Awareness of fossil fuel legal risk spreads across MDBs

Pressure on the multilateral development banks to stop financing fossil fuel energy is sharpening, as a group of civil society organisations is forcing them to notice their responsibilities under international law — which the CSOs believe means not harming the climate.

Bank Climate Advocates led other CSOs on Tuesday in writing to the presidents and general counsels of the African Development Bank, Asian Infrastructure Investment Bank, European Investment Bank and Inter-American Development Bank, arguing that all their climate and environmental policies fall “severely short” of what international law requires.

Despite the MDBs’ green and sustainable bond issuance and efforts to finance clean development including infrastructure such as renewable power plants, the CSOs allege they are still putting money into projects which lead to high greenhouse gas emissions, such as liquefied natural gas terminals, pipelines and gas power stations.

The letters follow similar ones sent to the European Bank for Reconstruction and Development on January 9 and the World Bank, International Finance Corp and Asian Development Bank in November.

Bank Climate Advocates has also sent the detailed letters to all the shareholders of these banks, through the executive directors who represent them on the banks’ boards.

“We are seeing projects across all these MDBs that are prolonging the life of fossil fuels, instead of financing renewables that could feasibly meet energy demand,” said Jason Weiner, executive director of Bank Climate Advocates, which is based in San Francisco. “We are trying to make them realise that this is not only problematic because it harms people in their investment regions that they are supposed to be benefiting, but also because it’s in breach of their climate change obligations under international law.”

NGOs have long lobbied the MDBs and campaigned for improvements in their human rights and environmental policies, criticising them for projects which led to pollution or people being displaced or intimidated.

What is different about the present multi-year engagement by over 30 NGOs and NGO alliances is that it uses not just moral and economic arguments, but legal ones.

In 2023 the UN General Assembly asked the International Court of Justice what obligations states have under international law to protect the climate from greenhouse gas emissions.

The ICJ gave its advisory ruling last July, declaring: “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.”

Bank Climate Advocates then commissioned an opinion from two legal scholars into whether this climate responsibility applied also to MDBs.

Dr Johanna Lorenzo of the University of Amsterdam and Dr Jolene Lin of the National University of Singapore delivered their 44 page opinion in November.

It draws on multiple instances in customary international law, treaties, and rulings by the ICJ, Inter-American Court of Human Rights and International Tribunal for the Law of the Sea to conclude that as intergovernmental organisations, MDBs — and countries when acting as their shareholders — are covered by the same duties that rest on states, to avoid environmental harm.

“MDBs and member states have clear climate change due diligence obligations, which require that they use the best available science and methods to avoid greenhouse gas emissions,” said Weiner. This means that “in all but truly exceptional circumstances, when it has been thoroughly studied [and concluded] that renewables aren’t possible, they stop financing fossil fuels.”

All MDBs have policies designed to ensure good conduct by their own staff and the partners they finance, and to ensure their money is genuinely used to fulfil their humanitarian missions.

In the past 15 years the MDBs have also become keenly aware of their central role in the fight against climate change. They have put in place policies on aligning their financing with the Paris Agreement, which requires countries to make every effort to limit global warming to 1.5°C.

In doing so, the MDBs have been guided by the wishes of their shareholders, managements and public opinion. But they have not up to now considered that these environmental and social policies could be governed by international law.

NGOs complain that the development banks’ policies have many loopholes which allow projects with harmful impacts on the climate or local environments and social groups to be financed.

Moreover, the MDBs do not always follow their own policies properly.

Scrutiny of proposed projects’ environmental and social impacts can be half-hearted and is not always made public to allow stakeholders to comment and object.

BCA and 33 partner organisations, which include the Climate Reality Project America Latina, Accountability Counsel, Urgewald, Recourse, Equitable Cambodia and IBON International, now see international law as a way to hold MDBs to account for the laxities and gaps in their policies and implementation of them, by establishing a clear standard.

“The AIIB, EIB, AfDB and IADB are all far short of meeting their stringent climate change due diligence obligations in the legal scholars’ opinion,” said Weiner. “So are the member states when supervising and acting at the MDBs to approve various policies and investments.”

