Behind the fumes: the dirty truth behind the World Bank’s commitments on climate change

3 February 2017 by Bretton Woods Project


IFC investments in FIs supported at least 41 coal power plants since 2013

Investments contravene 2013 Bank policy on coal, contribute to climate change and deforestation

Lack of disclosure on FI sub-projects continues to deprive communities access to grievance mechanism

The negative development impact of the International Finance Corporation’s (IFC, the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

’s private sector arm) investments in financial intermediaries (FIs) has once again been brought to light. An October 2016 report, Disaster for us and the planet, by US-based NGO Inclusive Development International (IDI) and partners, provided evidence that “IFC-supported financial institutions have funded at least 41 new coal projects … since the World Bank announced its coal ban in 2013”. While the IFC has claimed that the concerns of civil society organisations have largely been addressed through its response to previously highlighted harmful projects that it funds, the report demonstrates that the IFC remains exposed to highly damaging projects.

The report highlighted the IFC’s involvement in the Mahan plant in India, where it provided millions of dollars in funding to two banks, IDFC and ICICI, which are “major players in India’s infrastructure and industrial sectors”. It noted that “in total, these two IFC-supported banks helped provide approximately $1.9 billion in financing to build the Mahan coal plant”. The report also disclosed that “the IFC’s support for the project did not end there” as it enabled the development of a nearby mine which Greenpeace found “would displace or otherwise harm 50,000 people who lived in the forest or depended on it for their livelihoods”.

The report also detailed IFC’s involvement in Rampal in Bangladesh, which it calls “one of the most potentially destructive coal plants in the world”. The plant sits very close to the world’s largest mangrove, which supports the lives of two million people in India and Bangladesh, is a UNESCO World Heritage site and home to numerous endangered and threatened species. The report stressed that “the World Bank was initially approached to fund Rampal. However, the Bank declined … Three French banks, Credit Agricole, BNP Paribas and Societe Generale, were also approached but refused to get involved”. In April 2016, Norway’s sovereign wealth fund Sovereign Wealth Fund A sovereign wealth fund or SWF is an investment fund owned by a State. It is funded by exports of high-value raw materials or by large trade-balance surpluses. In 2013, such funds managed approximately $5.2 trillion in assets. placed the company charged with building the plant, the National Thermal Power Corporation, on its exclusion list. The report emphasised that while “these institutions distanced themselves from the projects, six IFC-funded commercial banks arranged billions of dollars in financing for the National Thermal Power Corporation”, noting that “between 2005 and 2014, the IFC provided $520 million in funding to the six banks”. Considering the impact of IFC’s involvement in these and other similar projects, the report stressed that “these projects have also decimated the world’s forests. Coal plants, and the mines that feed them, are a leading cause of deforestation globally, further contributing to climate change.”

The World Bank Group has ended up fuelling and profiting from business activities responsible for enormous human suffering, environmental devastation and in some cases serious crimes
David Pred

Behind the fumes – the hidden story of IFC’s investment in coal

IFC’s involvement in coal power generation lies in stark contrast to the World Bank Group’s (WBG) position on coal, as outlined in its 2013 Energy sector directions paper, which states that “the WBG will provide financial support for greenfield [new] coal power generation projects only in rare circumstances”. The Bank’s position was reiterated by World Bank president Jim Yong Kim in November 2016 when, in celebration of the entry into force of the Paris Climate Change Agreement, he stressed that “without climate action at scale, more than 100 million people could fall back into extreme poverty by 2030”, and that “we need to focus special attention and action on Asia, where energy demand is growing and some countries continue to look to coal as the solution.”

IDI’s report forms part of a four-part series titled Outsourcing development: Lifting the veil on the World Bank Group’s lending through financial intermediaries and contributes to evolving evidence of the negative development impacts of IFC investments in FIs. During a months-long investigation following the trail of IFC money, IDI uncovered 121 harmful projects that the IFC is funding through FIs. Despite some positive initiatives taken by the IFC, such as the disclosure of it private equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. investments and a stated commitment to “strengthen and deepen the quality and coverage of IFC’s E&S [environmental and social] risk management of FIs”, the report demonstrated that the opaque nature of IFC investments in FIs and its inability or unwillingness to adequately screen and monitor FI sub-projects persist to the detriment of communities and the environment.

The report’s reliance on expensive proprietary market information, unavailable to often marginalised communities affected by IFC-funded projects or their supporters, demonstrates that concerns about the lack of disclosure of sub-projects funded by IFC FI clients remain unaddressed. The lack of disclosure prevents communities and CSOs from holding the IFC to account by bringing cases to light and accessing the IFC’s grievance mechanism, the Compliance Advisor Ombudsman (CAO). This contravenes the IFC’s performance standards which oblige the IFC to ensure that communities are aware of the existence of the CAO.

An October letter to the IFC’s CEO Philippe H. Le Houérou, sent by six organisations, including the Philippines Movement for Climate Justice, a coalition of 130 environmental groups in the Philippines, and Machimar Adhikar Sangharsh Samiti (MASS), pleaded with him to respond to the call of those working to avoid a “climate catastrophe by ensuring that the IFC’s new FI investments are coal-free”.

Meanwhile, Owning the outcomes, a joint briefing by Oxfam and IDI also released in October 2016, challenged five arguments that the IFC has put forward to repudiate responsibility for harms caused by its financial-sector investments. David Pred, Managing Director of IDI commented “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. As a result, the World Bank Group has ended up fuelling and profiting from business activities responsible for enormous human suffering, environmental devastation and in some cases serious crimes”.

Source: Bretton Woods Project



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