Hidden financing of fossil fuels: World Bank and IMF

The hidden flows of finance to fossil fuels: World Bank and IMF edition

The hidden flows of finance to fossil fuels: World Bank and IMF edition

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by Luisa Abbott Galvao, international policy campaigner

The U.S. government has spent more than $44 billion on fossil fuel projects overseas over the last decade. From fracking projects in Argentina to liquified natural gas development in Mozambique, this finance has not only resulted in pollution and environmental degradation, but displacement, violent conflict and human rights abuses. But much harder to measure are the hidden ways U.S. tax dollars entrench coal, oil and gas overseas through the international financial institutions (IFIs) in which the U.S. participates.

The tide would appear to be turning: soon after taking office this year, President Biden issued an Executive Order promoting an end to international financing of carbon-intensive fossil fuel-based energy. The executive order included specific instructions to the U.S. Treasury to develop a strategy for the U.S. government to promote efforts that are “aligned with and support the goals of the Paris Agreement” in the IFIs in which it participates. 

At this same moment, the president of a leading IFI, the World Bank Group (WBG), announced that it will soon be releasing its new Climate Change Action Plan 2021-2025. Since assuming the role, International Monetary Fund (IMF) Managing Director Kristalina Georgieva has unequivocally recognized the “macro-criticality” of climate change and this January, she announced a series of actions to be taken by the IMF to center climate change in its work. 

But in order for these pronouncements to actually address the ways global leaders use their States’ public money to lock in fossil fuels in a warming world, they must address the covert ways that IFIs, specifically the World Bank Group and the IMF, incentivize and increase fossil fuel entrapment around the world. 

The Bank and the Fund

The international financial institutions (IFIs) are financial institutions that have been established by more than one country, and whose members are usually national governments. IFIs are supposed to provide financial and technical support to developing countries and play a key role in promoting global development and ensuring financial stability. 

The World Bank Group is an example of a multilateral development bank (MDB). MDBs influence how countries pursue economic development through direct finance and mobilization of private finance for specific development projects. They also support country policy changes, provide technical assistance to governments, and offer guarantees for foreign investors in order to create a safer environment for investors, often called “de-risking.” As a leading MDB, the WBG’s stated mission is to end extreme poverty and promote shared prosperity. It plays an important role in the response to the Covid-19 pandemic by helping countries acquire and deploy vaccines. The Bank also aims to boost public health systems, enhance public safety nets, grow employment, and strengthen government institutions including by helping countries address rising debt. Importantly, the WBG is also the world’s largest source of climate finance to developing countries. 

The IMF’s mandate, which is complementary to that of the WBG, is to promote international financial stability, monetary cooperation, and sustainable economic growth in poor countries. The Fund also promotes international trade, as it is governed by and accountable to 190 member countries. As a global “crisis institution,” the IMF plays a singular role in the Covid-19 pandemic, supporting countries through crisis lending, tackling debt and recovery policy actions. Indeed, IMF Managing Director Kristalina Georgieva declared at the outset of the pandemic that “These are the times for which the IMF was created.” 

IFIs are funded with taxpayer money from countries around the world, but especially from larger economies, tilting the power of decision-making in the institution towards those countries with the greatest financial contributions. The United States is the largest shareholder in the World Bank Group and the IMF, giving it significant power to direct its decision-making. Because IFIs like the Bank provide concessional finance to countries (grants or loans with lower interest rates than the going market rates), financing and support to fossil fuels effectively amount to subsidies. 

In 2016, the World Bank Group joined eight other multilateral development banks in committing to align its financial flows with the goals of the Paris Agreement. But four years later, we’re still waiting on their concrete plans to achieve this. It has also made commitments to limit financing to new coal-fired power plants and to upstream oil and gas (exploration, drilling and operating wells). Despite this, the World Bank Group has provided $12 billion in financing to fossil fuels since 2015, making it the worst actor of all the multilateral development banks. In 2020 alone, in the midst of the Covid-19 recovery, MDBs still directed more than $3 billion to fossil fuel projects. 

