The world have been greeted with relief by 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 , 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.
● 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.
● This move is described 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.
Previously, in 2021 Federal Bank of India had signed up for the IFC’s new Green Equity Approach. IFC’s project documents describe Federal Bank’s commitment to “terminate financing of the 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 $14 million in loans to JSW Energy, which runs coal plants, imports coal from Indonesia and South Africa, and has shares in coal and lignite mines in India and South Africa.
The new step by IFC to stop any support to new coal is a welcome step, but it is equally important for IFC to address the environmental and social harms its support to coal has already caused.
India currently has a huge portfolio of financial Intermediary investments. There are 88 active financial intermediary investments close to the tune of US$ 5 billion.
These new guidelines of the coal reduction policy to all lendings will act as a strong impetus for 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. Most Indian institutions have no ESS policies and the ones that claim to have ESG frameworks do not have Accountability mechanisms about the violations of the policies, making them ineffective.
In 2007, IFC made an equity investment in India Infrastructure Fund (IIF, the Fund), a private equity fund. It has made equity investments in energy and utilities, transport infrastructure, telecommunications, and other infrastructure solely in India.
This new announcement that the IFC will no longer allow financial intermediary clients to support.
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. “
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.”
The writer of this article is Dr. Seema Javed, a known Environmentalist, Journalist and Communications Expert