Advocating for just energy finance: A European advocacy tour on MDB reform

In March 2024 we led a European advocacy tour to advocate for just energy finance.

Our team met development and finance ministries, Members of Parliament, and national civil society organisations (CSOs) in Germany, the Netherlands, Belgium and France as part of an advocacy tour focused on discussions to reform the international financial architecture. At the heart of our mission is to raise concerns on the MDB (Multilateral Development Bank) reform process anchored on the experience of project-affected communities in the global south. In this regard, we embarked on the advocacy tour bringing the following demands: 

1. Revisit the concept of the ‘Bigger and Better’ Bank framework that risks overemphasising the quantity over the quality of finance at the expense of environmental and social safeguards as well as transparency and accountability measures.
2. Phase out MDB support for fossil fuels and shift public finance to sustainable renewable energy solutions.
3. Enhance the accountability, transparency and provision of remedy by MDBs with particular attention to the International Finance Corporation (IFC, the WBG’s private sector arm).
4. Ensure more grants-based and highly concessional finance especially in the context of  the 21st replenishment cycle of the International Development Association (IDA, the WBG’s lending arm for low-income countries) and reform of the austerity-focused approach of International Monetary Fund (IMF) conditionalities attached to financing arrangements 
5. Review the effectiveness of MDBs’ private-sector first approach that risks prioritising profit over people, exacerbating inequality and neglecting the needs of the most vulnerable populations.

Phasing out fossil fuel support: A climate imperative

The urgency to combat climate change has never been clearer. Fossil fuel investments by major MDBs, primarily by the World Bank Group (WBG) are not only contributing to greenhouse gas emissions but are also perpetrating environmental degradation and social injustice on project-affected communities. Fiza Qureshi, Senior Advisor to Indus Consortium highlighted demands to phase out fossil fuels including fossil gas and exclude MDB support for such types of investment.

Recourse and partners engagements with policymakers, financial institutions and civil society, underscored the imperative of aligning MDB financing with the goals of the Paris Agreement while complying with human rights and social standards to protect the rights of communities affected by greenfield projects. Anitha Sampath from Centre for Financial Accountability (CFA) India highlighted the need for a swift transition towards renewable energy and sustainable infrastructure that is subject to the highest environmental and social standards in pre-assessments and during and post project implementation. Anitha also raised the importance of focusing on transformative and community-owned renewable energy projects versus IFC-backed large-scale solar and wind projects in India that displace communities, risk biodiversity loss and violate indigenous peoples’ rights to Free, Prior and Informed Consent (FPIC). 

“The ongoing climate crisis will have a huge effect on India and it is imperative that we take action towards climate mitigation and adaptation. There is a need for an increased push towards just energy transition. 

However, while continuing the push towards phasing out fossil fuels, we need to ensure investments for Climate Finance coming into India are critically monitored and evaluated for the effectiveness of impact. So far, most green financing is focused towards privately owned, large, utility-scale renewable energy projects in ecologically sensitive regions and false solutions such as carbon trading and green hydrogen. These projects cause severe land conflicts, water shortages, and ecological devastation. 

The proposed solutions to climate change by the World Bank Group and other IFIs have further exacerbated climate issues and related conflicts in India. Therefore, the IFIs must engage with communities and civil society to identify appropriate solutions.”

– Anitha Sampath, Centre for Financial Accountability (CFA)

Throughout the two-week advocacy tour, partners shared stories from their own countries that demonstrate why a clean energy future is not only necessary but also achievable. By amplifying the voices of communities affected by fossil fuel projects (as well as renewable energy investments that do not comply with human rights and social criteria), partners emphasized the moral imperative of MDBs to prioritise sustainable long-term development instead of short-term financial gains from their loans and investments. 

Enhancing accountability: Towards a robust remedy and Responsible Exit Framework for the IFC

Accountability lies at the core of effective development finance. Concerns have been raised however on the lack of oversight, transparency and recourse mechanisms within MDBs, particularly concerning the International Finance Corporation (IFC). 

