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The International Finance Corporation (IFC), which is the private sector arm of the World Bank, has announced that it will not provide support for investment in new coal projects.
IFC makes loans to financial institutions, which in turn make loans for energy and infrastructure projects. It has reportedly provided around $5 billion in loans to roughly 88 financial institutions in India.
In a statement posted on its website, IFC clarified that it will take the necessary steps to align with the goals of the Paris Agreement by 2023. This will include limiting the use of financial institution clients that are involved in coal projects and making a commitment not to finance or start new coal projects.
In 2020, IFC introduced a policy requiring its clients to reduce their participation in coal projects by 2025 and phase them out entirely by 2030. The policy did not mention suspending new investment at that time. However, with the recent announcement, the situation has changed.
IFC strengthens policy against coal
The latest IFC statement has offered some encouraging news for the world amid growing apprehensions about the dangers of climate change.
IFC's Green Equity Approach (GEA) policy has been updated to prohibit its financial intermediary clients, including commercial banks, from investing in coal. In addition, the new policy states that IFC investments will not support any new coal projects in the future.
The previous version of the GEA policy contained loopholes that allowed IFC-funded commercial banks to use the funds to finance new coal projects. However, with the latest update, such activities will no longer be allowed.
Previous loopholes in IFC's Green Equity Approach (GEA) policy led its first GEA client, Hana Bank in Indonesia, to invest in two new large coal plants just one year after signing the GEA. Similarly, IFC client PVI Holdings facilitated the development of the Vuong Ang coal-fired power plant in Vietnam last year.
This policy change is long overdue, and the IFC is now expected to take a tougher stance on oil and gas investments as well. It is important to note that financial intermediaries account for more than half of IFC's investments and have received approximately $40 billion in support from IFC since May 2019.
IFC's Green Equity Approach stops coal financing
"Earlier, in 2021, the State Bank of India signed the Green Equity Approach of IFC. According to IFC's project document – 'The Federal Bank shall cease investment in any new coal-related project, including coal-fired power plants, after IFC becomes a shareholder in the bank'," stated the report.
"We filed the first case ever over IFC's support of a financial intermediary client supporting coal in India in 2011," said Joe Athiali of the Center for Financial Accountability. "It took 13 years for IFC to finally end support for new coal. Meanwhile, communities crumble, livelihoods are lost, and the climate crisis worsens, all with no one to blame, and more. We can only hope it moves quickly to stop oil and gas financing."
Reactions to announcement and Coal Power in India
Responding to the announcement, Kate Geary, Co-Director of Recourse, said, "This is a welcome step, but it has taken too long. Seven years after the Paris Agreement on Climate Change, the IFC has now bowed to pressure from our clients to stop supporting new coal projects. This has sent a broad signal to the investment community that the era of coal is over. As IFC plans to align its entire portfolio with the Paris Agreement, it is now vitally important that it commits to phasing out oil and gas as well."
"Private sector investment in new coal projects has been declining globally for some time. As such it will encourage Indian state utilities to move away from new coal-fired plants and only those which are in the final stages of construction," stated Sunil Dahiya, analyst at the Center for Research on Energy and Clean Air.
The report also highlighted that India, which sources about three-quarters of its electricity from coal, has 28.5 GW of coal power capacity planned, of which about a third is already approved, and 32 GW of coal power capacity is under construction. Tamil Nadu, Odisha and Uttar Pradesh are the states with the highest potential of coal power under development.
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