IFC updated its Green Equity Approach (GEA) policy and made it clear that it would not support any further coal and would like to see its clients who are financial intermediaries (like commercial banks) reduce their coal investments
The World Bank's private sector arm, the International Finance Corporation (IFC), has announced that it will no longer permit clients who act as financial intermediaries to finance new coal projects. The announcement has come as a big relief to those campaigning for a clean energy transition.
The IFC has recently updated its Green Equity Approach (GEA) policy, which now explicitly states that IFC investments will not support additional coal and encourages its financial intermediary clients (such as commercial banks) to minimise their coal investments. Prior to the GEA, clients were only required to cut their exposure in half by 2025 and to zero by 2030, but new investments were still allowed.
A private equity vehicle called India Infrastructure Fund (IIF) received equity funding from IFC in 2007. Only in India has IIF invested equity in telecommunications, energy and utilities, transportation infrastructure, and other types of infrastructure. GMR Kamalanga Energy Ltd (GKEL), a 1400 Megawatt coal-based power station close to Kamalanga village in the Dhenkanal district of the state of Odisha, was a portfolio investment of IIF.
India now has a sizable investment portfolio in financial intermediaries. 88 financial intermediary investments worth about $5 billion are now active. Investments in energy utilities, renewable energy, and support for financial institutions with an interest in the energy sector are some examples of these financial intermediary investments. These new regulations ought to be applied to all IFC lending, not only equity share holding.
Financial institutions in India will be strongly encouraged to strengthen their own coal reduction plans if the legislation is expanded to cover all loans. Environmental and social safeguard (ESS) rules related to lending are still in their infancy in the Indian banking sector. The adoption of ESS policies by Indian financial institutions could be forced by organisations like the IFC. The majority of Indian institutions have no ESS policies at all, and those that claim to have ESG frameworks lack accountability mechanisms and any way to report policy infractions, rendering them useless.
This latest announcement, according to which the IFC will no longer let its customers to act as financial intermediaries for new coal projects, is a triumph for people around the world who have been resisting the disastrous fossil fuel projects.
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. In the meanwhile, communities got scattered, their livelihood stolen, and the climate crisis became more severe, with nobody held accountable for all these, and more. We can only hope it moves faster to stop funding oil and gas.”
Due to the vulnerability in the prior GEA policy, IFC clients could continue to subsidise additional coal, which had severe effects. Hana Bank in Indonesia, the IFC's first GEA customer, financed two sizable new coal plants barely a year after joining the GEA. The Vung Ang II coal power station in Vietnam received insurance coverage from IFC client PVI Holdings last year.
Although there has been widespread support for the IFC's new pledge, activists have emphasised the need for the IFC to go even farther by removing all investments in coal, oil, and gas from its goal to align its portfolio with the Paris Agreement. This plan is anticipated to be revealed during the World Bank Spring Meetings, scheduled to be held from 10–14 April 2023, in Washington, DC.
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.”