Committee for the Abolition of Illegitimate Debt

 ESG bonds: a symbol of the World Bank’s illusions

ESG bonds are one of the manifestations of a financial capitalism that assumes it can solve the problems it itself has created through more finance, more market, and therefore more debts

ESG bonds (with environmental, social and governance standards) are one of the solutions promoted by the World Bank World Bank
WB 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.

, and by international multilateral institutions in general, to fight climate disruptions. The ESG label includes several kinds of bonds: green bonds (environmental standards), bonds with social standards, blue bonds (protecting oceans), etc. On paper they are issued to finance a project that contributes to ecological transition, to the protection of oceans, forests, etc. They make it possible for the individual or company involved in such a project to find investors.

How does this work? The ESG bonds are supposed to offer a more attractive interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rate for borrowers and “reward” environmental or social achievements. In 70% of ESG bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. issues, performance indicators will increase or decrease the cost of borrowing. [1] For instance, in 2022, Chile issued SLBs (Sustainability Linked Bonds, a kind of ESG bond). The contract stipulates that Chile must generate half of its electricity from renewable sources by 2028. If it fails to meet this target, Chile will pay an additional 0.125 percentage points of interest on top of the 4.36% interest on the bond issued. [2] The interest rate can also be reduced if the objective is achieved, as in the case of an ESG bond issued by Uruguay in 2022.

In spite of significant resources provided by the World Bank to promote ESG bonds, they are only a drop in the sea of the international bond market Bond market A market where medium-term and long-term capital is lent/borrowed in the form of bonds. Bonds are creditor stakes issued by companies or States. . In 2017, the Fiji islands, with the WB’s financial support, were the first country to issue a green bond for USD 50 million. [3] The WB also helped the Seychelles Islands in 2018 when they issued a blue bond. At least twenty more countries foled between 2017 and 2023, for total issues of USD 64 billion. [4] Chile is the most active country, with 25 ESG bond issues, representing almost half of all issues by so-called “developing” countries over this period. [5] This total is growing, but remains very low compared with the USD 1,340.8 billion worth of bonds issued by countries in the Global South between 2017 and 2022 (not even 5% of bond issues by these countries over the period). [6] Let us note that issuing bonds is not the only way in which those countries contract debts. They also receive loans from other countries or from multilateral institutions such as the IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org , development banks of the WB. ESG bonds thus amount to hardly anything in the ocean of debts owed by countries of the Global South.

Following its ideology which says that the climate crisis, like all other crises, can only be solved thanks to the all-hallowed market, more money and a better integration of countries of the Global South into financial markets, the World Bank thus promotes bonds with a low issue size that have no effect on climate disruptions:

• ESG bonds are a greenwashing instrument. Since there are no defined standards for issuing an ESG bond there is no guarantee that financed projects will actually be “green.” There are recommendations, lofty principles to be respected on a voluntary basis the “Green Bond Principles.” A company or a State issuing ESG bonds can call upon a company to certify them as true to the “Green Bonds Principles.” Here we come upon another problem: the three companies that specialized in such assessments (CICERO, Vigeo Eiris and Sustainalytics Amsterdam) have been bought out by major rating agencies Rating agency
  Rating agencies Rating agencies, or credit-rating agencies, evaluate creditworthiness. This includes the creditworthiness of corporations, nonprofit organizations and governments, as well as ‘securitized assets’ – which are assets that are bundled together and sold, to investors, as security. Rating agencies assign a letter grade to each bond, which represents an opinion as to the likelihood that the organization will be able to repay both the principal and interest as they become due. Ratings are made on a descending scale: AAA is the highest, then AA, A, BBB, BB, B, etc. A rating of BB or below is considered a ‘junk bond’ because it is likely to default. Many factors go into the assignment of ratings, including the profitability of the organization and its total indebtedness. The three largest credit rating agencies are Moody’s, Standard & Poor’s and Fitch Ratings (FT).
  
  Moody’s : https://www.fitchratings.com/ : Moody’s bought Vigeo Eiris in 2019, S&P Global Ratings CICERO etc. [7] This is a problem because those rating agencies serve the interests of investors, and not of life: their ratings assess States and companies with respect to their capacity to repay investors. Their acquisition of entities responsible for the assessment of environmental and social standards is thus a danger since it undermines their independence.

