An analysis released on Tuesday by German nonprofit Urgewald estimated that the World Bank spent nearly $4 billion on fossil fuel financing last year, despite its 2017 pledge to cease financing for upstream oil and gas projects after 2019. The World Bank was under the leadership of a climate denier nominated by former U.S. President Donald Trump at the time.
Urgewald noted that the World Bank's commitment only applied to direct finance, allowing it to channel funds to oil and gas projects through "trade finance" distributed by its private-sector arm, the International Finance Corporation (IFC). The IFC's lack of transparency has been criticized, as over 70% of its budget is distributed in secrecy, with no reports on the types of goods and businesses funded.
Urgewald's Heike Meinhardt stated that this level of funding would more than triple the current annual level of fossil fuel finance attributed to the World Bank and cast serious doubts on the bank's alignment with the Paris Climate Agreement. The World Bank has been accused previously of reneging on its climate commitments, with a report by Big Shift Global estimating that it has spent nearly $15 billion supporting fossil fuels since the adoption of the Paris Climate Agreement in 2015.
Former World Bank President David Malpass sparked outrage last year when he expressed uncertainty about whether he accepts that climate change is caused by burning fossil fuels. Malpass stepped down in June, replaced by Ajay Banga, a former private equity executive nominated by U.S. President Joe Biden.
Urgewald warned that the World Bank will remain a significant source of funding for the fossil fuel industry until reforms are enacted to prevent the IFC from bolstering oil and gas under the guise of "trade finance." The IFC disputed Urgewald's findings on Tuesday, stating that their report contains serious factual inaccuracies and grossly overstates the IFC's support for fossil fuels.
In 2022, the World Bank supplied about $3.7 billion in loans and capital for "trade finance" that likely ended up funding oil and gas developments, according to Urgewald. The World Bank had pledged in December 2018 to align its spending more closely with the goals of the 2015 Paris Agreement, which seeks to limit annual global warming to 1.5 degrees Celsius above pre-industrial levels.
Despite these commitments, a loophole persisted: trade finance was not part of these promises to stop financing coal and upstream oil and gas. They only apply to direct finance and not to trade finance, which is considered indirect finance.
In response to Urgewald’s findings, a spokesperson for the IFC told the Guardian that their report “contains serious factual inaccuracies and grossly overstates IFC’s support for fossil fuels.” The spokesperson also claimed that IFC “excludes coal from trade financing and only permits oil and gas on a limited basis for distribution purposes only (no production), contingent on development impact,” and that too, only in countries “where energy security is critical.”
The World Bank put $31.7 billion into climate financing in 2022, a record for the institution. This accounted for 36% of the Bank’s total financing for the year towards climate efforts. However, an October 2022 Oxfam audit found that 40% of the World Bank’s climate finance could not be verified.
Ajay Banga, who was appointed president of the World Bank in June, asked employees to “double down” on development and climate efforts on his first day on the job. He also called upon governments, philanthropies, and other multilateral banks to work together.
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