▪︎ Previous policy allowed the IFC’s financial clients to support new coal projects as long as they exited coal by 2030, but the new update explicitly rules out new coal.
▪︎This loophole previously meant that IFC clients have supported new coal developments, including the huge Java 9 & 10 coal power plants in Indonesia.
▪︎ Campaigners describe the move as “welcome but long overdue”, and call on the IFC to extend the exclusion to oil and gas investments.
▪︎ Financial intermediaries represent over half of IFC’s investments, and have received almost $40 billion of IFC support since May 2019.
Today, campaigners from across the world have greeted with relief a new commitment by the International Finance Corporation (IFC) – the World Bank’s private sector arm – that it will no longer allow financial intermediary clients to support new coal projects.
A new update to the IFC’s Green Equity Approach (GEA) policy, which encourages its financial intermediary clients (e.g. commercial banks) to reduce coal investments, now explicitly states for the first time that IFC investment will not support new coal. Previously, the GEA only required clients to reduce their exposure by half by 2025, and to zero by 2030, but did not prevent new investments.
The loophole in the previous GEA policy had disastrous consequences by allowing IFC clients to continue supporting new coal. The IFC’s very first GEA client, Hana Bank in Indonesia, financed two massive new coal plants just a year after signing up to the GEA. Last year, IFC’s client PVI Holdings provided insurance to the Vung Ang II coal power plant in Vietnam.
Previously, in 2021 Federal Bank of India had signed up to the IFC’s new Green Equity Approach. IFC’s project documents describe Federal Bank’s commitment to “terminate financing of development of any new coal-related assets, including coal-fired power plants, once IFC becomes a shareholder in the Bank.” The Federal Bank’s own Environmental and Social Management System confirmed the step, adding to its exclusion list new thermal coal mines or significant expansion of existing mines, new coal-fired power plants or expansion of existing plants. A report by CFA and Recourse catalogues Federal Bank’s extensive exposure to coal over the past 15 years and has provided $14 million in loans to JSW Energy, which runs coal plants, imports coal from Indonesia and South Africa, and has shares in coal and lignite mines in India and South Africa. The new step by IFC to stop any support to new coal is a welcome step, but it is equally important for IFC to address environmental and social harms its support to coal has already caused.
India currently has a huge portfolio of financial Intermediary investments. There are 88 active financial intermediary investments close to the tune of US$ 5 billion. These financial intermediary investments include support for financial institutions which have footprints in energy, energy utilities and renewable energy investments. These new guidelines should not be limited to only equity share holding but extend to all lendings done by IFC. An extension of coal reduction policy to all lendings will act as a strong impetus for the Indian financial institutions to strengthen their own policies on coal reduction. The Indian financial sector is still at a nascent stage in adopting and implementing environmental and social safeguard(ESS) policies linked to lending. Institutions like IFC are in a position to exert pressure on Indian financial institutions to adopt ESS policies. Most Indian institutions have no ESS policies at all and the ones that claim to have ESG frameworks do not have Accountability mechanisms or any provision to complain on the violations of the policies, making them ineffective.
In 2007, IFC had made an equity investment in India Infrastructure Fund (IIF, the Fund), a private equity fund. IIF has made equity investments in energy and utilities, transport infrastructure, telecommunications, and other infrastructure solely in India. A portfolio investment of IIF was GMR Kamalanga Energy Limited (GKEL) a 1400 MW coal-based power plant near Kamalanga village in Dhenkanal, a district of Odisha state.
In 2011 communities negatively impacted by the Project had filed a complaint with the Compliance Advisor Ombudsman (independent accountability mechanism of IFC). The complaint voiced concern about disclosure of project information and transparency about potential environmental and social risks and impacts of the project, as well as more broad concerns about IFC’s financing role vis a viz financial intermediary investments.
The CAO released its compliance investigation in 2016 and identified a number of shortcomings in the IFC’s review and supervision of the Fund. The report pointed out the failures on part of IFC regarding environmental and social due diligence, disclosures and supervision. More than a decade down the line with the case still in monitoring phase and communities are still waiting for remedy.
This new announcement that the IFC will no longer allow financial intermediary clients to support new coal projects, is a welcome step and a victory for communities across the globe who have been fighting the destructive fossil fuel projects.
Joe Athialy from Centre for Financial Accountability said: “We filed the first ever case to the Compliance Advisor Ombudsman over IFC’s support to a financial intermediary client backing coal in India in 2011. It has taken thirteen years for the IFC to finally end support for new coal. In the meanwhile, communities got scattered, their livelihood stolen, and the climate crisis made more severe, with nobody held accountable for all these, and more. We can only hope it moves faster to stop funding oil and gas.”
While the IFC’s new commitment has been broadly welcomed, campaigners have highlighted the need for the IFC to go further by excluding all coal, oil and gas investments in its plan to align its portfolio with the Paris Agreement. This strategy is expected to be announced during the 2023 World Bank Spring Meetings (10-14 April) in Washington DC.
Kate Geary, Co-Director of Recourse, said: “This is a welcome step, but a long time coming. Over seven years after the Paris Agreement on Climate Change, the IFC has finally bowed to our pressure for it to stop its clients backing new coal projects, sending a signal to the wider investment community that the era of coal is over. Now it is essential, as the IFC plans to align its whole portfolio with the Paris Agreement, that it commits to stop funding oil and gas as well.”
Joe Athialy, Centre for Financial Accountability: +91 98711 53775
Anuradha Munshi, Centre for Financial Accountability: +91 9792411555