• So the IMF and the WB sell ESG bonds as a way of reducing interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…
  
  The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. for poor countries that are vulnerable to climate disruptions. But now companies that assess those bonds’ environmental and social viability belong to rating agencies that actually largely contribute to increasing the interest rates paid by those same countries… In fact, the more vulnerable to climate disruptions a country is, the more likely it is to default on its debt, the lower the rate it gets and thus the higher the interest rates, which means less public money for social expenditure, public services, ecological measures and adaptation to climate disruptions .

• Another major limitation is that the assessments produced by the three above-mentioned rating agencies are made over only a few weeks and are based on information produced by the governments. They cost about USD 100,000 dollars [8] and are published as a summary, without access to the data on which the assessment is based.
• To conclude, ESG bonds do not offer any guarantee as to whether the borrowed money is actually going to be used to fight climate disruptions and reduce inequalities.

• We can give examples of the absence of serious and reliable assessments of projects that are financed by ESG bonds: The French company Michelin issues this kind of bond to replant the Indonesian forests it destroys to produce tyres, but part of the money is used to repay bank loans, and its reforestation projects are partly fictitious [9]; Brazil issued ESG bonds to finance the Jirau dam, which entailed the destruction of significant sections of the tropical forest [10] ; the utility company Engie also issued green bonds to build dams which resulted in the deforestation of the Amazon and the violation of indigenous people’s rights [11] ; a reforestation project financed by Nigeria with such bonds actually did not finance the planting of a single tree [12] ; Repsol, a Spanish oil company, issued green bonds to extend the usable life of its refineries. [13] More examples could be given...

• The IMF promotes these bonds as being more attractive to borrowing countries since they make it possible to borrow at a lower rate than for a traditional bond. Benin, for instance, issued this kind of bond at a rate of 4.95% whereas its interest rate is otherwise about 5.15%. [14] However, this reduction is not always effective. In some cases the interest rate can even be higher than for a traditional bond. For instance, in the case of Chile, if the climate targets defined when the bond was issued are not reached, the country will have to pay higher interest than if it had issued a traditional bond. In this respect, a country that would have conditioned its ESG bond on extending the surface of its forests (as was the case for Uruguay) would pay higher interest in case of large forest fires that would prevent it from reaching its target. In this case, the result is a double penalty, with the unforeseen destruction of part of its forest and a loan that costs more.

• ESG bonds increase the hold of the debt system and of the private sector, thus leading to ever greater indebtedness of already heavily indebted countries of the Global South. Indeed, many bonds issued over the past years by countries of the Global South (Eurobonds) are reaching maturity and participate in the debt crisis affecting the issuing countries. Yet ESG bonds are a step in the direction promoted by the World Bank and the IMF, towards an ever-increasing extension of state financing via the financial markets, towards an ever-increasing transfer of money from States – and therefore from populations –, to capital, via the payment of interest rates.

• They are mostly issued in external currencies, thus representing a new market for foreign investors, and a new path for countries of the Global South towards external debt – that is a new potential dependence on currency fluctuations, on the extractivist export system, as a source of foreign currencies.

• ESG bonds that have been issued so far, just like other kinds of bonds, apply more to “middle-income” countries. Of the countries considered poorest by the WB, only Benin has issued an ESG bond, with the support of the IMF and of the UNDP UNDP
  United Nations Development Programme The UNDP, founded in 1965 and based in New York, is the UN’s main agency of technical assistance. It helps the DC, without any political restrictions, to set up basic administrative and technical services, trains managerial staff, tries to respond to some of the essential needs of populations, takes the initiative in regional co-operation programmes and co-ordinates, theoretically at least, the local activities of all the UN operations. The UNDP generally relies on Western expertise and techniques, but a third of its contingent of experts come from the Third World. The UNDP publishes an annual Human Development Report which, among other things, classifies countries by their Human Development Rating (HDR).
  
  (United Nations Development Program). So these bonds cannot provide a financing solution for the poorer countries with a debt problem.

In short, the ESG bonds promoted by institutions such as the WB and the IMF are anything but a solution to climate change. They are one of the manifestations of a financial capitalism that assumes it can solve the problems it itself has created through more finance, more market, and therefore more debts. Debt-for-Nature swaps, which are a form of ESG bond, are another example of the false solutions presented by international financial institutions such as the Bretton Woods institutions or the African Development Bank.

