Coal finance

Development banks financing unburnable carbon


In the run-up to the climate summit to be convened in New York this week by Ban Ki-moon, the Bretton Woods Project published a report on the financing of unburnable carbon by major multilateral development banks (MDBs) showing that billions of dollars are still going to financing coal, despite the banks’ lip service to greater climate protection.

The study examined the five largest development banks: International Finance Corporation (IFC, the private-sector arm of the World Bank Group), Inter-American Development Bank (IDB), Asian Development Bank (ADB), European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD).

In a joint statement last week, the MDBs underscored their intention to lead by example and reinforce climate finance. The statement quantified the contribution of banks to climate finance since 2011 at over $75 billion that went toward climate protection in developing and emerging economies. The Bretton Woods Project report, however, notes that as of the end of 2013, the five MDBs together accounted for around $20 billion in active investments in a total of 179 coal projects worldwide. The development banks also favor large, established companies, and have invested $12.8 billion in publicly listed businesses that already have access to capital markets.

The MDBs’ investments in fossil fuels have a combined estimated potential of 29.3 gigatons of CO2, the equivalent to around 5% of the world’s remaining carbon budget of 565 Gt CO2. This entails a big risk that a significant part of the banks’ funds will go toward unburnable carbon – fossil fuel resources such as coal, oil and gas that can be extracted, but cannot be burnt if the 2-degree target is to be met and dangerous climate change avoided. The investments would thus lose their value and expose the MDBs to the risk of a carbon bubble.

The report once again underlines the need for MDBs to withdraw from financing fossil fuels and instead promote renewable energies – as is currently being called for in Germany with regard to the financing of coal projects by KfW Development Bank, and which the German government wants to restrict. This is crucial to closing the gap between climate protection rhetoric and funding reality.

Christine Lottje