Non-governmental organisation Inclusive Development International (IDI) has published a report claiming that the the World Bank‘s private arm, the International Finance Corporation (IFC), is providing loans to intermediary banks, which are funding 41 coal-based projects in India.
Six lenders in India including ICICI, HDFC, IDFC, Kotak Mahindra, Yes and Axis received more than US$520 million in IFC funding for fossil fuel projects in the period 2005 until 2014, according to the report entitled Disaster for Us and the Planet: How the IFC is Quietly Funding a Coal Boom.
The report was released last month ahead of the World Bank 2016 Annual Meetings in Washington DC, where World Bank President Jim Yong Kim said on 7 October 2016 that the World Bank Group was committed to “making action on climate change core to [its] mission”. The IFC held a meeting at the event with the sponsors of the report, where it said it was receptive to looking into the problem.
Dustin Rosa, research and communications director of IDI and one of the authors of the publication, told Development Finance that IFC’s portfolio is “massive, and the vast majority of the sub-projects – the end users – of these funds are undisclosed”.
David Pred, managing director of IDI meanwhile said the organisation “follow[ed] the money” using commercial financial databases, company shareholder reports, and public filings.
The IFC’s aim in funding the coal projects is to alleviate poverty through greater access to credit for business in developing countries. But according to the report, private capital continues to flow to IFC’s bank clients in order to fund corporations involved in controversial projects that cause environmental hazards as well as illnesses effecting inhabitants who live and often work in proximity to local sites.
The report says that coal plants in India and Colombia that have caused deforestation, air pollution and harmful disruption to fish populations, though adds the problem is a global one, due in part to the size and breadth of IFC’s portfolio.
Pred said the IFC “provides a range of justifications for its financial sector investments, but the most common one is that it promotes access to finance to small and medium-sized businesses”.
Kindra Mohr, policy director of Accountability Counsel, a global organisation that supports communities that have grievances with public financial institution-funded projects, said that though the intermediaries are required under contract to adopt the social and environmental performance standards of the IFC, many do not produce evidence of having upheld them.
She said that communities in the developing countries effected “have no idea they can seek redress from the IFC”, with complaints subject to a web of intermediaries and project implementers.
Mohr explained that from her conversations with IFC staff members, clients are asked to address community grievances voluntarily and that the IFC cannot force them to do so. Mohr said it is uncertain whether this is due to “contractual obligations, bank secrecy laws, or just general client confidentiality”.
Frederick Jones, IFC spokesperson, said the institution does not give loans to financial intermediaries for the purpose of financing coal-related projects, though added that the 2012 Sustainability Policy does not prohibit its equity clients or the proceeds of bonds or general purpose loans from being channelled towards coal plants, which may cause “some indirect exposure”.
“IFC targeted loans to financial intermediaries are ring-fenced to prevent such use, and IFC has excluded coal projects from private equity funds and other investments,” Jones told Development Finance.
“The reality is that these investments are very profitable for IFC,” concluded IDI’s Pred.