IFC’s ‘Approach to Greening Equity in Financial Institutions’ (Green Equity Approach or GEA), which IFC piloted in 2019 and published in September 2020, commits the IFC to end equity investments in financial institutions that do not have a plan to phase out investments in coal-related activities. As such, this is a welcome first step of a long road ahead to full climate-compatibility of IFC equity investment portfolio, as for example investment in non-coal fossil fuel activities is still permissible. The GEA requires IFC’s equity partners to increase climate-related lending to 30% and reduce exposure to coal related projects to 5% by 2025 and to zero (or near zero) by 2030. IFC’s equity clients comprise 15% of IFC’s overall FI portfolio as of June 2020, and the GEA applies to banks and insurance company equity clients.
For new equity banking clients, IFC is crystal clear: “IFC no longer makes equity investments in financial institutions that do not have a plan to phase out investments in coal-related activities.” The plan is the key here: the point is not to exclude clients who have any exposure to coal, but rather to work with them to decrease and then exit coal: “Equity investees may have portfolio exposure to coal projects until 2030 in line with the respective limits set by this approach.” Positively, the approach does not only apply to project finance loans – banks’ “long-term corporate finance” to companies with significant involvement in coal, including utilities, also counts towards the IFC’s exposure limits.
Download the full report here. IFC green financing – India Final
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