US Threatens to Cut Funding for Global Development Banks Over Fossil Fuel Investments

The Sustainable International Financial Institutions Act of 2025 is a piece of legislation that essentially tells the world’s major development banks: fund fossil fuels, and the U.S. will pull our money. The bill mandates that U.S. representatives at institutions like the World Bank and the African Development Bank must use their votes to oppose any investment, loan, or policy reform that supports creating new fossil fuel capacity—or even extending the life of existing capacity. If these institutions ignore the U.S. opposition and fund a fossil fuel project anyway, the U.S. Treasury Secretary must reduce the U.S. contribution to that institution dollar-for-dollar by the amount of the fossil fuel financing. That money then sits in an escrow account until the institution certifies it has completely stopped funding new fossil fuel activity.

The Global Energy Standoff

This isn't just a polite suggestion; it’s a hard line drawn in the sand using the U.S. checkbook. The bill requires U.S. Directors at twelve specified international financial institutions (IFIs) to actively oppose any financing that supports the exploration, refining, transportation, or even marketing of coal, oil, or natural gas. Think of it like this: if a development bank wants to fund a new natural gas power plant in a developing country to replace old, dirty coal, the U.S. Director must vote no. If the bank funds it anyway, the U.S. contribution for the next year is automatically reduced by that exact amount. This creates a massive financial penalty for the IFIs, potentially reducing their overall capacity to fund everything from healthcare infrastructure to education programs, all because of an energy project.

The Foreign Aid Freeze-Out

The bill doesn't stop at international banks. It also puts a blanket prohibition on several key U.S. agencies—including the Export-Import Bank and the U.S. Agency for International Development (USAID)—from providing any financial or technical assistance that supports fossil fuel activity or related infrastructure abroad (SEC. 3). For developing nations relying on U.S. expertise or funding for energy security, this means that even if a project is aimed at stabilizing an existing power grid or providing basic energy access, if it involves fossil fuels, the U.S. is out. This restriction on U.S. foreign assistance agencies could sharply limit their flexibility and effectiveness in addressing immediate energy needs in partner countries.

The 2027 Engine Deadline

One particularly tight deadline in the bill concerns transportation. U.S. Directors are instructed to support phasing out funding for internal combustion engines (ICE) used in passenger vehicles and buses by the year 2027 (SEC. 2). For busy people who rely on affordable transportation, this provision is a major flag. While the bill mentions the phase-out must be "sustainable and sensitive to communities needing mobility," the 2027 deadline is extremely aggressive for many parts of the world where electric vehicle infrastructure is non-existent and mobility is already a challenge. This could mean that funding for critical public transit projects—like new bus fleets—could be blocked if they aren't fully electric, regardless of local economic or logistical realities.

What This Means for the Money

The dollar-for-dollar reduction mechanism (SEC. 2) is the biggest financial hammer in this legislation. It’s a mandatory penalty, not a discretionary one. If the International Finance Corporation (IFC) provides a $100 million loan for a project deemed to create new fossil fuel capacity, the U.S. contribution to the IFC is cut by $100 million the following year. This money doesn't disappear; it goes into an escrow account. The Treasury Secretary then has to report to Congress annually on how the institution is still funding fossil fuels, until the institution stops completely. The intent is clear: force the IFIs to fully divest from fossil fuels by making their continued financing prohibitively expensive via the loss of U.S. capital. While the goal is to accelerate the global clean energy transition, the immediate effect could be a significant destabilization of funding for development banks, potentially impacting a much wider range of global development work.