Civil society groups are hoping an opinion from the International Court of Justice will force the World Bank Group to carry out more thorough due diligence on projects with high carbon emissions and cut down its financing of fossil fuel infrastructure.
Bank Climate Advocates, a US NGO that has been leading an engagement on this issue for several years, wrote to leaders of the World Bank Group on October 10, requesting that they explain their response to the ICJ opinion during and after the Annual Meetings.
The WBG’s four financing and guarantee institutions have board-approved policies that require them to consider environmental and social risks and impacts, including climate issues, before engaging in deals.
But in a multi-year campaign, 26 NGOs and NGO alliances, many of them from Africa, Asia and Latin America, have objected that the policies are inadequate, and that the International Finance Corp and Multilateral Investment Guarantee Agency do not adhere to them anyway.
They have tried using arguments based on international law to compel the World Bank institutions to smarten up their climate due diligence.
Full responsibility
In July the International Court of Justice answered a question asked by the UN General Assembly in April 2023: what are states’ obligations under international law to protect the climate from greenhouse gas emissions, and what are the legal consequences for failure?
In a 140 page opinion on July 23, the Court found unanimously that, under customary international law, “States have a duty to prevent significant harm to the environment by acting with due diligence and to use all means at their disposal to prevent activities carried out within their jurisdiction or control from causing significant harm to the climate system.”
This obligation was also contained in the international law of the sea and in major climate change and human rights treaties.
The Court said countries should use “regulatory mitigation mechanisms … to achieve the deep, rapid, and sustained reductions of GHG emissions that are necessary for the prevention of significant harm to the climate system.”
This duty includes when states are governing public entities, the Court said.
“These rules and measures,” said the Court, “must regulate the conduct of public and private operators within the States’ jurisdiction or control and be accompanied by effective enforcement and monitoring mechanisms to ensure their implementation.”
Jason Weiner, executive director at Bank Climate Advocates, said: “The opinion makes very clear what stringent due diligence requirements are for member states when acting at the World Bank Group and that their suite of climate change policies… are far out of alignment with their climate change obligations.”
The ICJ also said: “Failure of a State to take appropriate action to protect the climate system from GHG emissions — including through fossil fuel production, fossil fuel consumption, the granting of fossil fuel exploration licences or the provision of fossil fuel subsidies — may constitute an internationally wrongful act which is attributable to that State.”
BCA believes multiple precedents in international law require that MDBs themselves are bound by the obligations of their member states.
Criticism from Ombudsman
As part of this multi-year campaign, 26 NGOs and NGO alliances, many of them from Africa, Asia and Latin America, wrote in December 2023 to the Compliance Advisor Ombudsman, the independent accountability mechanism for the IFC and MIGA.
The NGOs complained that “the IFC has committed itself to specific, project-level and systemic GHG policies, and is flagrantly violating them at communities’ severe expense”.
They argued that the IFC was quantifying the impacts of its investments inadequately and approving projects that harm the climate.
BCA analysed 350 IFC direct investments and 60 MIGA guarantees between 2012 and 2023 and found “systematic non-compliance” with its own policies.
In particular, the IFC when assessing projects with high greenhouse gas emissions regularly failed to properly consider lower carbon alternatives, or publish detailed analysis of why these alternatives were not considered or were rejected.
According to BCA, 233 projects directly financed by the IFC and two investments through financial intermediaries, which included coal-fired power plants in the Philippines, resulted in about 168m tonnes of carbon dioxide-equivalent being emitted a year — similar to the emissions of the Netherlands.
In October 2024 after a request by the NGOs the CAO published an advisory note on the issue, intended to inform the IFC and MIGA’s review of their 2012 Sustainability Framework.
In BCA’s view, this note confirmed IFC’s obligations to comply with its board-adopted sustainability policies and established that IFC was systematically failing to do so.
The CAO reported that in 21 out of 27 cases it examined where the IFC should have performed an analysis of whether alternative technologies could achieve the same aim as a financed project, with lower emissions, “critical elements” of established good international industry practice were missing.
Waiting for an answer
In January, the NGOs wrote to Ajay Banga, president of the WBG, and Makhtar Diop, managing director of the International Finance Corp, complaining about the IFC’s practices and requesting that it implement the CAO’s recommendations.
The IFC has not said it agrees with the CAO, but instead that it is focusing on implementing its Paris Methodologies and updating its 2012 Sustainability Framework.
But responding to the NGOs in April, the IFC said “we closely follow legal developments that are relevant to the IFC as an international organization… climate related questions… being considered by the International Court of Justice and the Inter-American Court of Human Rights… are of great interest.”
Now the ICJ has given its opinion, but the WBG has not yet said anything to the NGOs.
“There’s been no indication that it would be a topic at this year’s annual board meetings. Not even a topic,” said Weiner. “Meanwhile the communities they are supposed to be benefiting at the World Bank Group are being devastated by climate change. The IFC is not doing anything to commit to improve its practices.”