The tension between MDBs’ sustainability and ethical commitments and their drive to finance projects their shareholders cherish occurs at every bank and on every continent.

Rayyan Hassan is executive director of the NGO Forum on ADB, a network of CSOs across Asia which monitors that bank, and recently the AIIB too.

Hassan pointed to Syrdarya 1, a 1.5GW combined cycle gas turbine power plant in Uzbekistan, which the AIIB and EBRD approved for co-financing in 2021.

The AIIB had classified it as Paris-aligned, he said, because it was part of Uzbekistan’s Nationally Determined Contribution under the Paris Agreement.

“But what we want to argue,” Hassan said, “is how much greenhouse gas emissions [does it] contribute and was that aligned to 1.5°C?”

He said the MDBs’ level of reporting of GHG emissions analysis was poor. The banks claimed part of their financing was Paris-aligned, but the methodologies were unclear. “There is no commitment that GHG accounting will be part of it.”

In Dhaka, where Hassan lives, the AIIB is lending $100m to a $467m project for China Machinery Engineering Corp to build a 70MW waste-to-energy plant.

“The waste here is not segregated,” Hassan said. “There will be plastic, dry waste, medical waste, all together. We are not just expecting CO₂ and nitrous oxides but are worried there could be toxic emissions.”

Asked about the issues raised by the NGOs in their letter, the AIIB did not reply to a request for comment.

An EBRD spokesperson said: “The EBRD remains fully committed to scaling up green finance and supporting our regions in delivering a just, orderly and effective transition.

 “We are a transition bank and see climate mitigation and adaptation as transition processes. We cannot turn a blind eye to the hard‑to‑abate sectors that remain central to energy security, heating and industrial activity across our regions. Our approach is anchored in the goals of the Paris Agreement and designed to accelerate decarbonisation in contexts where there is no viable alternative today.”

Karabo Mokgonyana, energy co-lead at Power Shift Africa, an NGO based in Nairobi which is part of the campaign, said that “since the Trump administration [started] there has been a big shift in the priorities of the banks. A lot have changed their tune when it comes to the climate agenda. The executive directors have been honest with us… even progressive shareholders say ‘we’ve had to compromise, we’d rather speak about climate in a different context’.”

The MDBs now prefer to talk about clean energy as “smart development” without emphasising the climate effects, Mokgonyana said. “It’s quite concerning for development banks that are meant to prioritise development issues, and climate change is one of those,” she said. “They have forgotten the legal issues in the context of the ICJ opinion and the Paris Agreement.”

Power Shift Africa is one of 14 NGOs that wrote to the International Finance Corp in February to raise concerns about its intention to finance the conversion of the Cap des Biches power plant in Senegal from burning heavy fuel oil to LNG.

They are worried this will lock in fossil fuel use.

Earlier this week Power Shift Africa and four other NGOs wrote to the African Development Bank’s board, questioning its $150m loan for the Coral North Floating LNG Project led by Eni off the shore of Cabo Delgado, Mozambique.

The installation will process 3.6m tonnes of LNG annually. In the past nine years there has been an armed insurgency in the region that killed thousands of people.

“Mozambique is highly vulnerable to climate change, facing recurrent cyclones, flooding, and food insecurity,” the five NGOs wrote to the AfDB. “While the country’s current emissions represent approximately 0.2% of global emissions, the cumulative lifetime emissions of the planned LNG projects in the Rovuma Basin are estimated at approximately 4.5 gigatonnes of CO₂ equivalent, with some analyses indicating that full exploitation could consume up to 17% of the remaining global carbon budget consistent with limiting warming to 1.5°C.”

The African Development Bank Group told GlobalCapital it had been ambitious in increasing its share of climate finance.

Projects with climate-informed design rose from 88% of the total in 2020 to 98% in 2025.

The share of annual project approvals allocated as climate finance has consistently exceeded the bank's 40% target, rising from 41% in 2021 to 54% in 2025.

The AfDB said that between 2020 and 2025, 100% of its energy sector lending approvals were directed toward renewable energy.