Most of this dirty finance is going to fossil gas, which is the fastest growing source of fossil fuel emissions globally. A 2020 UNEP Production Gap report shows that global gas production needs to begin to decline immediately in order for us to have half a chance of avoiding the worst impacts of 1.5C in global warming. And just this week, the International Energy Agency, arguably the world’s most influential organization advising global capital on energy policy, released a report stating that there can be no new coal, oil and gas development if the world is to meet emissions reductions targets. 

When any powerful institution directly supports fossil fuels it is cause for alarm, even more so when they are public institutions mandated to serve the greater good. But what of the more insidious ways IFIs enable and incentivize the industry? If the World Bank Group and the IMF recognize the threat of climate change and are committed to using their enormous power to prevent the worst effects, they must end all remaining lifelines to the fossil fuel industry.

  1. 1. Lending conditions that pave the way for King Coal and Big Oil 


It might be clear from its name as a “bank” that the way the WBG contributes to fossil fuels is through its direct lending. What is less known, and arguably more sinister, is that the WBG plays a significant role in influencing the regulations and tax codes of other countries in favor of King Coal and Big Oil. One major way this happens is through a lending instrument called Development Policy Finance (DPF, aka. “budget support”). Here’s how it works: when countries are in need of money to fund their government budgets, they turn to the WBG for budget support. This is money that goes straight to countries’ treasuries to help fill holes in national budgets. 

But as a condition to receiving this support, the government must agree on a number of policy changes (called Prior Actions). In the Bank’s perspective, this helps guide countries to improve public financial management for sustained poverty reduction and improve the “investment climate,” among other goals. In practice, this has been used as a vehicle to make it easier for fossil fuel companies to operate in the receiving country. A 2019 analysis found that between fiscal years 2014 and 2018, the Bank required the adoption of new oil and gas subsidies and incentives in at least 4 countries and new coal investment incentives in at least 3 countries. 

While the IMF’s mandate varies from that of the WBG, it has also made loans to countries on condition that they roll out the red carpet to the fossil fuel industry. The IMF is a lender of last resort and supports countries facing issues with financial stability and balance of payment (when there is more money flowing out of a country than in). As with the World Bank Group, the conditions purport to help countries address the problems that led it to seek aid in the first place, and to keep their economy stable and healthy. But IMF conditionalities have historically led to crushing austerity. 

Aside from the austerity measures it is so well known for, the IMF has been found to attach conditions in its lending to a number of countries that support new tax breaks for Big Oil. One recent study found that IMF loan programs supported new producer subsidies for coal and gas in Mozambique and Mongolia. The Fund also enabled new legislation in these countries to facilitate public finance of fossil fuel projects. As more countries turn to the IMF for help in coping with COVID-19, it is imperative the IMF does not further entrench fossil fuel dependency around the world. But a recent analysis has found that the IMF’s COVID-19 era loans failed to boost green recovery policies. Another study found that most Covid-19 era loans by the IMF call for austerity measures to be implemented once the pandemic crisis subsides, limiting the resources that countries will have to spend on a just and green recovery. 

2. Fossil fueled advice to governments 

Also less commonly known, the WBG and the IMF provide technical assistance to countries to help them strengthen their governmental institutions. But what advice are they giving to countries regarding their climate policies? Well, we don’t fully know. 

The technical assistance provided by these institutions to client countries remains opaque and difficult for the public to access. However, multiple cases of conflict of interest have shown that law firms funded by the WBG to assist governments have also worked for the oil and gas industry. It’s no surprise that the policy changes and contractual terms adopted by these governments heavily favor Big Oil. 

In addition, the IMF conducts economic “health checks” of countries (called surveillance reports or “Article IVs”). The results influence the policy environment of a country, as well as the market’s perception of a country’s economic trajectory. But for too long, these have not adequately accounted for the physical and transition risks of climate change. 

When they have done so, it has been on a case by case basis and has focused on physical risks, like damage to property and supply-chain disruptions, and less on transition risks, like what happens to a coal-export country when they can no longer export coal. The IMF has also neglected to assess “cross-border spillover risks,” or the effects of one country’s energy transition on other countries, something it is uniquely positioned to do as an international institution. 

Not only have these omissions legitimized happy-go-lucky investing in fossil fuels around the world and promoted overoptimistic assumptions of fossil fuel revenues expected under business-as-usual scenarios, IMF’s policy advice during the Covid-19 pandemic recovery continues to include public incentives for fossil fuel investments. 

