Climate justice or corporate capture: How development banks continue to fuel intertwined crises of debt and climate
by Alessandro Ramazzotti and Vaishnavi
In the face of mounting climate emergencies and an increasingly warming planet, development banks are positioning themselves as key players in the global energy transition and climate change. But behind their tall climate commitments lies a dangerous contradiction — the same institutions that are actively reinforcing extractivist, colonial, and debt-intensive profit models are the ones claiming to build a sustainable future.
Development banks, backed by Global Minority governments and private finance, are channeling billions of dollars into energy infrastructure and climate finance through loans, forcing already indebted countries to borrow to survive the impacts of a crisis they did not cause, only to repay that debt with further austerity and extractivism. Many of these investments are often tied to private corporations with a history of human rights abuses and environmental harm, which reap profits while communities bear the risks and consequences.
This model of profit over people was starkly reaffirmed at the 4th Financing for Development Conference in Seville, where world leaders once again failed to deliver a decisive shift in global financial rules. Instead of committing to systemic reforms, such as large-scale debt cancellation, grant-based climate finance, and public investment for climate adaptation, the Seville Platform leaned heavily on market-based solutions and private sector-led models.
Civil society organisations are thus calling for an urgent need for a systemic overhaul of the current financial architecture that fuels extractivism, which in turn contributes to inequality and environmental harm. Until this is changed, the debt and climate crises will continue to accelerate.
How are development banks investing in energy and increasing debt at the same time?
Between 2022 to June 2025, the 16 development banks tracked by the Early Warning System database invested about $ 245.5 billion in the energy sector, according to the data collected by the Energy Finance Tracker. But 64% of this financing came through debt-creating loans, and only a mere 7% came via grants, increasing the financing pressure on low-income developing countries already in debt distress. This forces them to divert funds from essential services (such as healthcare, education, and climate resilience) to repay foreign debts and makes them more vulnerable to the ongoing climate disasters and emergencies, as the example of Ghana vividly and tragically shows. As stated by the ESCR-Net, “debt is an unsustainable and illegitimate way of robbing the future of millions of people.” Following this reasoning, development banks are unsustainably and illegitimately robbing millions of people by investing in ways that often bring more damages than benefits.
While development banks claim to be supporting a just energy transition, they also continue to support the fossil fuel industry. According to the data collected by the Energy Finance Tracker, between 2022 and June 2025, development banks have invested $19.5 billion in oil and gas infrastructure. Most of this (over $14.2 billion) came through loans, not grants. This means that public institutions dominated by Global Minority countries are lending money to support fossil fuel projects, and communities in the Global Majority have to repay these loans with huge interest for projects that worsen the climate crisis.
A similar situation can be observed in financing by development banks for renewable energy infrastructure. For instance, of the 522 projects in the solar energy sector tracked by the Energy Finance Tracker, 348 (67%) have been supported through loans and only 44 (8%) through grants; similarly, of the 242 projects for the development of wind power infrastructure, 170 (70%) have been financed through loans and merely 4 (2%) through grants.
Moreover, projects with elements connected to the solar, wind, hydropower, geothermal, and biomass sectors where borrowers are private actors are 679 (63% of the total 1075 projects involving private sector borrowers). The total investment amount in the above sectors, in projects where borrowers are private companies, is US$114.3 billion (67% of the total US$169.6 billion channelled to the private sector).
This financing model transforms renewable energy from a public good into a corporate commodity. It reinforces the power of multinational corporations and limits national governments’ ability to develop decentralised energy systems that are beneficial to the climate and people.
This model of debt-driven financing undermines climate resilience globally and burdens countries already on the frontlines of climate disasters. Pakistan provides a stark example of how debt repayment obligations can strip governments of the resources needed for tackling the climate crises. As Zain Moulvi from Alternative Law Council in Pakistan articulates, “Pakistan’s debt stress has been the single biggest impediment to preventative climate investments. As the country battles another year of floods, $14.5 billion in scheduled debt service payments for FY 2025–26 loom large. The country has paid 45% more in external debt servicing costs since entering successive IMF programs between 2018 and 2025. As a result the nation had to slash climate investments during the flood year in 2022, spending up to 11 times more on debt servicing than on overall development during that year. With more than $35 billion, nearly half of its external debt, held by multilateral banks, debt cancellation by the IMF, WB, ADB, could be the single most impactful source of climate finance needed desperately by the nation.”
Increased corporate capture through energy finance
The data tracked by the Energy Finance Tracker (EFT) indicates that a large amount of energy finance is being channeled through private companies, often headquartered in the Global Minority and relying on a worldwide network of subsidiaries to build wind power plants in Brazil, solar parks in India, and hydrogen infrastructure in Egypt. Between January 2022 and June 2025, the EFT tracked 72 companies linked to three or more investments. Out of these, 50 are linked to fossil fuels, 30 are allegedly linked to large adverse environmental impacts and/or human rights abuses, and 25 are allegedly linked to both fossil fuels and human rights abuses.
