The World Bank had set a target for 45% of its financing to have climate co-benefits.

It hit it.

In fiscal 2025, 48% of World Bank Group financing had climate co-benefits.  At International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA), the Bank's two main development-lending arms, that amounted to $39.2 billion.

And then, in June, the Bank announced that the 45% target would be retired.

My immediate reaction was predictable..."This is insane."

And then I had a moment of clarity.

Maybe eliminating climate finance targets is exactly what we should be trying to do.

Not because climate matters less.  Clearly I see it differently.

Because, eventually, it should matter so much that we no longer need a separate target to make people consider it.

Maybe the ultimate definition of success is reaching the point where climate finance stops being a category at all.

The question is whether we are there yet.

I don't think we are.

Working myself out of a job

More than 20 years ago, when I was a corporate sustainability manager at RBC, I remember telling an interviewer that my goal was to work myself out of a job.

That probably sounded strange at the time; though it has since become a common refrain of sustainability leaders.

I was building a sustainability function while simultaneously arguing that, if we did our jobs correctly, there eventually shouldn't need to be one.

But that was the point.

I didn't want sustainability to become a permanent appendage hanging off the side of the organization.

I wanted environmental considerations embedded into credit.   Into risk.  Into procurement.  Into strategy.  Into investment decisions.   Into the businesses themselves.

And I didn't mean nobody would own sustainability.

I meant that everybody whose decisions materially affected it would.

If the sustainability team remained the only group thinking about these issues, then we hadn't succeeded.

We had centralized the problem.  We hadn't solved it.

I still believe that.

Which is why I started thinking differently about the World Bank.

Why do we have the target in the first place?

An allocation target usually exists because an institution's ordinary processes are not producing the outcome we want.

You establish a women-on-boards target because normal governance processes aren't producing sufficient representation.

You establish an energy-efficiency target because ordinary operating processes aren't adequately valuing efficiency.

And you establish a climate finance target because ordinary underwriting and capital allocation processes aren't adequately recognizing physical climate risk, transition risk, emissions, resilience, resource productivity and the economics associated with them.

The target exists to change behaviour.

If you successfully change the underlying system, the allocation target should eventually become redundant.  That doesn't mean the objective disappeared.

It means the objective won.

And the evidence suggests that the World Bank's climate targets did exactly what targets are supposed to do.  They changed behaviour.

Its own Independent Evaluation Group found that climate indicators and targets cascaded through management agreements, held business units accountable and incentivized teams to increase the climate components of projects.

So the target worked.

But then something else happened.

It became a target.

Goodhart's Law

Economist Charles Goodhart identified an idea that has since become famous in management:

When a measure becomes a target, it ceases to be a good measure.

Here is a question for the climate financier or the portfolio manager.

What percentage of our financing supports climate-related activity?

We measure it because we want to know whether climate is becoming embedded in the institution.

Then we attach a target to it.  In the case of the World Bank, 45%.

Now compensation, management expectations and organizational behaviour start responding to the number.

People quite rationally begin optimizing for it.  That doesn't mean anybody is cheating.  It means organizations respond to incentives.

And that is almost exactly what the World Bank's own evaluators found.

The climate co-benefit measure successfully embedded climate considerations into operations.  But it measured dollars committed to activities with potential climate benefits, not whether those activities ultimately avoided emissions or made communities more resilient.

In the evaluators' words, it measured the breadth of the Bank's climate activity more than its depth.  It encouraged teams to maximize climate co-benefit volumes and could shift attention toward satisfying the commitment rather than maximizing development impact.

That doesn't mean the target failed.  It may mean it succeeded for long enough to expose its limitations.

Goodhart's Law doesn't mean targets are useless. It means useful targets have a shelf life.

A target can be essential at one stage of institutional transformation and become a blunt instrument at the next.

Which suddenly makes retiring the World Bank's 45% target sound considerably less crazy.

Maybe the World Bank is doing exactly the right thing

The Bank says it is shifting from measuring inputs to measuring outcomes.

It will continue reporting climate co-benefits, but its corporate scorecard now also tracks things that get much closer to what we actually care about, including net greenhouse gas emissions and the number of people with enhanced resilience to climate risks.

The latest scorecard reports 136 million people already benefiting from enhanced climate resilience, with approximately 425 million expected from the existing portfolio.

That's a better question than simply asking how many dollars received a climate label.

And importantly, this shift did not start with the Trump administration.

At COP28, multilateral development banks agreed to develop a common approach for measuring climate results.  That framework was published in April 2024, well before today's political pressure.

So perhaps the World Bank bureaucrats didn't suddenly invent a clever way to outmaneuver Washington.

But I do wonder whether Washington inadvertently gave them the political cover to accelerate a transition they already knew they needed to make.

The US gets its headline: The climate-finance target is gone.

Meanwhile, the World Bank extends its Climate Change Action Plan, continues tracking climate co-benefits and climate outcomes, and keeps much of the underlying climate machinery operating.

Did Washington force the World Bank backwards...or did it accidentally help push the Bank to the next level?

I hope it is the latter.

But I am not yet ready to declare victory.

Because there is an important difference between measuring an outcome and being accountable for one.

Measurement is not accountability

The World Bank has removed a Group-wide allocation target.

It has not, as far as I understand, replaced it with an equivalent institution-wide climate-outcome target.

There are indicators.

There are expected portfolio outcomes.

There is measurement.

Those things matter.

But they are not the same as saying:

We will deliver X tonnes of emissions reduction...or we will make Y additional people meaningfully more resilient by a particular date.

