In a significant development, the World Bank’s private-sector arm has introduced new climate change specific conditions, which encourages commercial banks and other financial lenders to wind down support for coal projects in Asia and Africa.
The International Finance Corporation (IFC), which owns equity stakes in many large commercial banks in emerging markets, hopes the new move will lead to investors exiting from the dirty, polluting coal sector.
“I think this is an important milestone. If we look historically, our environmental policies and procedures have been adopted by both other development finance institutions and the market in general,” said Peter Cashion, head of climate finance in the IFC’s Financial Institutions Group.
The new rules, which have come into effect from but have only been published on September 17, 2020, will see the IFC withdraw from making equity investments in financial institutions that do not phase out support for the coal industry.
The new conditions are aimed at ensuring that banks and other large financial institutions reduce their exposure to coal to zero by 2030.
The IFC exerts significant influence over commercial banks, especially in in emerging economies, wherein institutions often turn to it, for both capital and expertise in governance, to help them build credibility among investors.
While the IFC itself is a major investor in its own right, its standards are also widely adopted by the private sector.
IFC’s move has been welcomed by climate change campaigners. It sends a clear message to the commercial banking and insurance sectors that public finances would no longer be made available for institutions backing coal projects.
“We expect an avalanche of different institutions to adopt a similar approach, it will have a huge impact,” said Nezir Sinani, co-director of Recourse, a Netherlands-based nonprofit organization.