IFC will now ensure that the financing process only supports targeted areas — such as projects promoting energy efficiency, renewables, women business-owners, or small and medium-sized enterprises
New Delhi: Civil society groups from across the world have welcomed the news that the International Finance Corporation (IFC), the World Bank’s private sector arm, has taken significant steps over the past year to vastly reduce its exposure to coal through new financial intermediary (FI) investments.
These groups, representing research organisations and movements, were responding to an article of Philippe Le Houérou, CEO of the IFC, in which he has revealed that the IFC had changed its lending policy to vastly reduce direct and indirect exposure to coal in new financial intermediaries projects. In his article, Le Houérou has claimed that the IFC has eliminated its general-purpose loans to any financial intermediary. It will now ring-fence about 95 per cent of lending to financial intermediaries to ensure that the financing process only supports targeted areas — such as projects promoting energy efficiency, renewables, women business-owners, or small and medium-sized enterprises.
Outlining his vision, Le Houérou emphasized that he wants to develop a green equity investment approach to work with financial intermediaries that formally commit upfront to reduce, or, in some cases, exit all coal investments over a defined period. He stressed that in the coming months IFC would work to determine the parameters of this new approach, including a framework for transparency and disclosure as well as time-bound commitments.
Rejoicing over this development, Kate Geary, Co-Director of the Bank Information Center-Europe, noted, “The IFC has a $57 billion portfolio and influence over another $4.5 trillion in investments in emerging markets. IFC is sending a strong signal that there is no future for coal.”
“This is an important step by the IFC to redirect its investment to align with the Paris Agreement on climate change, and other financial institutions should sit up and pay attention,” said Alex Doukas of the Big Shift campaign.
The statement issued by the CSOs reiterated that the IFC’s ‘hands-off’ lending through financial intermediaries (FI) had embroiled it in human rights and environmental scandals from Honduras to Cambodia. It stressed that the IFC has been reforming its FI lending due to public outcry, negative media coverage, damaging findings by its independent accountability mechanism (the Compliance Advisor Ombudsman – CAO) and pressure from a rattled board.
It is noteworthy that in October last year, more than 100 civil society organisations and affected communities in the Philippines filed a historic complaint — the first mass climate-related complaint ever filed against IFC — at the CAO for investing in the Rizal Commercial Banking Group, which has heavily invested in coal-fired power plants across the country. A key demand of the complaint was that the IFC clean up its financial intermediary portfolio and ensure that the intermediaries hold to the same climate and energy commitments that the World Bank Group has made for its direct investments.
“If the IFC wants to shift the market, it needs to make it clear to banks that if they want the IFC’s equity and seal of approval, they need to get out of the business of financing coal — full stop,” said David Pred, Executive Director of the Inclusive Development International.
The CSOs stated that the IFC’s change of heart on coal had come too late for the affected communities, which continue to suffer to this day. “As a part of its reforms, the IFC should put right past damages and ensure FI clients provide redress to affected communities,” said Joe Athialy, Executive Director of the Centre for Financial Accountability (CFA), India.
The CSOs have urged the IFC to make two complementary steps. First, ensure greater transparency at all levels by publicly disclosing the documents, and adhere to the transparent and consultative processes with communities and CSOs. Second, help its FI clients decarbonise their portfolios by excluding coal across all its FI investments, while disclosing these exclusion clauses.