The World Bank won’t stop financing fossil fuel projects, despite climate commitments

The World Bank Group (WBG) is showing no signs of letting up its financing of fossil fuel projects. Now, residents and green non-profits have accused the WBG of indirectly financing two new coal-fired power plants on Indonesia’s most populous island.

Meanwhile, analysis by German environment campaign group Urgewald found that the WBG ploughed billions into oil and gas in 2022.

These two events show that the WBG is continuing to lock countries into fossil fuels. Crucially, this is despite promises to shift to low-carbon funding and align its operations with the Paris Climate agreement.

Formal complaint on fossil fuel financing

In Indonesia, local communities and several non-profits filed a formal complaint against the WBG’s financial lending arm, the International Finance Corporation (IFC).The group filed the complaint to the internal watchdog of the World Bank’s private investment arm.

This comes as calls grow for global financial institutions to dramatically redesign their activities to meet the challenges of the climate crisis.

Indonesia’s government is expanding the Suralaya coal-fired plant in Banten province, which neighbours the capital, Jakarta. It is one of the biggest coal-fired projects in Southeast Asia. The upgrade will add two generating units to the eight already in operation.

The complaint states that the IFC provided a 2019 equity investment of USD $15.36m to South Korean bank Hana’s Indonesia subsidiary, a financer of the project. The IFC confirmed the investment in a rights issue disclosure on the IFC website, which also said it owned 9.9% of the bank at the time.

The non-profit Inclusive Development International (IDI), which filed the complaint, said in a statement that:

The new… plants are expected to cause thousands of premature deaths and contribute to more than 250 million metric tons of CO2 to the earth’s atmosphere

This is despite a $20bn deal underwritten by the United States and European nations and agreed at the G20 summit last year to wean the archipelago nation’s economy off coal by 2050. Recent research by think tank Ember found that G20 coal emissions have been on the rise. Moreover, Indonesia was among the major economies who increased coal-based emissions last year.

Commitments to phase out coal?

The Suralaya expansion will cost around $3.5bn. South Korean public finance provided nearly $2bn, while banks including Hana and others based in Malaysia, China, and Indonesia contributed the rest. South Korean state-owned electricity giant KEPCO will oversee the project, despite loose pledges by Seoul in recent years to end funding for coal projects overseas.

The complaint against the IFC doesn’t claim that it’s investment in Hana was directly used to fund Suralaya. However, the IFC said in its disclosure that its investment would “support the Bank’s growth strategy” and finance investment in digital infrastructure. Inclusive Development International (IDI) said that Hana gave $56m in project finance to the new expansion.

Hana Bank has previously pledged to stop financing new coal-fired power plants by 2030. The IFC also stated that it would finance clients if they planned to divest from coal investments, and in April said it would no longer allow clients to finance new coal projects.

Locking countries into fossil fuels

In 2021, the WBG committed to “align its financing flows with the objectives of the Paris Agreement” by July 2023. However, research by campaign group Urgewald has exposed the significant loopholes in this pledge.

Specifically, the decision only applies to direct finance. As Urgewald’s analysis has demonstrated, however, this has left the door open to significant levels of fossil fuel financing. In fact, Urgewald estimated that the IFC financed oil and gas projects with around $3.7bn in 2022 alone.

Similar research by campaign group Recourse highlighted that, since countries signed the Paris Agreement, the WBG has financed and supported fossil fuel projects to the tune of $165bn. What’s more, as the Canary’s Tracy Keeling has pointed out, this financing has been locking countries in the Global South into fossil fuel use.

As the climate stakes ramp up, major global economic institutions like the WBG need to move with the times and finally put an end to fossil fuel funding. However, in the mean time, corporate behemoths will continue to reap the rewards of the WBG’s slippery commitments on fossil fuel finance.

Additional reporting via Agence France-Presse

Featured image via Wikimedia Commons/UKinUSA, resized to 1910*1000, licensed under the Creative Commons Attribution-Share Alike 2.0 Generic license.