World Bank spent billions of dollars backing fossil fuels in 2022, study finds

The World Bank poured billions of dollars into fossil fuels around the world last year despite repeated promises to refocus on shifting to a low-carbon economy, research has suggested.

The money went through a special form of funding known as trade finance, which is used to facilitate global transactions.

Urgewald, a campaign group that tracks global fossil fuel finance, found that the World Bank supplied about $3.7bn (£2.95bn) in trade finance in 2022 that was likely to have ended up funding oil and gas developments.

Heike Mainhardt, the author of the research, called for reform of the World Bank and its private finance arm, the International Finance Corporation (IFC), to make such transactions more transparent and to exclude funding for fossil fuels from its lending. “They can’t say that they are aligned with the Paris agreement, because there isn’t enough transparency to be able to tell,” she said.

Fossil fuel companies would take advantage of this, she added. “They can see that they can access public money this way, without drawing attention to themselves, and they’re very clever, so they will do this,” she told the Guardian.

Trade finance is a form of funding more opaque than standard project finance. Whereas project finance usually flows to governments, organisations or consortiums for a particular well-defined purpose and is relatively easy to track, trade finance is more diffuse.

It comprises numerous complex financial instruments used by banks and other financial institutions to provide working capital to governments or businesses. Trade finance can take the form of credit or guarantees, and is an important tool for the World Bank as it helps to “de-risk” financing to developing countries, which are often penalised by higher than normal interest rates when they try to raise finance privately.

For instance, if an oil developer in Nigeria wanted to import drilling or refining equipment, trade finance could provide a guarantee to the equipment manufacturer that the payment for the goods would be made. There is no way of knowing whether such a transaction has taken place, however, as the IFC does not disclose such detail.

Mainhardt studied the trade finance transactions by the IFC, and applied estimates based on the amounts of financing that went to oil and gas developments from 2006 to 2012, the last dates for which reliable estimates are available. The overall proportions directed to fossil fuels are unlikely to have changed much, as the IFC continues to deal heavily with oil producers, particularly in the Middle East and Africa, and oil, gas and coal are not excluded from the trade finance transactions it permits.

Many countries, developed and developing, are now pushing for reform of the World Bank, which they say needs to refocus its efforts on shifting to a low-carbon global economy. A new president, Ajay Banga, was appointed in June, after the previous incumbent, the Trump appointee David Malpass, resigned following questions over whether he was a climate denier.

Mainhardt argued that reform should include greater transparency over trade finance. “First, we need greater transparency. Second, we need oil, gas and coal to be on the exclusion list [which would prevent the IFC financing such transactions],” she said.

An IFC spokesperson said: “Urgewald’s report contains serious factual inaccuracies and grossly overstates IFC’s support for fossil fuels. IFC’s trade finance projects are selected through a rigorous process that balances climate commitments with the urgent development needs in the countries where we work. 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. We only consider this in countries where energy security is critical.”

“IFC regularly reports accurate and timely project information through various channels,” the spokesperson added.

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