With the Climate Bank Roadmap, the European Investment Bank set out its vision of how, over the period 2021-2025, it will transform itself from “an EU bank supporting climate” into “the EU climate bank”. Since then, new challenges such as the war in Ukraine and growing competition for strategic raw materials vital to the transition to net zero have emerged. EIB Vice-President Ambroise Fayolle talks us through how the EU bank is maintaining and even stepping up its support for the EU’s climate and environmental sustainability objectives.
Since we are now more than halfway through the Roadmap’s five-year timeframe, how would you evaluate the EIB’s journey so far? Are there more challenges that need to be overcome to complete the Bank’s transformation?
The EIB has been transforming itself into the “EU climate bank” through more than a decade of progress and substantial investment, tied to several milestones: the world’s first green bonds in 2007, our first Climate Strategy in 2015 in the wake of COP21 in Paris, our new Energy Lending Policy in 2019, and now the Climate Bank Roadmap (CBR). The CBR set three commitments:
- Increase the share of EIB annual climate action and environmental sustainability (green) financing to exceed 50% by 2025
- Support €1 trillion in green investment from 2021 to 2030
- Align all new operations with the principles and goals of the Paris Agreement by the start of 2021
As our CBR Progress Report 2022 shows:
- The bank has met one of its main commitments: to align new operations with the goals of the Paris Agreement.
- We are ahead of schedule on the commitment to exceed 50% green finance by 2025. When the roadmap was developed in 2019, the share of EIB financing for climate and environment was approximately 30% and has grown strongly since then, almost doubling to 58% in 2022. And we are on track to support €1 trillion of green investment by 2030. EIB green finance has risen from below €20 billion in 2018 to over €35 billion in 2022, supporting €222 billion of investments.
We do not intend to rest on our laurels though. This is the critical decade for climate action. New estimates suggest the need to increase green investment globally by multiples of three to six by 2030 (e.g. IEA World Energy Investment 2023, or the Independent High-level Expert Group on Climate Finance 2022).
The investment gap is particularly acute for emerging markets and developing countries (excluding China), compounded in many cases by an existing lack of fiscal space and deteriorating conditions to access international capital markets. This has led to renewed focus on the role of multilateral development banks.
- For the EIB, the Climate Bank Roadmap remains a valid operational framework thanks to its four dynamic workstreams:
- Accelerating the transition through green finance
- Ensuring a just transition for all
- Supporting Paris-aligned operations
- Building strategic coherence and accountability
Accelerating the transition through green finance:
The EIB is supporting green investment across its client base and the focus areas of the European Green Deal, with an emphasis on: climate adaptation; environmental sustainability, including oceans and biodiversity preservation; advisory services to make more projects capable of attracting financing; and support for REPowerEU. In July 2023, we made a significant commitment to raising financing for REPowerEU to €45 billion. This additional financing on top of our normal lending activity to the energy sector is expected to mobilize over €150 billion in new green investments, contributing to Europe’s ambitious target of net-zero carbon emissions by 2050. For its part, EIB Global, our financing arm dedicated to operations and partnerships beyond the European Union, will continue to develop its support for green finance in Africa, Asia, Latin America, with special attention to vulnerable states and regions.
Ensuring a just transition for all:
The EIB will continue to support the Just Transition Mechanism in the European Union, by enhancing climate investments in EU cohesion regions, while outside the European Union, we will also focus on new approaches to fragility and conflict. More of our plans will be presented at the forthcoming COP28. The EIB is mainstreaming gender equality and women’s economic empowerment considerations in our green financing activities globally. Women are powerful agents of change. They are more likely than men to start businesses focused on sustainability, and companies with women on their boards are likely to improve energy efficiency, lower costs and invest in renewable power generation.
Supporting Paris-aligned operations:
The EIB will continue to be guided by its existing policies (like the low- carbon framework for operations and the framework for Paris alignment of counterparties, or PATH), with adjustments for lessons learnt in recent years and ongoing EU and global market and regulatory developments, as well as emerging best practice.
Building strategic coherence and accountability:
the EIB Group will continue to engage with stakeholders, clients, and the Platform on Sustainable Finance to develop its approach to alignment with the EU’s evolving sustainable finance framework. This is one of the lessons learnt in the past few years – how to combine the implementation of the EU Taxonomy with an ongoing dialogue with business and our own clients to better understand the challenges faced in applying the requirements of the Taxonomy.