During the tour, European government officials engaged with Recourse and partners on how to strengthen the IFC’s accountability mechanism. Atty. Aaron Pedrosa from PMCJ discussed the case of the IFC-backed coal power plants in the Philippines and the demand to provide remedy for communities affected by these fossil fuel investments. 

“The Philippines being a country in the frontlines of the climate crisis as manifested in increasing vulnerability to sea-level rise, floods, droughts, and weather extremes, resources must be allotted in ensuring and enhancing communities’ adaptive capacity to climate impacts. 

Fossil fuel finance from IFIs undermine these efforts while exacerbating pre-existing conditions of environmental degradation, poverty, and human rights violations. The mad rush for coal and gas is fueled by funds coming in whether directly or indirectly from IFIs. Pulling the plug at the source would provide the necessary impetus to veer dependence away from fossil fuel burning for the country’s energy requirements.

This is, however, not a simple way out as IFIs must be held to account for the harms and damage caused to host and adjacent communities in the form of remedy. It is this motivation which drives us to bring the fight to the European Capitals.”  

– Atty. Aaron Pedrosa, Philippine Movement for Climate Justice (PMCJ)

Atty. Pedrosa advocated for the adoption of a robust remedy and responsible exit framework for the IFC to ensure that IFC-supported projects uphold environmental and social standards event after funding concludes. Recourse and partners also asked European capitals to support CSO demands on closing loopholes in financial intermediary lending, including through underwriting and trade finance that allow continued financing for coal, fossil gas and oil projects. We also discussed the need to ensure transparency and full, prior public disclosure of all energy projects funded by MDBs through financial intermediaries.

Promoting concessional financing: Towards equitable development for the Global South

A key pillar of the advocacy tour was the promotion of concessional and grants-based financing from the WBG and the International Monetary Fund (IMF). Concessional financing plays a crucial role in supporting low-income countries, allowing them to pursue development and climate objectives without incurring unsustainable debt burdens. 

Fiza Qureshi from Indus Consortium highlighted the case of Pakistan whose current national debt stands at more than 35% of the country’s GDP with 44% channeled to pay off debt to multilateral sources including the WBG and the IMF. The unsustainable debt situation of Pakistan coupled with the country being one of the most vulnerable areas to the impacts of climate change, make the case for immediate debt cancellation and allowing Pakistan to have the fiscal space to prioritise just energy transition objectives without sacrificing public spending for social services.

“Non-Economic loss and damage in Pakistan during floods 2022 necessitate a bold stance from International Financial Institutions (IFIs). It’s imperative for IFIs to realign their investment priorities, shifting focus towards community-oriented projects that bolster resilience and sustainability.

This demands a significant reduction in investments in fossil fuels, recognizing their detrimental impact on the environment, biodiversity and the lives of vulnerable segments of the society. Instead, IFIs must ramp up investments in renewable energy sources, which not only mitigate climate change but also foster long-term economic and environmental sustainability.” 

– Fiza Qureshi, Advisor, Indus Consortium

Recourse and partners also raised recommendations to ensure the IDA21 replenishment negotiations result in preserving IDA’s ability to respond to tackling poverty and addressing the debt crisis to substantially finance grant programs, whatever it takes. The discussions centred on ensuring IDA prioritises grants-based financing to address both climate and development needs of low-income countries as opposed to debt-creating loans and pushing for a strong policy package that centres on the quality of IDA financing while at the same time reviewing its private sector window and its impact.

This European advocacy tour organised by Recourse and its partner organisations from Asia demonstrates the urgency of addressing public finance for a globally just energy transition. By championing the phaseout of fossil fuel support, enhancing accountability of the MDBs and promoting concessional financing to support low-income governments, our partners have laid the groundwork for future discussions on a more sustainable and equitable approach to development finance.