A Brief Overview of the International Finance Corporation (IFC):

• The IFC is a critical component of the World Bank Group . Its primary function is to provide financing, advisory services, and technical assistance to businesses and financial institutions in emerging markets. The sectors it mainly focuses on include infrastructure, manufacturing, and financial services.

Understanding the Green Equity Approach (GEA) policy of IFC:

• In 2020, the IFC introduced the Green Equity Approach policy. The primary aim of this policy is to incentivize its financial institution clients to enhance their climate lending and decrease their involvement in coal-related projects. This initiative aligns with the objectives of the Paris Agreement .
• The GEA policy allows the IFC to collaborate with financial intermediary (FI) clients where it has equity or equity-like exposures.
• Initially, the GEA policy required clients to reduce their involvement in coal by half by 2025 and completely by 2030.
• The Impact of the GEA policy:
  • The policy, unfortunately, led IFC clients to continually support new coal projects, which had detrimental effects.

Recent Changes to the GEA by IFC:

• Recently, the IFC announced an update to the GEA policy. It now states that it will no longer allow financial intermediary (FI) clients to support new coal projects. The IFC now requires a commitment from FI clients to abstain from originating and financing any new coal projects.
• This change will help align IFC's actions with one of the primary goals of the Paris agreement, which is to ensure that financial flows are consistent with a pathway toward low emissions and climate resilient development.

IFC's Role in India:

• India has 88 active financial intermediary investments, amounting to nearly $5bn. These investments include support for institutions involved in energy, energy utilities and renewable energy investments.
• Some of IFC's investments in India have sparked controversy. For instance, in 2007, the IFC invested in the India Infrastructure Fund, which subsequently invested in GMR Kamalanga Energy Limited (GKEL) a coal-based power plant near Kamalanga village in Odisha state. The project faced criticism over potential environmental and social risks.

Shortcomings of the Current Reforms:

• The new guidelines should apply to all lending done by IFC and should not be limited to only equity shareholding.
  • If the coal reduction policy were enforced across all lending activities, it could serve as a powerful incentive for Indian financial institutions to strengthen their own coal reduction policies.
  • The IFC and other similar institutions have the potential to influence Indian financial institutions to incorporate and effectively implement environmental and social safeguard (ESS) policies linked to lending.
• The IFC needs to take further steps and eliminate all investments in coal, oil, and gas to align its portfolio with the Paris Agreement.

International Finance Corporation: