International Finance Corporation piloted its green equity policy with an Indonesian bank, which went on to fund a 2,000 MW coal complex
The World Bank’s private lending branch is indirectly backing one of the world’s biggest new coal complexes, despite a new green policy.
In September, the International Finance Corporation (IFC) published its green equity approach (GEA), outlining that: “IFC no longer makes equity investments in financial institutions that do not have a plan to phase out investments in coal-related activities.”
Yet the client it chose to pilot the approach with in 2019, Hana Indonesia, has since approved project finance to the 2,000 MW Java coal power station in Banten, Indonesia.
A source with knowledge of the matter told Climate Home that when confronted, IFC officials claimed not to be aware of Hana Indonesia’s involvement in the coal megaproject.
“We are in discussion with PT Bank KEB Hana Indonesia to better understand its recent lending activities,” a spokesperson for IFC said.
Java 9 and 10 is predicted to release 250 million tonnes of carbon dioxide over 25 years, equivalent to the annual emissions of Thailand or Spain, according to a report by sustainable finance watchdog Recourse.
A Greenpeace report warned that the $3.5 billion coal project could lead to more than 4,700 premature deaths over a 30-year period and affect the air quality in the Indonesian capital Jakarta, 120km from the power plant.
Indonesia has the fourth largest coal pipeline in the world and is one of only five countries in the world to start construction of new coal power plants in 2020, according to Climate Action Tracker.
The GEA was developed precisely to encourage equity clients in such countries to shift away from coal, with a goal to reduce their coal exposure by 50% by 2025 and to zero by 2030.
“The approach will allow IFC to continue engaging with banks that finance coal, but with a transparent framework and declining limits in line with the Paris Agreement and various climate scenarios,” the IFC said.
The policy came two years after the IFC said it would proactively seek clients committed to moving away coal.
“If the IFC continues to fund really egregious coal such as Java 9 and 10 that is a huge disappointment and frankly a betrayal of all the GEA stands for,” Recourse co-director Kate Geary told Climate Home.
“The GEA will be revised in 2021 and we need to see this loophole closed – no new coal has to be a condition of IFC agreement to partner with a bank under the GEA.”
Hana Indonesia’s parent bank is Hana Korea, South Korea’s fourth largest bank. IFC has a “long-term relationship” with Hana Korea, according to Seongeun Lee, a researcher at the Korea Sustainability Investing Forum. “They have invested in Hana Korea from their inception.”
IFC and Hana Korea are both shareholders in Hana Indonesia. IFC owns almost 10% and Hana Korea almost 70% of equity in the bank, according to Recourse. Neither bank has made a public statement on coal financing.
Hana Korea is one of several South Korean banks to invest in Java 9 and 10, noted Yuyun Indradi, the executive director of campaign group Trend Asia.
“Korea is financing dirty energy projects [overseas], while they try to implement the Green New Deal domestically. It’s a double standard,” Indradi said.
When President Moon Jae-in won the election earlier this year, he announced an ambitious Green New Deal, which included a 2050 net zero pledge and ending state support for overseas coal projects.
In July, South Korean lawmakers proposed a bill that would end financing for overseas coal projects. Seongeun said it is currently unclear whether the bill will pass and said that to date only six Korean financial institutions have declared that they will no longer invest in coal.
“Hana has seen that [Java 9 and 10] is the last chance as a business opportunity [to invest] in the dirty energy sector,” Indradi said.
According to Recourse, IFC could play a pivotal role in ending Indonesian and Korean investment in coal.
“We need IFC to take Hana Indonesia to task over this, and to use its relationship with Hana Korea to have a serious discussion about the bank’s huge coal exposure around the world,” said Geary.
This article was amended to clarify the emissions comparison.