Facing pressure for coal connections, IFC aims for greater transparency about 'financial intermediaries'

WASHINGTON — The World Bank’s International Finance Corporation is taking steps to improve transparency around its support for developing country financial institutions — whose own investments sometimes conflict with the World Bank’s social and environmental principles.

World Bank President Jim Yong Kim has sought to position the institution as a global leader in the shift from fossil fuels to renewable energy, announcing in late 2017 that the bank will not finance any upstream fossil fuel projects after 2019. Civil society groups charge that some of the bank’s investments — through IFC — continue to promote coal-fired power plants.

In its effort to help build strong financial institutions by investing in them, IFC finds itself linked to the projects those banks finance. Now, IFC is responding to calls that it make those links between its own money and what other banks do with it more transparent — and look for ways to avoid indirectly supporting environmentally and socially harmful investments.

That challenge brings two World Bank priorities into conflict with one another. On one hand, the bank wants to be in the business of improving access to financial services in developing countries, and IFC is well-positioned to invest in the banks that can do that. On the other hand, these institutions’ investment portfolios reflect the economies where they operate — and in some cases that means they are financially exposed to coal projects.

"That leaves a very difficult strategic discussion to be had," said John Roome, World Bank  senior director for climate change, at the civil society forum of the World Bank Spring Meetings on Wednesday.

The Bank Information Center Europe, a watchdog group, released a report on Wednesday showing that after IFC provided $563 million to two commercial banks in the Philippines, Rizal Commercial Banking Corporation and BDO Unibank, these two IFC clients then went on to participate in approximately $13.4 billion in financial support for the coal sector.

“With their coffers swollen by the IFC’s largesse, and their reputations burnished by their relationships with the World Bank Group, these banks and funds have gone on to finance some of the world’s riskiest coal plants,” the report charges.

IFC’s leaders take pains to clarify that the institution engages in two different types of financing — targeted financing, and general financing.

Targeted financing is given in support of specific projects, including financing small and medium enterprises, and IFC is barred from providing it in direct support of coal projects. In other words, IFC does not directly finance any coal-fired power plants. General financing, on the other hand, is an equity investment in the bank itself, and it can be more difficult for IFC to gather information about what the institutions it supports do with that money when they make their own investments in subprojects.

Even when it comes to general financing, IFC officials say they have committed to their board of directors to collect and report better information about the investment activities of the “financial intermediaries” they support.

They also say they have moved to do less general financing and more targeted financing. IFC is now providing about 80 percent targeted financing, said Robin Sandenburgh, senior manager for the IFC’s investment support group.

“That is a direct response to the issues that have been pointed out to us,” she said.