"The African Development Bank supports its member countries in pursuing a low carbon development trajectory by harnessing the continent’s vast renewable energy potential and developing an optimal energy generation mix that strengthens energy security and resilience," the AfDB said. "The African Development Bank does not provide funding for coal projects, nor does it finance upstream oil and gas exploration or extraction."

This support follows the Bank’s Ten Year Strategy for 2024 to 2033 and its Energy Policy.

Of all the MDBs, the European Investment Bank has gone furthest in trying to hasten the climate transition, even referring to itself as ‘the Climate Bank’.

Since it launched its Climate Bank Roadmap in 2020, the EIB says it has “supported over €560bn in green investment” and aims to reach €1tr this decade.

“We applaud the steps they have taken,” said Frank Vanaerschot, Brussels-based director at Counter Balance, an NGO that has monitored the EIB since 2007. “They did a ban on fossil fuel projects, which they decided in 2019 — that is something many multilateral banks do not have.”

However, he said, “dealing with the climate crisis is much more comprehensive than this. There is a gap where [EIB] financing is still open to infrastructure which prolongs the life of fossil fuels.”

For example, EIB policies have allowed it to finance “gas infrastructure projects that are planned to transport renewable or low-carbon gases” such as hydrogen.

“They could be used to transport renewable hydrogen, but also fossil-based hydrogen,” said Vanaerschot. “Given the difficulties in producing renewable hydrogen, there is a big risk that it will be fossil infrastructure.”

Counter Balance is also worried about the one third of EIB lending which is channelled through financial intermediaries such as commercial banks, which use the money to lend to companies, often SMEs.

“The EIB gives them the client methodology they are supposed to follow, but they operate on their own and select projects,” said Vanaerschot. “The scrutiny of what is happening is difficult.”

It is not clear how stringently these loans are subjected to climate due diligence.

“The EIB are still not meeting the best available science and methods due diligence standard in the ICJ opinion,” said Weiner. “It’s not a requirement in their policies.”

NGO Forum on ADB is also working on the issue of financial intermediary loans. “It has been really bad, historically, across MDB financing,” said Hassan. “There are a lot of loopholes where they don’t disclose [beneficiaries] in the name of protecting business interests.”

Vanaerschot said the EIB did not publish lists of companies that received loans from intermediaries, though British International Investment, the UK development bank, did this, proving it was possible.

An EIB spokesperson said: “We value constructive engagement with civil society and consider such dialogue essential. We confirm we have received the letter and are currently reviewing it.”

He said last year’s unanimous adoption of phase two of the EIB Group Climate Bank Roadmap for the 2026-2030 period, “consolidates the Group’s position as the Climate Bank.

“We reaffirm our commitment to strong international partnerships and the EU’s climate leadership. When some are pushing back, we stay the course, making the green transition and competitiveness a winning tandem.”

The spokesperson said all new EIB Group operations were aligned with the principles and goals of the Paris Agreement.

“In 2019, we became the first multilateral development bank to step away from financing natural gas transmission and power generation infrastructure,” the official said. “We decided to focus on the cleanest, most affordable and secure energy sources. In 2025, nearly 60% of EIB Group financing, amounting to a record €57bn, was directed to projects in energy grids, renewable energy, energy efficiency, clean technologies, sustainable transport and climate change adaptation.”

A spokesperson for the IDB Group said it operated under an institutional strategy approved by its member states, which strictly guided its work.

“We work with and at the request of our member countries,” the spokesperson said. “Projects are developed with governments, private sector clients and partners, and reflect national priorities, consistent with the Group’s policies and development mandate, including strict environmental standards.”

He also said IDB regularly engaged with stakeholders including CSOs and “we deeply value their perspectives. We will have two days of deep and open engagement with CSOs in Paraguay, including with a number of signatories of this letter.”

With the letters sent this week, BCA and its partners have now drawn the attention of all eight major MDBs to what it believes is their legal responsibility towards the climate.

Completing the group is important, because the MDBs, although independent from each other, cooperate — and will do so more in future.

The banks are trying to align their policies with each other and speed up project approvals by trusting each other’s standards and due diligence.

“The MDBs are harmonising with each other and increasingly co-financing,” said Weiner. “When they do, they defer to each other’s policies, depending on which one decides to lead.”

