(Bali, 8 October 2018) Civil society groups from around the world today welcomed news that the World Bank’s private sector arm, the International Finance Corporation (IFC), has taken significant steps to vastly reduce its exposure to coal through new financial intermediary (FI) investments. The CEO of the IFC, Philippe Le Houérou, has committed to help FI clients to reduce or in some cases exit coal. He states in a blog post published today that the IFC has eliminated general purpose loans to financial intermediaries and now ‘ring-fences’ about 95 percent of its lending to FIs to “ensure that the financing only supports targeted areas, such as projects promoting energy efficiency, renewables, women business owners, or small and medium-sized enterprises.”
“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,” said Kate Geary, Co-Director of Bank Information Center Europe.
“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. This move reflects the tireless efforts of frontline communities fighting destructive coal projects while feeling the impact of a changing climate. The IFC must now also ensure that it extends this new approach to be consistent with the World Bank Group’s broader commitment to end finance for oil and gas extraction, and lead a transition of all investments toward a safe climate future,” said Alex Doukas of the Big Shift campaign.
The IFC’s ‘hands-off’ lending through financial intermediaries has embroiled it in human rights and environmental scandals from Honduras to Cambodia. The IFC has been reforming its FI lending following public outcry, disastrous media coverage, damaging findings from its independent accountability mechanism, the Compliance Advisor Ombudsman (CAO) and pressure from a rattled Board.
In October last year, more than 100 civil society organisations and affected communities in the Philippines filed an historic complaint to the CAO – the first mass climate-related complaint ever filed against IFC – for investing in Rizal Commercial Banking Group, which went on to bankroll a boom 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 its intermediaries hold to the same climate and energy commitments that the World Bank Group has made for its direct investments.
While the IFC’s announcement is a step in the right direction and demonstrates that it can act to exclude harmful projects from its portfolio, the commitments do not yet go far enough. Through what he calls “a green equity investment approach,” Le Houerou stated that the IFC would continue to take equity stakes in financial intermediaries that “formally commit upfront to reduce or, in some cases, exit all coal investments over a defined period.”
“If the IFC really 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 Inclusive Development International “Without the blanket coal exclusion that we have been calling for, the IFC will need to require full disclosure by its clients of their exposure to coal and other environmentally and socially risky projects so that civil society can monitor the speed and extent to which these banks are actually getting greener.”
Civil society also urged the IFC to address the legacy impacts of its financial intermediary portfolio. “The IFC’s financial intermediary lending is inherently flawed, un-transparent and unaccountable. The IFC’s change of heart on coal has come too late for the communities affected by the GMR Kamalanga coal plant, who continue to suffer to this day. As part of its reforms, the IFC should put right past damages and ensure FI clients provide redress to affected communities,” said Joe Athialy, Director of Centre for Financial Accountability, India.
“The Philippine Movement for Climate Justice welcomes this IFC policy shift as a positive step towards achieving the climate goals. But with this bold announcement, we find no reason for the IFC’s continuous presence on the board of Rizal bank, which has not backed away from its coal investments even after drawing fire from affected communities. The IFC should atone for of the negative impacts of its past decisions, as a matter of social responsibility and justice,” said Bibiano Rivera, of the Philippines Movement for Climate Justice.
Civil society is now urging the IFC to make two complementary steps: to ensure greater transparency and to help its FI clients decarbonise their own portfolios.
The IFC must make its FI lending more transparent so that affected communities are able to hold the IFC accountable for its reforms. The IFC should:
In order to clean up its FI lending portfolio and achieve a transformational shift in global finance flows through its influence on clients and other financial actors, the IFC should:
The IFC should also ensure that harms caused by existing coal projects supported via FI clients are remedied and that local communities receive adequate redress.
For more information, please contact:
Inclusive Development International, David Pred +1-917-280-2705, firstname.lastname@example.org
Philippines Movement for Climate Justice: Bibiano Rivera: +639985518055 email@example.com
Centre for Financial Accountability: Joe Athialy: +91 98711 53775 firstname.lastname@example.org
BIC Europe: Kate Geary +44 7393 189175 email: email@example.com
Big Shift: Alex Doukas: +1 202 817 0357 firstname.lastname@example.org,
Notes to editors:
1. For information on IFC’s links to human rights scandals see: Oxfam: The Suffering of Others; and the Outsourcing Development series from Inclusive Development International and the joint publication Broken Promises: The World Bank, International Investors and the Fight for Climate Justice in the Philippines. Link to the mass climate complaint.
2. 15 international financial institutions, 84 private banks in the Equator group, 270 IFC client banks and funds and 32 export credit agencies use the IFC’s standards as their benchmark. Data on IFC: https://www.ifc.org/wps/wcm/