  The swindle of Debt-for-Nature swaps

This ‘solution’ promoted by the countries of the North via the World Bank and the IMF implies that these countries do not know how to take care of the protection of their territory themselves

Strongly promoted during the COP 28 and 29, as well as by international financial institutions and the United Nations, Debt-for-Nature swaps are the latest fashion. While they have been around since 1987 (the first instance occurred in Bolivia), they have multiplied over the last years. Belize, Ecuador, Mozambique, Gabon and the Seychelles Islands have recently experimented with these swaps.

What are Debt-for-Nature swaps? They involve States, major international NGOs and banks, and, on paper, they consist in the conversion of part of a State’s debt into investments to protect part of the living world, the forest or part of the country’s ecosystems. The supposed benefit is that a State’s repayments are used to protect its territory, rather than to enrich creditors. (Instead of repaying a creditor, the country will pay a major NGO that will contribute to a fund to protect the territory.) Reality, however, is a far cry from this.

Here are the reasons why the CADTM opposes this fashionable false solution:

• Debt-for-Nature swaps are a new neocolonial tool used with conditionalities for countries of the Global South. This “solution” promoted by countries of the North via the WB and the IMF implies that those countries are not able to protect their territory on their own. Why not simply cancel part of their debt to enable them to protect their biodiversity? Do those countries need big predatory NGOs of the North to explain what should be protected and how? It distracts from out-and-out cancellation of the debt of countries of the Global South and promotes swapping a tiny part of the debt and paying commissions to a number of predators. The very mechanism of Debt-for-Nature swaps involves a loss of sovereignty, imposes conditionalities, and takes a neocolonial approach in explaining to peoples of the Global South that they should protect their biodiversity instead of allowing them to do their own thing.

• As suggested, many intermediaries feed on those Debt-for-Nature swaps. Here are some instances: In the case of Ecuador, only USD 450 million of a 1.6 billion debt buyback went to the Coastal Conservation Fund. [15] The rest covered transaction costs and paid intermediaries (including Crédit Suisse, which has since gone bankrupt). In the case of Belize, only USD 84 million out of a swap of over 553 million actually served to protect nature. [16] USD 86 million went into fees for intermediaries. Out of the five Debt-for-Nature swaps between 2015 and 2023, USD 811.6 million of the 1.93 billion involved actually fed FED
  Federal Reserve Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.
  
  FED – decentralized central bank : http://www.federalreserve.gov/ funds for protecting nature. [17]

• The NGOs involved in Debt-for-Nature swaps are big, predatory NGOs. The WWF is charged with having used paramilitary groups to grab land to be “protected” in India and the Congo. The Nature Conservancy is linked to the fossil-fuel industry: it has invested over 26 million euros in Shell, BP America and Chevron. [18]

• As shown by the German organization Erlassjahr, the swaps, which are often presented as a reduction or even a cancellation of debt, are nothing like that. In fact, the State buys back part of its debt from creditors at market price or above. There is no reduction. [19] This is in fact a buy-back of the debt by the State, remunerating banks and other intermediaries in the process, rather than an exchange or a cancellation. We absolutely must get away from the logic of green capitalism promoted by these Debt-for-Nature swaps. It would be far more advantageous for a State to suspend payment, audit its debt, repudiate or renegotiate part of it and invest the interest saved in ecological and social projects, rather than letting intermediaries do it in its place and dictate how it should manage its territory. Sometimes, creditors who take part in these Debt-for-Nature swaps even get carbon credits, which allow them to pollute more.

• The swaps cannot guarantee that efficient protection measures are taken. For instance, in the Debt-for-Nature swap contracted by Ecuador in 2023, the Galapagos Life Fund that had been created to protect the Galapagos Islands was run by a majority of private actors, including representatives of tourism and the fishing industry. [20]

• There is no participation whatsoever of local and indigenous communities who live on territories concerned by the said protection measures. They are kept away from decision-making processes. In the case of the Debt-for-Nature swap in Bolivia, protection measures kept the local populations away from their traditional practices for collecting food and fuel.