Data shows the disproportionate amount of private sector borrowers headquartered in the Global Minority, compared to those headquartered in countries of the Global Majority. When development banks lend money to large multinational companies headquartered in the Global Minority, they favor unsustainable extractivist and colonial models that completely disregard, among others, the people’s right to development as expressed in the Declaration on the Right to Development of 1986 and undermine the fiscal sovereignty of debt-burdened countries. These companies often pay little or no taxes in the countries where they operate, repatriate profits abroad, and leave behind ecological degradation and social unrest.
For instance, among companies linked to three or more projects tracked by the EFT, eight are headquartered in Sub-Saharan Africa, and nine are headquartered in France alone. These nine French companies — five of which are also linked to fossil fuels and environmental and human rights violations, and four of which were involved in investor-State dispute settlement lawsuits in the past 25 years — are receiving enormous amounts of funds from development banks to develop energy infrastructure all around the world.
In Latin America and the Caribbean, there are two companies linked to three or more projects tracked by the EFT although there are 118 private sector projects in the region. More than half of the number of borrowers linked to three or more projects are companies based in the European Union (and Turkiye).
Even investments in renewable energy are continuing to benefit the fossil fuel industry. A striking example is Masdar, the UAE’s flagship renewable energy company, which has been involved in 33 development bank-funded projects tracked by the Energy Finance Tracker. Despite its green branding, Masdar is wholly owned by the Abu Dhabi National Oil Company (ADNOC), Mubadala Investment Company, and TAQA — all major players in fossil fuel extraction and distribution. ADNOC alone continues to invest over $150 billion to expand its oil and gas production till 2027. Funds provided for renewable energy projects free up capital that can be reinvested in fossil fuels infrastructure, exacerbating the climate crisis in contravention of international climate agreements..
Development banks are complicit. By funding such corporations, they risk exacerbating the very crisis they claim to address. Instead of supporting a democratic, community-owned energy transition, they are entrenching corporate concentration of energy systems, making them more inaccessible and expensive for communities. This consolidation of power often gives multinational corporations considerable influence over national policymaking, often at the expense of democratic accountability and human rights. The increase in state corporate nexus leads to restriction of civic space and freedom of expression in developing countries, where public and private forces are often deployed to suppress community resistance against harmful infrastructure projects. This was recently seen in Ecuador, where militarised police were used to stifle resistance to an extractive project; in Nepal, where Indigenous “communities’ members, including women and elderly, have been severely beaten by the personnel of the Armed Police Force (APF)” following their opposition to the construction of transmission lines on their ancestral territories; and in numerous other instances where development banks were involved, as described in the reports Financing Repression and Uncalculated Risks.
“The rush toward critical minerals and the just energy transition is worsening threats and attacks against human rights defenders and community members. Governments and corporations treat critical voices as obstacles to their ‘strategic’ projects and are often resorting to vicious tactics to silence them. And development banks, instead of pressing their clients to create spaces where affected communities can safely speak out, too often shrug their shoulders, dodge accountability, and pretend nothing can be done,” says Mark Fodor, Coordinator of the Defenders in Development Campaign at the Coalition for Human Rights in Development.
ISDS: a tool to extort indebted countries and delay climate action
At the COP28, the World Bank was appointed to host and manage the Loss and Damage Fund, a mechanism intended to deliver justice and financial relief to nations suffering the worst climate impacts. Behind this facade of climate leadership lies a deep contradiction as the World Bank continues to channel billions in loans to fossil fuel companies, while facilitating their ability to sue climate-vulnerable countries through secretive investor-state dispute settlement (ISDS) tribunals, administered by the World Bank’s own arbitration body, International Centre for Settlement of Investment Disputes (ICSID).
When governments cancel a polluting project or enact environmental regulations, they risk being taken to these secretive international tribunals where they may be ordered to pay billions in compensation, often to the very corporations responsible for environmental degradation and human rights abuses.
According to the Global ISDS Tracker — which IAP helped co-develop in partnership with Transnational Institute, PowerShift, and Trade Justice Movement — corporations have already claimed over US$857 billion in compensation under ISDS mechanisms, which is more than most countries’ entire climate adaptation budgets. Fossil fuel companies alone have secured at least US$80 billion through these lawsuits. The vast majority of these claims are directed against countries in the Global Majority.
ISDS doesn’t just protect polluters; it replicates and reinforces colonial power structures. Companies headquartered in the Global Minority routinely sue countries in the Global Majority, demanding compensation for actions taken in defense of local communities, Indigenous rights, or the environment. At the same time, development banks like the World Bank provide loans to those same corporations, creating a vicious cycle of financial dependency and exploitation.
