Examining the IFC’s climate and forest footprint in its financial sector investments
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Article summary
This session asked how the World Bank Group can ensure that its financial intermediary (FI) investments are consistent with its forest and climate commitments. New research by Inclusive Development International on the impacts of IFC FI investments on forests, land rights, and climate was presented. Speakers and experts from communities, CSOs and the World Bank Group examined case studies of FI sub-investments and discussed solutions to promote a climate-sensitive approach to the Bank’s financial intermediary lending in the context of the WBG’s Climate and Forest Action Plans.
Sponsor: Inclusive Development International (IDI)
Panellists:
Jason Allford, Alternate Executive Director from Australia (Chair)
David Pred, Inclusive Development International
Ian Rivera, Philippines Movement for Climate Justice
Priya Pillai, Greenpeace India
Vikram Widge, Head of Climate and Carbon Finance, IFC
David Pred:
- Oil change report recently release – focusing on need to ensure no new fossil fuel projects come online if Paris goals are to be met.
- Bank understands urgency – 2013 committment no new coal plants except for in extraordinary circumstances. However WBG has not been true to the pledge.
- IDI April research of financial intermediary (FI) projects shed light to investments in a variety of areas including extractives, fossil fuels, etc. Systemic problems with Environment and Social Management System (ESMS).
- IDI will release report looking at IFC investments in coal
- IFC supported coal boom. At least new 41 coal projects since 2013 equivalent to entire coal generating capacity of Germany.
- Rampal Coal Plant is set to devastate world’s largest mangrove, impact up to 2 million people impacted, mangroves essential to carbon sequestration. Bank had declined to fund project. IFC funded Indian banks that have supported coal projects.
- India’s Ultra Mega Power Projects led to displacement of indigenous peoples in violation of performance standards (PS).
- Mahan – direct financing by clients and loans to banks involved in financing the plant. Government eventually cancelled the project due to community objections. However company has looked for another plant. FI client has provided funding to a new coal area.
- IFC FI financing also contravenes Bank’s Forest Action Plan, as IFC’s funds are used to support coal, which is a leading cause of deforestation.
- Have heard from IFC that ESMS is improving – since CAO audit of FI investment. No doubt that the systems have improved, however problem has not been resolved.
- Philippines – Rizal and DBO – since 2013 – these have financed over 20 new coal plants. The coal boom has led to repression of and attacks on environmental defenders.
- IFC FI investments are undermining Bank goals and climate policy.
- IFC must apply coal exclusion to IFC investments; apply PS to all projects- many of the FIs are non-compliant. IFC must exit non-compliant clients.
Ian Rivera:
- 20 coal power projects in Philippines
- Country prone to typhoons. Accounts for only .31% of GHG emissions, however ranks high in vulnerability to climate change.
- Also experiencing strong droughts – recent drought affected 60% of population. Philippine have an aspiration to limit temperature rise to 1.5C above 1990 level given impacts of climate change in the country.
- In addition to climate impact – 2015 Harvard study demonstrates impacts of coal on health.
- CSOs call for clean and renewable energy – however this is not the case in Philippines – this happens in part because of continued support of IFIs, including IFC. Coal plants have resulted in environmental and human rights consequences.
- 23 coal plants operating in the country, 7 funded by IFC. 36 in pipeline – 13 funded by IFC. These will lock Philippines into coal up to 2050. This is result in decrease interest of investors in renewables as coal production will monopolise the market.
- One climate justice activist killed while protecting Bata’an province. 16 MW Mariveles plant operational in 2013.
- GN power plant Kauswagan – construction began 2014. Destroyed protected fish sanctuary and resulted in suppression of dissent. There have been many community protests, however the projects are nonetheless approved. Thousands of fisherfolk will be affected.
- Saranggani coal-fired 210 MW – expected to become operational in 2018. Has already displaced indigenous people and threatens natural protected habitat.
- Communities opposed to plants have few options and have ties to ancestral homelands and traditional livelihoods.
- Demands the end of IFC funding for coal plants in Philippines.
