The lending arm of the World Bank is providing loans to institutions that finance the development of coal-based power projects, according to a new report. The projects not only pose an environmental risk to the planet, locally they destroy homes and displace communities. The loans subvert strong warnings from the head of the World Bank that expanding coal in Asia is a dangerous proposition.
The International Finance Corporation (IFC), the private-sector lending arm of the World Bank, invests in finance institutions than go on to provide loans to energy companies, according to Inclusive Development International. While the IFC does not directly fund coal projects, it admits that it may be exposed in some of its deals. As a result, IFC indirectly supports at least 91 projects deemed “harmful” in the report, 41 of which are coal projects.
That includes the 1,320-megawatt Rampal power station in Bangladesh, a project the World Bank declined to directly fund. It is to be built in the Sundarbans Forest, destroying habitats for many endangered and threatened species, just a few miles from the world’s largest mangrove forest.
“This shocking exposé lays bare the IFC’s climate double-whammy: not only funding a boom in coal-fired power plants, but also tearing down the forests to mine the coal. It’s clear that IFC lending in the financial sector is out of control and directly undermining President Kim’s climate pledges,” said Kate Geary, forest campaign manager for Bank Information Center, in a statement.
The indirect support runs counter to recent statements by World Bank President Jim Kim. In May, Kim criticized the fact that countries in southeast Asia were planning to build coal-fired power plants despite making strong pledges to reduce emissions as a part of the Paris climate deal last December.
He focused specifically on China, India, Indonesia and Vietnam. It is estimated that over the next five years three-quarters of the world’s new coal-fired power plants will be built in those countries. The May event sought to put those projects on hold and increase investments in clean and renewable energy. Waiting would have dire consequences for the environment, Kim said.
“If Vietnam goes forward with 40GW of coal, if the entire region implements the coal-based plans right now, I think we are finished,” he said. “That would spell disaster for us and our planet.”
The new report suggests that the reality has yet to catch up to the rhetoric. It sharply criticizes the practice of investing in financial intermediaries that back harmful projects. The IFC invested $40 billion in such entities between 2011 and 2015.
A World Bank spokesman referred questions to IFC spokesman Frederick Jones. He defended the practice of lending to financial intermediaries and told Humanosphere that the loans provide “much-needed access to finance for millions of individuals and small businesses.” Targeted loans to financial intermediaries are not meant to nor are they allowed to finance coal-related projects.
However, it is possible that general purpose loans could be used to finance such projects. Jones admitted that the institution may be indirectly exposed as a result.
“We take the report seriously. It raises important long-term questions about how we need to create stronger markets for clean energy and create incentives for countries and the private sector not to invest in coal, but rather in renewable energy,” he said.
It also raises the importance of potentially amending the IFC’s 2012 Sustainability Policy so that it specifically prohibits any of its bonds or loans from financing coal projects. In the past decade, the IFC has invested more than $15 billion and mobilized more than $10 billion to support renewable energy, climate change adaption and other “climate-smart” investments.
“While the IFC has tried to distance itself from the projects funded by its intermediaries, the fact is that these banks are brazenly disregarding the IFC’s environmental and social requirements,” said David Pred, managing director of Inclusive Development International, in a statement. “As a result, the World Bank Group has ended up fueling and profiting from business activities responsible for enormous human suffering, environmental devastation and in some cases serious crimes.”