A clear example of the links between development banks, shady ISDS trials, and unsustainable resource extraction and exploitation is represented by Orano — a French mining company focused on uranium extraction and processing with operations in Niger, Kazakhstan, Mongolia, and Canada — that received a US$420.22 million loan from the European Investment Bank in December 2024. At about the same time, Orano was filing the second (following the first from a few months earlier) ISDS lawsuit against Niger, one of the poorest countries in the world with high levels of debt distress, claiming US$ billions for alleged damages to their mining businesses in the country.
A similar case is currently occurring in Pakistan, where the IFC has recently approved a US$700 million investment to Barrick Gold for the development of the Reko Diq copper-gold mine, one of the largest in the world. The mine is located in the territory of Balochistan, a politically sensitive and resource-rich region where calls for autonomy and justice have been violently repressed for decades. In 2011, Pakistan’s Balochistan province denied a mining license to Tethyan Copper Company, a joint venture of Canadian mining giant Barrick Gold and Chile’s Antofagasta, due to environmental concerns and strong local opposition from Indigenous Baloch communities. Tethyan responded by suing Pakistan at ICSID, demanding over US$11 billion in damages. Although Pakistan’s Supreme Court had ruled the original agreement illegal, the ICSID tribunal sided with the corporation in 2019, ordering the government to pay one of the largest ISDS awards in history, at the time, equivalent to nearly 40% of Pakistan’s foreign reserves. Already struggling with a massive sovereign debt crisis, inflation, and climate-induced disasters, Pakistan could not afford the payout. The country was thus forced to settle for a payment of USD 5.9 billion and revive the same Reko Diq mining project with Barrick Gold, under revised terms in 2022.
After the approval of the investment by IFC, ADB has also approved an additional financing of US$410 million on 21st August 2025, to RDMC, which is majorly owned by Barrick Gold. Reiterating the risks of supporting such a dangerous project in a militarised area where communities and defenders are facing repression and human rights abuses, 36 civil society organisations wrote a letter to the ADB and IFC boards to not proceed with their investments for this project.
A path towards community-led climate justice
As the analysis above shows, development banks play a central role in perpetuating the debt and climate crises. By relying on debt-driven financing, privileging private sector interests, and enabling extractive models under the guise of clean energy, development banks are reinforcing a system that exploits communities, undermines public sovereignty, and intensifies climate vulnerability.
Development banks tend to disregard countries’ climate vulnerability and the impacts that rising debts could have on their populations. For instance, between 2022 and June 2025, out of the total 468 projects (US$ 32.8 billion) invested in the countries of the V20 network (Vulnerable Twenty Group), the majority of projects (230; 49%) consisted of loans (US$ 26.2 billion), and just a little share (64; 14%) consisted of grants (US$ 3 billion). The request put forward by V20 countries at the end of the COP29 event in 2024 is crystal clear, and development banks (especially the largest and most influential ones) must not ignore it: a climate prosperous future can only be secured by developing “instruments that can reduce the cost of capital and get finance flowing”. Grant-based investments represent a viable instrument for promoting climate justice, and development banks should utilize them more frequently.
Civil society organizations have also emphasized how this debt-driven model entrenches injustice and deepens climate colonialism. As stated by Patricia Miranda Wattimena from the ESCR-Net, “this financing pattern, backed by wealthy countries, entrenches extractivism and the privatization of nature for corporate profit, allowing the Global Minority to consolidate control over energy-related policy-making while keeping the Global Majority trapped in unsustainable debt. The absence of effective safeguards and grievance mechanisms deprives communities of access to justice, exposing them to heightened risks of human rights violations. What the world urgently needs are community-led, decentralized energy systems that prioritize people and the planet over profit, enabling energy democracy and sovereignty. Without comprehensive debt cancellation, climate reparations, and an end to debt-creating climate and energy transition financing, the promise of a just and equitable energy transition will remain a false narrative serving as a cover to maintain and deepen climate colonialism.”
To align with real climate justice, development banks and their Global Minority shareholders must:
- Cancel illegitimate and unsustainable debts, particularly of low- and middle-income countries;
- End all fossil fuel financing, including support to fossil fuel companies that continue their fossil fuel operations, for large renewable energy investments;
- Deliver climate finance as grants, not loans, with resources directed toward community-led solutions for climate justice and development;
- Restrict corporate access to ISDS tribunals, and end legal protections for polluters; and
- Center accountability, transparency, and the voices of affected communities, especially Indigenous and frontline populations.
The climate crisis is fundamentally a political and economic issue. If the same institutions that profit from the problem are allowed to define the solutions, we will continue to see rising emissions, rising debt, and increasing inequality. And thus, climate justice is also deeply linked to financial justice. Only by transforming the global financial architecture, from a profit-centred approach to a people-centred approach, can we truly build a sustainable, equitable future.
Read IAP’s work on Climate Justice.
