A smart new trust fund for a livable planet

The World Bank’s Livable Planet Fund (LPF) is a special partnership to incentivize middle-income countries to address critical global challenges, with benefits extending beyond national boundaries. It is funded jointly by the net income of the International Bank for Reconstruction and Development (IBRD) and multiple donor contributions.  

Across the globe, more intense weather events, pandemics, volatile migration patterns, and food and water crises are posing serious threats to sustainable development. Left unaddressed, these trends will have long-term consequences for the economic and social stability of all countries. 

Middle-income countries, which are home to 75 percent of the world’s population and account for 62 percent of the absolute poor, are particularly affected by these development challenges—but they are also well placed to tackle them with innovative and scalable solutions. However, many of these countries face significant fiscal constraints. The costs of dealing with these complex concerns are high and borne by individual countries, but the benefits are often shared, which means these issues tend to be neglected. 

Rewards of tackling development challenges

The LPF provides price incentives to middle-income countries to deliver on global public goods through additional IBRD operations. It minimizes the level of subsidy for projects that support countries’ national priorities and the interests of the planet. Support from the LPF can take the form of co-financing grants, interest rate buydowns for results, and project preparation grants based on the client’s preference and need, thereby filling a financing gap to help move an investment forward.  

Projects eligible for LPF grants must focus on one of the World Bank’s eight global challenges and have positive cross-border effects—for example, more efficient water use in countries that share rivers and water tables, a reduction in atmospheric pollution or stronger infectious disease control.  

The World Bank’s shareholders agreed to target these eight challenges to better support public goods, address the most pressing needs facing many countries, and to draw on our comparative advantage in providing support in these areas.  

The LPF is designed to reward countries that scale up projects on public goods so that these efforts yield gains beyond national borders. For example, for the challenge of water security and access, a qualifying project could be one that implements water pollution prevention measures along a river that flows through multiple countries. In contrast, a project that improves drinking water infrastructure in a city using local groundwater would not qualify for an LPF grant because its impacts are strictly local. 

In practice, projects will often have positive effects that are relevant to multiple challenges. For instance, a transboundary water project that protects communities from floods or drought can also address a cause of fragility. These benefits will be measured by quantitative indicators and linked, where possible, to the World Bank scorecard.  

Other examples of eligible projects can include expanding and protecting natural mangroves across two countries to increase flood protection while reducing greenhouse gas emissions (climate change mitigation and adaptation); developing transmission hubs that connect the demand and supply across a regional market for renewable energy projects (energy access); and transforming agrifood systems by promoting the adoption of climate-smart agriculture technologies and practices (food, nutrition, and security). 

A framework for collective action

The LPF is part of the World Bank’s Framework for Financial Incentives, which increases IBRD lending capacity while creating incentives for clients to address global challenges at scale. LPF grants will be the source of last resort for concessional funding, after assessing opportunities to tap into existing trust funds and financial intermediary funds.   

LPF grants incentivize middle-income countries to innovate and grow projects in catalytic ways that would otherwise not be possible at standard IBRD terms. For example, an IBRD-financed solar power project could be expanded to link into the electricity grids of neighboring countries, reducing regional carbon emissions. In this way, LPF grants can turn a national project into a wider success story. The LPF will be managed by the principle of learning-by-doing, with the aim of generating insights that the World Bank and other multilateral development banks can use to incentivize greater investment.   

For donors, the LPF is a smart and cost-effective way to support the provision of global public goods. Each small grant enables a much larger IBRD operation to move forward, encouraging countries to invest in projects that address critical issues facing our planet.  

Seed funding of $200 million has been allocated to the LPF from the World Bank’s 2024 net income. Some donors have already made generous contributions. Japan, for instance, has pledged $20 million directly to the LPF and three investors—Denmark, Germany, and Iceland—are channeling their hybrid capital coupon payments to the fund. We’re awaiting more support from donor countries to scale up responses to the challenges under the Framework for Financial Incentives.  

Global challenges require global solutions, and the Livable Planet Fund is a compelling way for countries to share the work and the positive outcomes of tackling these challenges together.