However, the MDBs have been wary of discussing the issues with BCA.

Weiner has had one meeting with Jay Heimbach, vice-president of external and corporate relations at the World Bank Group, and one with Roya Rahmani, its director of global engagement. But they are not legal or technical officials.

The World Bank Group said in a letter to BCA on October 31 that “There is an ongoing dialogue within the World Bank Group and with other… MDBs about the implications of the ICJ opinion, and it will be an important reference point” as they refine their policies, but “we do not intend to engage in a public debate about the matters you raise, in particular about interpretation of international or domestic law obligations.”

The WBG has not provided any public expression of its legal interpretation of its climate change duties. The furthest it has gone is to say it closely follows developments in international law.

The Asian Development Bank, Weiner said, “has refused to engage or show good faith intention to engage.” The bank expressed willingness to meet but has refused BCA’s requests to arrange meetings, including when it visited Manila in December.

The EBRD responded promptly to BCA’s letter, promising a meeting, but has not replied to repeated requests to schedule a meeting.

Policy at the MDBs will ultimately be decided by shareholders. At this level, too, the MDBs are an interconnected ecosystem.

Developed countries and large developing countries are shareholders in many of the banks, and often governments manage their involvement centrally.

“We travelled to Manila in December to meet with ADB and their member state [executive directors],” said Weiner.

BCA met representatives of a substantial group of industrialised countries.

“We were expressing tremendous concerns, and in response they were concerned as well,” said Weiner. “They appreciate the opinion and that it is by reputable scholars. They are concerned because many of them had not been receiving legal guidance from their capitals on harm prevention and policies and voting to approve investments, let alone climate legal guidance.”

Weiner said many of the EDs had “resolved to go back to their capitals to get an opinion to give them guidance and direction, as to whether their countries and lawyers agree with the scholars.”

When BCA contacted EDs at the EBRD in January, they were also “very responsive”, Weiner said.

BCA has now begun meeting some of the responsible officials at European government ministries. Weiner said: “They are concerned and committed to giving it to their legal teams, and to taking the next steps with us.”

The core of the NGOs’ demands, which they believe is enshrined as a duty in international law, is that MDBs should evaluate the climate impacts of possible projects using the ‘best available science’ standard.

This should include considering any other technologies that could do the same job with lower emissions. The alternatives should be quantified and the analysis made public.

Asked whether the best available science standard was actually used by any MDB, Weiner said “No. A lot of the MDBs don’t have any standards governing their climate due diligence. The IFC has the good international industry practice standard, but that is not the same as best available science.”

In 2024 the IFC’s Compliance Advisor Ombudsman found that in 21 out of 27 cases it looked at, “critical elements” of established good international industry practice were missing.

The best place to see the best available science standard being used, Weiner said, was the US.

“It’s implemented throughout the US for every environmental impact assessment,” he said. “The rigour we are asking for in these assessments — these are everyday assessments that qualified consultants assist developers and companies with in the US when they are seeking regulatory permits.”

US municipalities and developers are in many states allowed to ignore the results of these studies, but nevertheless they include “full quantification of Scope 1, 2 and 3 greenhouse gas emissions, and the alternatives and mitigation analysis that shows what is economically and technically feasible for avoidance of GHG emissions. It gets provided to the public for review and comment.”

The MDBs, by contrast, do not always conduct those studies “and are not supporting their conclusions that renewables are not possible," Weiner said. "When the best available science isn’t used to assess projects or alternatives to avoid GHG emissions, that is exceptionally problematic and impermissible under international law.”

The legal arguments and precedents supporting the NGOs’ case are complex. It may take time for the MDBs and their shareholders to digest them and decide whether they agree with the findings, and whether they can live with the implications.

But for all concerned, the stakes are high.

“We are trying to align MDBs’ investments with the 1.5°C global warming limitation objective because they heavily influence, through their financing and the money they mobilise, how countries in the Global South will be electrified,” said Weiner. “If their investments aren’t aligned with 1.5°C and they don’t have adequate climate change due diligence that fully quantifies GHG emissions and analyses alternatives, and if they don’t require minimisation of emissions, and instead finance fossil fuels, then the 1.5°C limitation won’t be met.”