Priya Pillai:
- 80% of India’s coal reserves lie in Central India Central Indian Forests. India’s progress on climate change is very weak. Only has 11% renewable as share of national production. The fight against coal in India remains a problem.
- Area is heavily forested –thus new plants also cuts down CO2 absorption. The area contains 8% of India’s population, thus central Indian belt becomes very important.
- Singrauli – only one example of many as illustrative of a pattern. Tactics used by power plants are very similar, including use of same ES assessment consultants.
- Singrauli – Produces 10% of total coal based energy
- 3rd most polluted industrial cluster in the country. Asia’s largest Sal forest. Also prevalent mercury contamination.
- Ground realities – plants result in forced displacement. No holistic approach to assessing ES impact. Begin with initial authorisation for plant ‘only’. However after the plant was built mine was approved – despite lack of public hearing, which happened ‘on paper only’. ESA highlighted concerns – initially forest and fisheries ministry rejected authorisations four times. Mine was in violation of Forest Rights Act.
- Forgery of FPIC consultation and authorisation. Law suits were levelled against communities by Mahan Coal limited. After 5 years of struggle community was able to stop the mine. This is the same company operating the mine.
- No drinking water provision at the ‘displacement colony’. Every year ash field floods – 2016 60 people displaced due to flood.
- 4 communities have lost their livelihoods.
- Mahan company buys coal from Northern areas – resulting in significant increase in heavy traffic and accidents. Mahan fight was very well publicised – difficult to understand how IFC would be unaware.
- New proposed mine will also displace indigenous people, destroy forests, violate laws.
Vikram Widge:
- Recognises that problematic projects remain in portfolio, but emphasise that much work must be done in countries that continue to demand and use coal.
- ‘A lot more to be done.’ Financial institutions must choose the right climate investment, however financial institutions are constrained by incentives and financial considerations – eg. Need to eliminate fossil fuel subsidies, support for PPPs in renewables – eg, IFC ‘scaling solar’, agree on viable carbon pricing structure.
- FIs – WBG wants to grow commitment to allocate 28% of investments to climate finance. IFC operates across many areas – need to put financial markets to work. Going in the right direction. IFC became involved with FI clients 20 years ago to focus on energy efficiency in Eastern Europe. IFC survey – 70% of clients involved in climate finance – green construction, renewables.
- Banks typically don’t like to become first movers – need to show business models that work. 2012 – IFC helped to establish the sustainable banking network. Advance regulatory framework (28 members – 12 passed either regulatory or voluntary frameworks).
- COP21 – Financial Stability Board – has begun to work on climate disclosure – G20 under German presidency will look at implementation as regulations will become bidding.
- G20 Green finance initiative – 7 recommendations – significant as chaired by finance ministers.
- Promising development of Green Bond market. Standards are improving and becoming more strict – improved verification. This year to date $50billion issued. Bonds require reporting on underlying asset and report on verification.
Discussion:
Chair: Australian executive director to the World Bank
Asia – his constituency is dealing with profound consequences of climate change. Good to know that Bank does not fund coal directly, however how does IFC FI investment fit into the framework, as is supports investments that would not receive direct support.
General comments
- Bank Group must also consider fossil fuel exclusion. Problematic ‘siloed’ approach – ei, some investments are catergorised as climate finance while others such as infrastructure are not assessed along the same lines. Stability of markets is being questioned in light of ‘stranded assets’.
IFC: Energy directions paper – coal only in extraordinary circumstances. However IFC believe that gas must be part of the mix. The economy requires gas. Focus on PPPs for solar.
Qs: How does the head of the climate change unit react to findings and recommendations?
IFC: Take report seriously. Will coal be put in exclusion list? Debate ongoing. Energy directions paper does not exclude coal. Look at demand, including from client countries. There is debate within the board, in which some countries support continued coal infrastructure.
IDI closing statement:
If IFC is to lead on climate finance, then IFC must place coal on exclusion list. Also must recognise that the IFC sits on boards and has equity and is therefore able to stop projects in the pipeline.