How has the European Investment Bank ensured that its financing for EU independence from Russian fossil fuel imports supports, rather than undermines, the EU’s climate targets? How do you envisage the role of the EIB in supporting the long-term strategic energy autonomy of the EU?
The EIB Energy Lending Policy (ELP), adopted in 2019, sets out how the Bank, as a public bank, can help support the EU in meeting its ambitious climate and energy targets, by ruling out any financing for new projects based on unabated fossil fuels by 2021 and by significantly increasing investments in energy efficiency and renewable sources of energy. Since 2022, the energy sector has been confronted with the Ukraine conflict, which has sparked an energy crisis that exposed Europe’s dependency on Russian and overseas supplies of fossil fuels. In response, the European Union launched REPowerEU, an ambitious plan to reduce EU dependence on fossil-fuel imports and accelerate the green transition.
The EIB is fully behind REPowerEU, and our commitment is coherent with our Energy Lending Policy. Whether we stop financing new fossil-fuel projects for climate reasons or free ourselves from importing Russian fossil fuels for security reasons, this only shows that the future does not lie in fossil fuels, but in renewable and low-carbon sources of energy.
The long-term strategic autonomy of the European Union is best guaranteed by making a big step into the world of clean energy generation, energy efficiency, new technologies for power storage solutions and other ways to transform the energy sector. This is what we are doing at EU and EIB level.
The International Energy Agency points out that the global energy crisis due to the war in Ukraine drove a sharp acceleration in installations of renewable power, with the total worldwide set to almost double in the next five years. The EIB, alongside other development finance institutions, has an important role to play in providing the necessary finance for clean energy projects: for example, the development, manufacturing and deployment of renewables, energy efficiency solutions or flexible grids. The Bank’s support is essential to de-risk those projects and mobilise additional financing from both the public and the private sector. Between 2018 and 2022, the EIB backed clean energy projects with around €56 billion. More is to come.
The EU’s Green Deal Industrial Strategy and Net-Zero Industry Act aim to boost the EU’s global competitiveness in clean energy technology but Europe is facing increasing competition from the United States with its Inflation Reduction Act. Do you consider this framing of ‘competition’ between both strategies as accurate or useful? How does the EIB see its role in supporting the Green Deal Industrial Strategy?
Despite all the fears it has provoked, the IRA is ultimately a step in the right direction. It provides massive support for green sectors where more investment is urgently needed, and it shows that the United States and Europe are finally aligned in pursuing a sustainable economic transformation. Europeans should welcome US eagerness to scale up its renewable-energy capacity, and that it is putting its money where its mouth is.
The IRA’s goal of building modern low-carbon infrastructure is not itself a problem for the European economy. On the contrary, in sectors like wind energy, where Europe is a technology leader, higher investment demand is a positive development. In addition to having a positive effect on the climate, US subsidies will provide new business opportunities for European firms.
The EIB can support the Green Deal Industrial Strategy in many ways. In July, the EIB Board of Directors not only approved the Bank’s increased contribution to REPowerEU; in response to the European Commission’s Green Deal Industrial Plan, the bank also expanded its eligibilities to facilitate finance for manufacturing in state-of-the-art strategic net-zero technologies. These include solar photovoltaic and solar thermal technologies, onshore and offshore wind, battery and storage, heat pumps and geothermal technologies, electrolysers and fuel cells, sustainable biogas, carbon capture and storage and grid technologies. Investment in the extraction, processing and recycling of critical raw materials was made eligible for EIB finance.
The EIB Group can also enhance effective and reliable access to risk finance, by:
- Providing finance for Europe’s green tech champions, high-risk demonstration projects (such as those in the field of green hydrogen) as well as investment to decarbonise Europe’s heavy industry and manufacturing sector
- Working together with the European Commission to scale up the de-risking of innovative and green investments under the InvestEU programme
- Teaming up with local banks in every country to help European small and medium-sized enterprises to turn green
- Filling market gaps for so called large-ticket equity investment. The lack of depth in capital markets (including venture capital and private equity) means that promising European innovators in green technologies often turn elsewhere in search of capital or end up being bought by competitors.