• The whole Debt-for-Nature swap process lacks transparency. There is little or no subsequent evaluation to assess the efficiency of expenditures by the fund for the protection of nature.

• A Debt-for-Nature swap is a complex process that can require years for its implementation, to reach an agreement between creditors and the concerned country. This was the case for the Debt-for-Nature swap in the Seychelles, which took five years to reach an agreement. [21]

Debt-for-Nature swaps are an obvious swindle that distracts from the true solution: namely suspension of payment, an audit and cancellation of illegitimate debts. They are one of the several false solutions put forward during the COP 28 in Dubai.

  Loss and damage funds, carbon removal: the false solutions promoted at COP 28

Unsurprisingly, the COP 28 organized in Dubai in December 2023 and the COP 29 organized in Baku (Azerbaijan) in 2024 highlighted the false solutions promoted by green capitalism.

 The Carbon offsetting market and Carbon Dioxide Removal

The Carbon offsetting market commodifies nature, and mainly forests in countries of the Global South

One of these is Carbon Dioxide Removal (CDR). This method consists in offsetting certain CO2 emissions by “preserving” forests, via reforestation, avoiding deforestation, or by developing techniques and technologies to remove CO2 from the atmosphere. For the time being, most carbon dioxide is captured through reforestation.
Originally devised to capture unavoidable emissions, the solution ultimately fits perfectly into the system, since it allows polluters to go on polluting provided they pay to offset part of their emissions. CDR makes it possible for companies to improve their image and claim “low” emissions since, while they still pollute just as much or even more, they pay to preserve forests. This solution is completely absurd.
It commodifies nature, and mainly forests in countries of the Global South. During COP 28, the company Blue Carbon LLC, especially created by a member of the royal family of the United Arab Emirates, signed numerous agreements with leaders of the Global South to take over huge areas of their land for thirty years. This land will allow Blue Carbon LLC to sell carbon credits to polluting companies and take in 70% of their incomes. [22] 25 million hectares of forest (the surface area of the United Kingdom) in Liberia, Angola, Kenya, Tanzania, Uganda, Zambia and Zimbabwe have been purchased by this company, and therefore by the United Arab Emirates. 20% of Zimbabwe’s surface area, 10% of Liberia’s and Zambia’s surface area and 8% of Tanzania’s have been taken over by Blue Carbon LLC. [23] Similarly the Swiss company South Pole grabbed part of the Zimbabwe forest. [24]

As demonstrated by Adam Anieh, [25] countries of the Gulf attempt to put pseudo-technologies of carbon capture and the carbon-offsetting market at the centre of debates, especially during the COPs, to prevent talks about putting an end to the use of fossil energies. Their strategy is as follows: hush things up and spearhead false solutions using finance and the market to generate ever more money at the expense of the ecological transition, while continuing to happily extract and export hydrocarbons – in short, to make sure that nothing changes.

Let us take an example. A company that pollutes a lot can call upon Blue Carbon LLC in order to offset its carbon footprint. It just pays this company for it to keep land in the Global South it has taken over for thirty years. Here are the consequences:

• No reduction of polluting activities. Big polluting companies can happily pursue their activities and just pay a little more to “offset” their emissions. But emissions are not reduced and take centuries and centuries to be absorbed.

• Neocolonialism via the grabbing of land in the Global South to “offset” activities in the North. It is a green neocolonialism that undermines countries of the Global South that are already stifled by their debts and plundered by the extractivist export system that has been enforced for decades, aided and abetted by local governments. The land controlled by companies of the North cannot be used by the local people or communities or for the country to develop a food-producing and diversified agriculture.

• Eviction of indigenous communities. [26] In Kenya, in November 2024, the indigenous people Ogiek were evicted from their land, just as Kenyan President Williams Ruto was negotiating with Blue Carbon.

• Commodification of forests and green capitalism. The companies’ emissions are allegedly offset because they pay to preserve or enlarge forests that are commodified. We are still within a logic of growth since CDRs make it possible to generate ever more money without reducing production. They allow companies such as Blue Carbon LLC or NGOs such as WWF to make money off lands in the Global South by making use of climate change, and enable governments of countries in the Global South to get money from their lands, and allow companies to go on polluting with a good conscience. This is greenwashing. The same goes for giant CO2 “vacuum cleaners.” The technological solutions being promoted at the COPs are the kind that lead to ever greater growth and production – and therefore straight into the wall.

