Opinion: Can the World Bank clean up its fossil fuel problem?

Trucks load piles of coal at a coal mining site in Berau, in Indonesia's East Kalimantan province. Photo by: REUTERS  /Yusuf Ahmad

The implications are terrifying. The global assessment report on biodiversity released by the United Nations In May warned that human economic activities, including those driving global warming, threaten a million plant and animal species with extinction — more than ever before in human history.

Unless immediate action is taken, experts say the rate of extinction will continue to accelerate. Loss of biodiversity on this scale would be devastating for our planet and pose an existential threat to humankind. Deep transformation of our industrial, energy, and food systems is necessary to change the way we use, protect, and nurture the earth’s resources.  

ADB's take on 'dirty energy'

The Asian Development Bank no longer funds "dirty energy." Yet it still funds fossil fuel and "selective" coal projects, leading watchdogs to question whether there is a disconnect between its policies and commitments to help address climate change.

Ending reliance on coal is a particular priority. Coal presents multiple environmental threats that contribute to climate change and biodiversity loss. Carbon emissions from coal-burning power plants are a significant source of greenhouse gasses, while coal mining operations destroy forests and ecosystems, adding additional carbon to the atmosphere as dead plant life decays.

International financial institutions, including the World Bank’s private-sector arm, the International Finance Corporation, have an important role to play in the transformation and they need to step up to the plate now. Last year, IFC’s CEO Philippe Le Houérou laid out a proposed new strategy of leveraging IFC’s equity investments in commercial financial institutions to “green” their portfolios over time. Under the strategy, IFC will coax banks to increase their climate-related lending over the next decade by 30% and decrease its coal exposure to zero.  

Even if coal mining was immediately phased out, the emissions from oil and gas fields already in operation would result in more than 1.5 C of warming.

— Oil Change International report

It’s a big step in the right direction. But given the urgency of the climate crisis, the world’s leading multilateral development institution should be doing more to achieve the goals of the Paris Climate Agreement and hasten the transition to a low-carbon economy.

Looking at IFC’s ‘Green Equity Strategy’

In April, our organizations Inclusive Development International and Bank Information Center Europe, along with the Indonesian NGO Jaringan Advokasi Tambang, or JATAM, released a report examining the impact of coal mining in Indonesia, viewed against the backdrop of IFC’s proposed “Green Equity Strategy.”  

Coal mining has devastated large parts of Indonesia, the world’s second-largest coal exporter. It has decimated the archipelago’s globally important rainforests and biodiversity, threatened the country’s food security, and displaced thousands of indigenous people from their homes and land. The impacts have been particularly severe in Borneo, Asia’s most biodiverse island. Our research for this report took us to a village in Borneo’s East Kalimantan province called Keraitan, which is home to the Dayak Basap people.  

For generations, the forests of Borneo provided everything the Dayak Basap needed to prosper: game to hunt, water to drink and bathe, and fertile soil to cultivate rice and vegetables. The Dayak Basap have lived for at least seven generations on a 300-square-kilometer swath of lush jungle near the eastern coast of the island. They are deeply tied to the land and have been good stewards of Borneo’s rich biodiversity. But massive Kaltim Prima Coal mine has closed in, destroying ancient rainforests and threatening their way of life.

One of the largest open-pit coal mining operations in the world, owned by Bumi Resources, It has poisoned their rivers with mining waste and stripped the land of its forest cover, causing flooding and driving off the animals they hunt for food. Now the community is living under the constant threat of eviction from the company, which wants access to the rich deposits of coal under their land.

A long bet on the future of Indonesia’s forests

A highly lauded, market-based forest conservation project in the peatlands of southern Borneo is doing everything right — except making money.

The destruction of Borneo’s forests, an important source of carbon sequestration, also has broader implications. Combined with emissions from power plants burning hundreds of millions of tons of Indonesian coal yearly, coal mining is helping to fuel global climate change, which threatens everyone.

Disturbingly, the destructive mining operation threatening Keraitan received indirect funding from IFC, an institution that is supposed to be devoted to socially and environmentally sustainable development. It turns out IFC is heavily exposed to Indonesia’s coal industry through its financial relationships with commercial banks, including Austria’s Raiffeisen Bank and Axis Bank of India. Six companies active in coal mining in Indonesia have received funds that can be traced back to IFC, including Kaltim Prima Coal.