Preliminary findings of a soon to be released study found early signs that the Fund is supporting the development of fossil fuel infrastructure around the world. The study also finds indications that Fund advice supports the privatisation of state-owned power and energy enterprises, reducing the ability of governments to make the drastic changes that are needed to mitigate climate change from a public goods perspective, and leaving them at the mercy of private sector profit motive. 

In a more fundamental assessment gap, the Fund has failed to analyze the ways in which its own traditional policy advice to countries exacerbates the climate crisis and puts countries at risk. It has also failed to look at how climate and other “macro-critical” issues like gender and inequality interact with one another. 

3. Hiding behind “energy access”

The Bank likes to publicly defend its support for fossil fuels as providing energy access and reducing poverty in line with Sustainable Development Goal 7. However, recent analyses demonstrate that the WBG’s support for fossil fuels on the whole has not addressed increasing energy access.

Since the Paris Agreement, $4 billion or 35 percent of WBG fossil fuel assistance has gone to eight middle and high income countries, instead of the low-income countries they purport to be assisting. A new report released in March 2021 found that only 5 out of 37 energy-focused operations between 2017 and 2020 involved establishing new household connections to electricity. The report notes that in 4 of the 5 countries with the least energy access, the WBG activities that are related to establishing new household electricity connections are all from renewable energy sources of power, which further undercuts the WBG’s argument about the need for fossil fuels to address lack of energy access. 

Additionally, a new analysis finds that since the Paris Climate Agreement, 75 percent of the World Bank Group’s gas project finance does not expand energy access. More broadly, the WBG has failed to demonstrate that fossil fuel expansion is necessary for achieving energy access, as opposed to renewables. Its continued support for fossil fuels only locks in harmful and risky assets for decades to come, putting entire nations’ economies at risk. Using energy access as an argument to expand fossil fuel crowds out investments in renewables, and delays countries’ transition to a green and resilient economy. 

It is worth noting that UN Sustainable Energy for All, an international organization that works to drive faster action towards the achievement of Sustainable Development Goal 7, recommends that “financing of fossil fuel projects as a means of closing the energy access gap should be terminated.” 

4. Lending money to Wall Street….which invests in King Coal and Big Oil

Consider the World Bank Group as a 5-headed hydra, with five distinct institutions each with a different, but complementary mandate. One of the five WBG institutions is called the International Finance Corporation (IFC), which mobilizes private sector investment in developing countries. In 2020, 52 percent of IFC lending went to Wall Street banks and private equity firms. While the IFC has made progress in reducing support to clients that invest in fossil fuels thanks to years of campaigning by affected communities and allies, it leaves much to be desired. 

The IFC has no formal policy restricting fossil fuels in its portfolio. Instead, it has an “approach” aimed at supporting its Wall Street clients to exit coal investments by 2030, which amounts to not much more than voluntary guidelines. While its Green Equity Approach (GEA) launch was welcomed by civil society, it failed its first test in supporting clients to exit coal investments. One of the first clients to pilot the GEA funded 2 new coal plants within a year of signing up, with loan terms stretching to 2035. 

Not only does the IFC’s GEA leave open this huge coal loophole, it needs to do a lot more to address oil and gas in its financial intermediary portfolio. The IFC maintains that by keeping its Green Equity Approach flexible, they are able to move clients to phase out fossils that otherwise wouldn’t. But so far, only 2 clients have signed up. The IFC has further hurt public trust since being sued by communities impacted by a coal-fired power plant in India, in a case that went all the way to the US Supreme Court.

5. “Asking for a friend: Will they notice if we invest in the transmission lines?”

Yet another loophole of the WBG’s fossil fuel restrictions is the support for associated infrastructure like transmission lines. While the WBG stopped direct project finance to coal power plants in 2014, it continues to support them through transmission lines for new coal power plants like in India and South Africa, and cases with associated facilities like coal power plants for cement production like in Kenya and Myanmar

Another way that WBG has enabled subsidies for fossil fuels is through the promotion of general infrastructure investment incentives, one example being Public-Private Partnerships (PPPs). A 2019 report found planned coal, oil and gas operations qualified for subsidies through WBG-supported infrastructure investment incentives in Mozambique, Egypt, Kenya, Indonesia, and Poland.