• The offsetting effect is overestimated. An enquiry led by The Guardian, Die Zeit and the NGO SourceMaterial shows that only 10% of projects for the removal of carbon dioxide have any effect on climate disruptions . The remaining 90% are simply pollution permits [27] with no impact and no reduction in carbon emissions. Most of the time, the sale of carbon credits is pure speculation. [28] Prices are set on a purely hypothetical basis. How can the amount of carbon emissions that was avoided be assessed? What amount would have been absorbed without the forest being “preserved” to offset carbon emissions? Would the forest have been cut down? In what proportions? None of this can be predicted or measured.

• Ultimately this false solution is a threat to world food sovereignty. Indeed, current projections for greenhouse-gas mitigation by governments take into account the use of carbon removal techniques. To reach their inadequate targets, between 1 and 3 billion hectares of land would have to be used for carbon removal, more than the surface area of India, South Africa, Europe and Turkey combined. This is enormous considering that the entire surface area used for agriculture in the world represents 1.5 billion hectares. Those models involve the use of a huge territory, mainly in the South, to offset emissions that largely benefit big private companies and the rich.

Carbon dioxide removal techniques are thus a tell-tale illustration of what the capitalist system can invent in order to appear to make sweeping changes and take problems into account without actually changing anything. CDR allows more and more actors to get rich through “preserving” forests or reforesting, to multiply transactions and feed ever increasing growth, whereas the urgency of climate change demands slowing down. Moreover, all solutions that involve taking over land in the South for the benefit of the North without any regard for local populations are another form of colonialism that robs local populations of their resources and territories whilst claiming to protect the environment. This also applies to renewable energies, when Morocco forcibly installs wind turbines in Western Sahara to sell the energy produced to the North. Another example is the Xlinks project in Morocco, which aims to bring electricity to the UK via undersea cables. [29] In the Democratic Republic of the Congo, mining extraction – notably of cobalt – necessary to produce mobile phones and electric vehicles is carried out by overexploited children. Cobalt mining is a major factor in the war being waged in Kivu. [30]

Developing renewable energies for the North with the blood of Congolese people or through plundering communities in the Global South is unacceptable. Developing renewable energies while local people do not all have access to energy and while Europe deploys inhuman migration policies is just as unacceptable.

  The Fund for responding to Loss and Damage, or the art of presenting an insignificant agreement as a major success

The Fund for responding to Loss and Damage was required by island nations that have been particularly exposed to the consequences of climate disruptions for more than thirty years. It was initiated during COP 27 in 2022. The principle of the Fund is as follows: countries of the North contribute to it to compensate countries of the Global South impacted by climate disasters. The Fund made headlines at the start of Cop 28, with several countries, including Germany, the European Union and the United Arab Emirates, pledging a total of USD 420 million to the Fund. [31]
However, donations are made on a voluntary basis, and the announcements were made at the beginning of COP 28 since those countries knew they would get media attention. But there is no constraint on countries of the North to contribute to this fund. Nor is there any guarantee that those amounts will be grants and not loans. Moreover the amounts mentioned are tiny when compared with actual needs to adapt to climate disruptions , which are estimated at about USD 2,000 billion a year. [32] Besides, the fund will be hosted by the World Bank for at least four years. The World Bank levies fees on the funds it hosts. For the Loss and Damage fund, these fees can amount to 24%. This means that if the fund has USD 100 billion, 24 billion go into the WB coffers. [33]

We can clearly see that the solutions promoted by the IMF, by the WB, or during the COPs are false solutions that perfectly fit a continued economic growth and an ever faster increase in capitalists getting richer. These are the kind of solutions that capitalism is famous for, in order to make people believe that it is taking climate change into account, when in reality nothing is changing, or is changing extremely slowly in relation to the seriousness of the climate catastrophe. In the face of such illusions, we urgently need to fight for radical alternatives, through a system of reparations and taxation of the wealthiest to ensure a just ecological bifurcation.

Translated by Christine Pagnoulle in collaboration with Snake Arbusto

The authors would like to thank Pablo Laixhay, Jawad Moustakbal and Christine Pagnoulle for their review