Nick Mabey / Oct 2025
Photo: Shutterstock
This week, the International Monetary Fund (IMF) and World Bank are convening in Washington, DC, for their biannual check-up on the health of the global economy.
At the Annual Meetings, which start today, European leaders must help preserve the ability of the IMF to respond to the single most consequential threat to many Fund members’ economic and financial stability: climate change.
At the 2025 Spring Meetings, the US decision to remain in the Bretton Woods institutions was greeted with relief – that relief may be short-lived. In his speech, Treasury Secretary Scott Bessent laid out a stark condition for continued US support: the IMF must stop “mission creep”, pull back from climate change and gender issues and refocus strictly on what Washington deems its “core mandate”.
But the IMF should reflect the needs and adequately serve its 190 members. Climate change is a growing systemic risk, damaging economies and threatening the very existence of small island nations.
Climate- and nature-related risks are macroeconomic risk drivers. As Frank Elderson, executive board member of the European Central Bank, said earlier this year: “Ignoring them would mean failing to account for a material determinant of financial soundness. Ignoring them, therefore, would be a very political thing to do.”
Over the past 30 years, extreme weather events have caused nearly $4.2 trillion in direct economic losses globally. Considering the cascading and ecosystem costs pushes the number to $2.3 trillion annually, with forecasting models finding significant global GDP contractions before 2100.
Floods in Pakistan, hurricanes in the Caribbean and the US South, and droughts across Africa have exacerbated debt vulnerabilities and balance of payments pressures. Small, vulnerable countries are the worst hit; Dominica suffered damages equivalent to 225% of its GDP after Hurricane Maria in 2017. Europe’s summer of extreme weather caused short-term losses of at least €43 billion. The macroeconomic fallout is real and unfolding now.
In an increasingly shock-prone world, the first step to containing risks is knowing they exist. The IMF’s ability to deliver on its core mandate of safeguarding macroeconomic and financial stability depends on addressing risks that are demonstrably macro-critical – and climate change is one such risk. As detailed in a recent E3G brief, climate change systematically exacerbates macroeconomic risks from debt sustainability to fiscal accounts, supply chain resilience and price stability, to financial soundness and labour productivity.
Therefore, the IMF’s core mandate – financial and economic stability, balanced payments, and global resilience – cannot be fulfilled without grappling with climate risks. Systematically incorporating such risks into the IMF’s country surveillance is fundamental to proactively and effectively safeguarding members’ macroeconomic and financial stability. This is not speculation nor is it motivated by special interest; it is simply the reality.
For these reasons, the IMF established a climate strategy in 2021 and created the Resilience and Sustainability Trust in 2022 to better support countries where needed. These were all steps in the right direction.
Since then, climate impacts have only intensified, and the world is calling for faster action. Unfortunately, the IMF’s cautious stance in response to the US position has emboldened a false narrative: that macroeconomic stability is somehow unaffected by climate impacts and policies. Even in climate-conscious Europe, vocal support for upholding and operationalising the IMF’s climate strategy has been subdued, creating a gap in the global debate.
Yet, climate change stands as the defining macroeconomic test of this century, and the IMF must rise to meet it. Throughout its history, the IMF has responded to emerging economic turmoil, from integrating low-income country debt issues to broadening financial sector oversight for greater efficiency. These actions kept it both credible and relevant.
If the Fund were to deliberately turn a blind eye to climate risks, it would not only fall short of its fundamental mandate and lose its leadership role in international economic governance, but it would also fail its members by neglecting to help them manage critical risks. Such inaction would accumulate future liabilities that threaten global stability, while sending false signals to private actors and savers about the true risks their investments face.
Backtracking is not an option. We stand at a critical juncture: global economic stability and development are in peril, while a sustainable, prosperous, and just future is within reach. Leaders must defend implementing the IMF’s climate strategy. The cost of silence is too high.
E3G is an independent think tank working to deliver a safe climate for all. We drive systemic action on climate by identifying barriers and constructing coalitions to advance the solutions needed. We create spaces for honest dialogue, and help guide governments, businesses and the public on how to deliver change at the page the planet demands.