6. Insuring Big Oil Projects

Another one of the alphabet soup institutions of the WBG is MIGA: the Multilateral Investment Guarantee Agency. As its name suggests, MIGA provides guarantees (political risk insurance) to foreign investors and lenders (commercial banks as well as state-owned enterprises) against losses caused by risks in developing countries. It’s important to remember that the fossil fuels industry cannot operate without insurance. 

In this case, MIGA is effectively using public money to insure fossil fuel industry projects. Pulling from data over the last 5 years, MIGA has the dirtiest track record of any institution within the World Bank Group.

Instead of de-risking renewables to help enable the industries of the future, the WBG has continued to insure Big Oil projects, from a billion-dollar gas pipeline in Azerbaijan, to oil and gas in Côte d‘Ivoire, to an offshore gas project in Ghana that is rapidly becoming a fiscal burden to the country. Tens of millions of dollars in risk insurance over 20 years for the West-African and Chad-Cameroon pipelines has caused much suffering to local women in particular.

7. 2+2 = 5: Problematic accounting and lack of transparency

Problematically, the WBG has relied on dishonest accounting of climate finance, taking credit for its increased financing of renewables and adaptation without accounting for all of its fossil fuel investments through more opaque lending instruments like the ones outlined above. Additionally, the Bank has failed to analyze how its own financing and policies have contributed to countries’ dependence on fossil fuels, and the impact this lock-in has on countries’ transition to renewables. 

The WBG should get credit for significantly increasing its climate finance to renewables and climate adaptation over the years (albeit, it has been inflating its numbers). However, the Bank’s continued support for fossil fuel projects and for policies that create an enabling environment for fossil fuel expansion ultimately undermine and even contradict its climate-positive actions.

8. Burying its head in the sand of false solutions 

The World Bank has joined Wall Street’s “net zero” greenwash bandwagon. This is an approach supported by polluters who want to continue to extract fossil fuels while “offsetting” or compensating for these emissions. 

Offsets use unproven technologies or tree plantations across the globe that act as “carbon sinks.” The WBG also indicated in a recent strategic directions note that it will be open to false solutions like Carbon Capture, Utilization and Storage (CCUS), and Bioenergy with Carbon Capture and Storage (BECCS). Both CCUS and BECCS are costly, unproven, and even dangerous technologies promoted on assumptions that it will be possible to remove large amounts of CO2 from the air. Offsets also incentivize land and resource grabbing from Indigenous Peoples and local communities primarily in the Global South.

But net zero is not zero: As has been well documented, these corporate pledges are a form of climate colonialism and only serve to distract from the real need to end fossil fuel emissions. “Net-zero” shifts responsibility away from corporate actors, as well as all governments’ responsibility to implement real emissions regulations.

The World Bank and the IMF are propping up fossil fuels around the world with public dollars. And we need to call them out for it. 

Continued investment in the polluting industries and policies of the past will not enhance shared prosperity, nor will it ensure global financial stability, the respective mandates of the World Bank and the IMF. Instead, propping up the fossil fuel industry promises to exacerbate inequality in all its forms, as climate change worsens. 

The United States has a large amount of decision-making power in both of these institutions; Biden and his administration must lead on decarbonizing these institutions and shifting their activities to support just, renewable, democratic, resilient and prosperous development pathways. As the US Treasury updates its guidance on using the US government’s “voice and vote” on energy projects and policies financed by IFIs, it should ensure: 

  • The end of support for all new fossil fuel projects, across the oil, gas, and coal value chain (from extraction, to transport, to production and distribution).
  • Support for a just transition away from fossil energy and to renewables for workers and communities affected overseas. 
  • Support for improved disclosure and transparency of climate finance. 
  • That these changes apply to all IFI funding streams and modalities, including ​indirect financing provided through financial intermediaries (Wall Street)​, technical assistance, and development policy finance.


As the triple global crises of a pandemic, climate change, and debt collide at this very moment, the World Bank and the IMF are uniquely positioned to lead the world on a green and inclusive recovery. But unless they are pushed to address their fossil fuel problem, they will continue contributing to climate injustice. 

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