More oilIn June the IFC approved $300m of financing and the International Development Association $400m for the $6.6bn Reko Diq copper and gold mine in Pakistan, being built by a joint venture between Canada’s Barrick Gold and the government of Balochistan and three Pakistani state companies. A heavy fuel oil power plant is being built to provide 80% of the plant’s power, although the mine is in a desert with very high sunshine, suggesting strong potential for solar power. Solar panels will provide 20% of the electricity. The IFC’s Environmental and Social Impact Assessment (ESIA) for the project says it is technically feasible for solar power to meet the project’s need for power. It briefly states that using solar power for more than 20% would be “constrained by costs” without any detailed analysis to explain why this could not be a higher percentage. It considers a single alternative option, of 70% solar, and briefly dismisses this. The IFC’s estimate of the project’s lifetime emissions also assumes that after year 15, the plant will no longer be powered by the heavy fuel oil plant, but will be connected to Pakistan’s grid, and that this will be substantially powered by renewable energy. BCA has pointed out that there is no way to be sure that will be the case, and since this mine is a large industrial installation over which the IFC has influence, the IFC is missing an opportunity to help Pakistan decarbonise its energy supply. Instead, the project sponsors are relying on other parts of the economy to reduce the emissions of this project. The mine is therefore free-riding on the decarbonisation efforts of others, BCA argues. Barrick Gold declined to comment, but in August it published a statement rebutting a separate NGO letter objecting to Reko Diq, and saying the ESIA “was designed to meet… international best practice”. It said the solar plant would provide all energy required during daylight hours. “Due to the project’s isolated location, there is currently no alternative power infrastructure, however a transition plan is in development and it is anticipated that the mine will be connected to the Pakistan national grid during the 2030s,” Barrick Gold said. “Feasibility studies are ongoing to determine the scope and timing for connection to the national grid, which will not only reduce potential greenhouse gas emissions, but also provide a significant socio-economic benefit in bringing power to the communities in Chagai District: development that will not be possible without Reko Diq.” Sunshine and gasBCA also criticises the IFC’s provision of advice to the Moroccan government on a possible liquefied natural gas import terminal, though Morocco has high potential for renewable energy. It argues this is an example of new investment that would lock in an economy to using fossil fuels, instead of developing and expanding its clean energy sources. Supporters of the project see it as helping phase out coal and heavy fuel oil power generation more quickly. |
Too loose
Criticisms of the WBG’s climate stance go beyond non-compliance with its own policies. The policies themselves contain loopholes, the NGOs argue.
They should require that activities financed are compatible with limiting global warming to 1.5°C. That should involve a prohibition on new fossil fuel infrastructure, unless there is a detailed demonstration, supported by the best available science, that there is no cleaner alternative. But WBG policies allow it to defer to making projects in line with the host country’s nationally determined contribution to reducing climate change, even if this is far from compatible with 1.5°C.
NGOs are also concerned about the WBG’s Mission 300 campaign, launched with the African Development Bank last year, to connect 300m people in Africa to electricity by 2030.
BCA says Mission 300 appears to use a standard of “least cost generation” to determine which technology to finance, but the criteria for this are not clear, and this does not satisfy climate due diligence obligations. Instead, the Mission 300 campaign should have a presumption in favour of renewable energy, unless this is shown by thorough due diligence to be not economically and technically feasible.
Banks covered too
Some 55% of IFC’s long term financing commitments are to financial institutions such as banks and private equity firms. “Those are all very high risk in terms of channelling funds to fossil fuels,” said Weiner. “The due diligence standards in IFC’s own policies and the ICJ climate opinion both require IFC, before giving money to financial intermediaries, to [ensure they have] policies in place that require adherence to IFC’s GHG emissions, environmental and social safeguards.”
Good international industry practice would require, he said, that the financial institution publicly disclose the GHG emissions of entities it finances before financing decisions.
“By not requiring this, IFC is failing in its diligence obligations,” Weiner said.
Asked what civil society could do if the WBG refused to change, Weiner said “A lot. If MIGA and IFC don’t take immediate and sufficient action to come into alignment with their climate change obligations… there are other things that can be done including initiation of lawsuits, either against the World Bank Group or their member states. Those against member states would have to be brought against countries in their own courts, but they can be brought.”
When GlobalMarkets asked the World Bank Group, IFC and MIGA to comment on all these issues, a spokesperson said: “Doing development the right way — smart, high quality, and fiscally responsible — means building resilience into everything we do. We surpassed our own projection that at least 45% of our development finance should produce climate co-benefits for our clients by fiscal 2025 — reaching 48% this past year.”
Facing the public
On Monday afternoon in Washington Banga and Diop participated in a town hall meeting with civil society organisations.
The discussion was mainly about generating employment. Only one question was taken about climate, from Aaron Pedrosa of the Philippine Movement for Climate Justice.
He referred to a case in which the IFC through Rizal Commercial Banking Corp had financed 10 coal-fired power plants in the Philippines. After complaints from local citizens and PMCJ in 2017, the CAO made “serious and wide-ranging findings of non-compliance”.
In January a follow-up report by the CAO found “limited evidence of meaningful outcomes” from the IFC’s effort to mitigate the power plants’ impacts and address their GHG emissions.
Pedrosa asked “How can remedies be secured for the affected communities whose livelihoods have been disrupted, who have been displaced?”
In response, Diop (pictured) said the IFC was improving its procedures to deal with mistakes. “The system in the past didn’t allow us to capture some mistakes that were done, not only by us but other investors that were part of this consortium,” he said. “The reason the system was not working was the same people were approving the project as were supposed to supervise it. It was not good internal governance. We need to separate it… If we do it well we will be able to capture things much faster. But learning from the experience we have with you, we realise we need to have a framework for remedial action.”
He added: “We are listening very carefully, and learning from mistakes done in the past. [They] are being corrected in a systematic way. Mistakes will happen in the future — that’s the nature of life — but the question is how fast do you catch it and react to it?”
Top picture: GNPower Dinginin power station in Bataan, the Philippines' biggest supercritical coal-fired power plant, in December 2023. This was one of the plants in the IFC/Rizal case.
Picture: Kevin Izorce/Alamy Live News