Coal policy tracker: how strong are the 'no coal' policies at development finance institutions?

• Recourse has analysed the various ‘no coal’ policies and commitments made by development finance institutions (DFIs) in recent years, and compared them against each other to see which are the most robust and effective.
• Our analysis finds that some major multilateral development banks (MDBs) do not have strong ‘no coal’ policies when compared against their peers or the policies at some bilateral development banks.
• Recourse calls on the World Bank Group and Asian Development Bank to use current energy policy discussions to make good on their previous commitments and introduce comprehensive, robust ‘no coal’ policies that close existing loopholes.

Our new analysis shows that despite making various commitments to stop funding coal-related projects, the World Bank Group and Asian Development Bank (ADB) do not have robust, comprehensive and mandatory coal exclusion policies. Unfortunately, the ‘no coal’ commitments made by these institutions are vague and unenforceable, leaving too many loopholes for coal financing to continue.

Recourse’s research compared the existing ‘no coal’ commitments made by a range of multilateral and bilateral development finance institutions, using a similar methodology to that deployed by Reclaim Finance’s Coal Policy Tracker. This analysis found that, while there has been some welcome progress in committing to stop financing coal in recent years, the ‘no coal’ commitments in place at the ADB, World Bank and International Finance Corporation lack some of the clarity and specificity of policies introduced by other institutions, including British International Investment and the Asian Infrastructure Investment Bank. 

As a result, several coal power projects have continued to receive financing from MDBs, with severe social and environmental consequences for people and planet. This includes the Java 9 and 10 coal power plants in Indonesia, which has received indirect support from the IFC, and whose developer (Indonesian state utility PLN) has received large loans from ADB which could be deployed in support of coal development.

Turning ‘no coal’ commitments from ambition to reality

However, the two briefing papers highlight that ongoing discussions around a new World Bank Energy Strategy, and the ADB’s current review of its Energy Policy, offer opportunities for these banks to introduce stronger ‘no coal’ policies and cut out coal financing for good.

One of the key areas of focus is the applicability of coal exclusion policies to captive coal units for industrial uses. At present, the IFC’s policy on coal, the Green Equity Approach, does not cover captive coal, while the ADB’s policy does not specify. Again, this loophole has allowed IFC’s financial intermediary clients to fund captive coal projects in Indonesia, causing harms to local communities and biodiversity. Clear language must be introduced to these policies to ensure that these MDBs will not finance captive coal power plants, or projects reliant on captive coal power supply, going forward. 

Another key factor is to what extent institutions apply their no coal policies to different financing instruments. For instance, the IFC’s Green Equity Approach currently only applies to its equity clients, and the lack of a ‘no coal’ clause in ADB’s Results-Based loan to PLN has caused concern that these funds could be used for coal. To ensure they have robust policies, MDBs must apply their coal exclusion policies to all financing instruments and modalities, while also committing to not do business of any kind with major coal developers.

Our analysis also found that existing coal commitments vary in their enforceability. While some appear in mandatory, Board-approved policies, the language they use is unclear or vague. Meanwhile, other commitments are dispersed across a range of supporting strategy documents or public announcements which are less enforceable and not mandatory for all investments.

Recommendations for ending coal finance

In order to translate ‘no coal’ commitments from ambition into practice, Recourse recommends:

• a new, World Bank Group-wide coal exclusion in the World Bank’s Energy Strategy;
• clear language to prevent the funding of captive coal power plants, or projects reliant on captive coal power supply;
• an end to financing of any kind for major coal developers;
• applying coal exclusions to all financing instruments and modalities.

Download the briefings on the right hand side.

Photo: Java 9 and 10 coal power plants in Indonesia. Credit: Melvinas Priananda.