Our research linking this mine to IFC is part of an ongoing investigation into IFC’s sprawling and opaque financial-sector portfolio, worth some $6.4 billion in 2018 alone. While the World Bank Group member has historically provided direct financing for private-sector projects, it has increasingly outsourced its budget to commercial banks, private equity funds, and insurance companies. This new model of development finance has exposed IFC to a range of harmful corporate activities that fly in the face of the World Bank’s sustainable development mandate.

Our investigation has uncovered hidden financial flows to more than 150 companies and projects around the world that have violated human rights, damaged the environment, and accelerated climate change, in violation of IFC’s social and environmental performance standards. We have been releasing the results of the investigation, which began in 2016, in a series of reports and a comprehensive database.

Coal and beyond

More than half of the 150 projects uncovered involve new coal plants, including 19 projects in the Philippines that were the subject of a mass complaint to the IFC’s compliance advisor ombudsman.  

One IFC’s responses to this mounting body of evidence is the proposed Green Equity Strategy, which is designed to incentivize its financial sector clients to increase their lending to renewable energy projects and reduce their exposure to coal. The strategy is aimed at commercial banks, private equity funds, and other financial institutions in which IFC owns a stake, or that are seeking investment from IFC.

The World Bank Group’s board met in May to consider IFC’s proposal. Observers say it got mixed reviews, with some chairs expressing enthusiasm and others skepticism that the proposed 2030 deadline for clients to bring their coal exposure to zero was too onerous.  

Yet, the Paris Agreement calls for “making financial flows consistent with a pathway towards low greenhouse gas emissions" and its goal of limiting warming to 1.5 C. According to experts, in order to avoid catastrophic climate impacts, coal use must be completely phased out from the OECD and EU countries by 2030, from China by 2040, and from the rest of the world by 2050. Given that coal plants have an economic lifetime of 40 years, this means that new coal investments must end now. The fact is, IFC’s proposed targets are not stringent enough.

There is simply no excuse for the World Bank to be invested in banks that aren’t ready to immediately stop financing new coal projects. And it’s a scandal that, after the Intergovernmental Panel on Climate Change warned us that we need to halve global CO2 emissions within the next 12 years or our planet will barrel towards a climate catastrophe, any governments would oppose an effort by IFC to lead the commercial financial sector away from the world’s dirtiest energy.  

The truth is, for the strategy to be effective, it has to go beyond coal. A recent report by Oil Change International found that even if coal mining was immediately phased out, the emissions from oil and gas fields already in operation would result in more than 1.5 C of warming. If IFC is serious, as it says, about helping banks to eliminate climate-related risks by 2030, then the new rules must also include oil and gas.  

As the global assessment report on biodiversity concludes, the need for economic, social, political, and technological transformation has never been greater. We humans who created this crisis will need to harness every tool at our disposal to save our planet.

The World Bank has identified climate change as an “acute threat to global development and efforts to end poverty,” the bank’s twin objectives. It has committed to helping countries to reach their climate targets and to align its overall portfolio with the Paris Agreement. With its vast resources and enormous influence, the bank is critically positioned to help us shift away from our deadly dependence on fossil fuels, toward a resilient, low carbon future.  

IFC’s Green Equity Strategy could be a pivotal engine for transformation if it truly rises to the challenge.

About the authors

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    Nezir Sinani

    Nezir Sinani is the co-director of Bank Information Center Europe and a seasoned international development specialist with experience in environmental and social policy research, strategic communications, and advocacy. Nezir has worked as a research analyst for the Institute for Development Policy in Kosovo, as a corporate communications manager for a state-owned energy company in Kosovo, and as a communications specialist for a governance reform program funded by USAID, focusing on civil society engagement, civic education, and awareness campaigns in Kosovo.
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    David Pred

    David Pred is the co-founder and executive director of Inclusive Development International. A global advocate for land, housing, and natural resource rights, David has spent the last 15 years working to support communities and social movements around the world to hold governments, corporations and financial institutions accountable for land-grabs, forced displacement and related environmental and human rights violations.