This distinction matters because the Bank's own evaluation found that measurable targets did something beyond simply measuring performance.

They preserved accountability.

Priorities with clear indicators and targets were more likely to survive changes in leadership and corporate priorities.   Initiatives without them were more likely to lose momentum.

So simply removing the allocation target and continuing to measure outcomes isn't enough.

Retiring a target is one thing.  Retiring the accountability it created is another.

If the World Bank is going to eliminate the 45% allocation target, the burden should be on the Bank to demonstrate that the behaviours, incentives and accountability the target created will survive without it.

Outcomes aren't magic either

It would be convenient to say: Inputs bad. Outcomes good.

But that isn't true either.  Outcomes are closer to what we actually care about.  They are also much harder to measure.

Avoided emissions depend on a counterfactual: what would have happened without the project?

Resilience is even harder.

When exactly has a community become resilient?  For how long?  Against what level of flooding, drought or extreme heat?  And who gets counted as a beneficiary?

The World Bank's current climate indicators include expected results from projects in its portfolio.  Those are useful estimates, but estimates are not the same thing as observed long-term outcomes.

And Goodhart's Law follows us here too.

Give project teams a giant numerical emissions target and they may favour projects where tonnes are easiest to measure.

Give them a beneficiary target and they may favour shallow resilience across millions of people over much deeper resilience for fewer vulnerable communities.

Changing the metric doesn't eliminate Goodhart's Law.

It just gives us a new metric to game.

The answer therefore isn't to find the perfect target.

There isn't one.

The answer is to keep improving what we measure while remembering what the measurement is actually trying to accomplish.

This doesn't mean markets can do everything

I spend much of my professional life arguing that the climate transition is fundamentally an economic transformation.

And it is.

A company that produces the same output using half the energy has an economic advantage.

A manufacturer requiring fewer scarce materials has an economic advantage.

A grid that is cheaper, more flexible and more reliable is economically superior to one that isn't.

A factory that remains operational during a heat wave or flood is more valuable than one that doesn't.

These aren't environmental considerations sitting beside the economics.

They are increasingly the economics.

But that does not mean every economically valuable climate investment automatically produces a financeable private return.

That distinction is important...particularly when talking about development banks.

A flood barrier may prevent billions of dollars in damage without producing a clear stream of cash flows for whoever pays to build it.

A transmission project can have enormous economic value and still be difficult to finance because of political risk, currency risk or the creditworthiness of the offtaker.

A commercially proven technology can suddenly become uneconomic because its cost of capital changes dramatically from one country to another.

The technology didn't suddenly become worse because it crossed a border.

The financing environment did.

This is precisely why development banks exist.

Their role is not simply to finance investments that private capital doesn't like.

It is to intervene where there is a gap between an economically desirable outcome and what conventional financial markets can efficiently finance on their own.

Sometimes that means concessionary capital.

Sometimes a guarantee.

Political-risk insurance.

Long-duration debt.

Blended finance.

First-loss capital.

Or another structure capable of changing the risk-return equation enough to mobilize private capital.

That role does not disappear because climate becomes embedded in ordinary capital allocation.

If anything, better integration should make the role of development banks more precise.

Embedding climate into finance does not eliminate market failure.  It helps us identify exactly where intervention is still required.

The objective isn't to make every climate investment commercial.

And it isn't to abolish climate intervention.

It is to stop using the label as a substitute for understanding the economics.

Where the economics support a conventional investment, capital should flow.

Where the economic value is real but the financial structure doesn't work, that is

where development banks and concessionary capital should earn their keep.

When has a target earned the right to die?

This, ultimately, is the question I think the World Bank needs to answer.  Not whether 45% is the right number.  Not whether climate finance is politically fashionable in Washington.  Not even whether the existing target was imperfect.

We know it was.

The question is whether the institution has changed sufficiently that removing the target won't change the behaviour the target helped create.

Has climate risk become a routine part of underwriting rather than an additional climate exercise?

Will business units remain accountable when there is no percentage target sitting in a management agreement?

Will capital continue flowing to economically valuable mitigation and adaptation projects...including those where financial markets cannot capture enough of the economic value on their own?

Will development banks continue using their balance sheets and concessionary tools where those interventions are actually necessary?

Will the Bank measure actual outcomes rather than simply replacing one easy to optimize number with another?

And, most importantly:

If we remove the target, do we still get the result?

If the answer is yes, remove it.

Celebrate.

The institution has matured.

If the answer is no, then the target still has work to do.

This brings me back to where I started.

I was wrong to instinctively conclude that eliminating a climate finance target must represent climate retreat.

It doesn't.

In fact, I am now convinced that we should aspire to eliminate climate finance allocation targets.

A mature financial system shouldn't need a separate climate bucket.

Climate risk, energy productivity, material efficiency, resilience and transition economics should simply be part of how competent capital allocation works.

That is what I mean when I talk about the climate economy.

Twenty years ago, I wanted to work myself out of a job.

I didn't want sustainability to disappear.

I wanted it to become everybody's job.

I want the same thing for climate finance.

I want climate to work itself out of a financial category because it has become part of how capital is allocated.

And I want allocation targets to disappear when they have completed the job they were created to do.

But retiring the category cannot mean retiring the accountability.

Good targets should have a shelf life.  Accountability should not.

We should absolutely aspire to eliminate climate finance allocation targets.

We just haven't earned the right to do it yet.

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To read more from Nelson, you can purchase The Gigacorn Hunter: Seven Principles for a Climate Investor here.