That’s why the EIB Group launched this year the European Tech Champions Initiative, a fund of funds that will provide much-needed, late-stage growth capital to European innovators. So far, five EU countries (Belgium, France, Germany, Italy, Spain) have joined the fund. We encourage others to follow suit. For some areas, like electricity production, clean solutions are already cheaper and faster to deploy than fossil fuels. But for others, like aviation or heavy industry, we still need clean alternatives which are economical. That’s why innovation is key and as such, it is part of our priorities.
The European Union has made securing access to materials critical to the green and digital transitions an important policy. How can the EIB support the EU’s ambitious plans for critical raw materials both within and outside the EU’s borders? How will the EIB engage with the EU’s aim to increase mining activities, and how will the Bank ensure that any mining projects it supports do not compromise its environmental and climate achievements?
The EIB has substantial experience across the full value chain of raw materials, with loan signatures totalling around €3.5 billion in the last five years. Both inside and outside the European Union, the EIB’s financing can cover the extraction, refining, processing, recycling and development of key materials for product supply chains.
Our current activities focus mainly on resource efficiency, innovation and recycling across the critical raw materials supply chain and critical raw materials-adjacent sectors such as manufacturing of equipment or digital solutions. These are key to identifying substitute materials (to reduce our dependency on a small number of commodities), scale-up the use of secondary raw materials, or increase product lifetime.
In terms of supply chain, most of our investments concern projects in the midstream and downstream supply chain of critical raw materials, including battery-active material, polysilicon materials and silicon wafers for semiconductors, and photovoltaic cells manufacturing. We respond to the market demand, currently coming primarily from participants of these steps in the supply chain
Mining projects are the most challenging to finance, because of environmental and social issues. This is why we have not financed any mining project in the last 10 years. However, certain mining projects are eligible for EIB financing. For any future financing of a mining project, we would conduct a thorough screening of all aspects relevant to the project, including the related upstream and downstream stages of the value chain, the impact on climate change and the environment, the relationship with communities and employees.
Mining deposits in Europe are limited. Therefore, we will continue to rely on supplies from abroad. When building partnerships with countries outside the European Union, Europe can bring high environmental and social standards and advanced technologies that generate significant skilled employment and wider economic benefits for the local communities and partner countries.
We need a new set of materials, such as lithium, silicon metal, rare earth elements, graphite, gallium, and germanium, for the green transition. These commodities are used in solar panels, semiconductors, batteries and wind turbines. Our future depends on this transition to carbon-neutrality. At the same time, it cannot come at the cost of creating a whole new set of environmental problems. We need to be very careful and manage mineral extraction and processing properly, following high environmental standards and supporting solutions with a lower carbon footprint.
Looking ahead to COP28 in Dubai this winter, what signals do world leaders need to send to help mobilise finance for climate change adaptation in the developing world?
Mitigation remains a priority. In line with the call of UNFCCC parties to keep the 1.5 degree alive, COP28 participants will likely address the aim of enhancing mitigation ambition and implementation of nationally determined contributions and long-term low-emission development strategies. But equally important is enhancing adaptive capacity and resilience to climate change. Developed countries need to demonstrate their delivery on the commitment of $100 billion per year and to double adaptation finance by 2025. And 2023 is the year when the framework for the Global Goal on Adaptation will be further developed.
There are important synergies with agriculture and food security, nature-based solutions, water vulnerability, livelihoods, and health. The EIB has committed to tripling its adaptation financing by 2025 and we are working hard to deliver on this goal.
Building on the high-level statement on Just Transition Outside the European Union that we made at COP27, the EIB is also finalising a comprehensive proposal for just transition and just resilience that is expected to be in place by year-end. This will underscore our commitment to lead a green and fair transition within and outside the European Union.
We need to help low-income countries become more resilient to shocks. Natural disasters, which could push borrowers into distress, are set to become more frequent and more intense. When they occur, we need to leave room for the countries to deal with their consequences. During the Paris summit, the European Investment Bank announced its intention to offer debt deferrals – through so-called climate resilient debt clauses – in the finance contracts of the most vulnerable countries affected by climate and other natural hazards. This will be implemented through pilot projects in least-developed countries and small-island developing states. The EU bank is also looking to offer debt-for-nature or debt-for-climate swaps that could help countries lower their debt in return for nature conservation or climate action commitments.
There is another important aspect to climate finance that is being addressed: borrowing money and the use of capital markets, not just lending. The European Union’s Global Green Bond Initiative, in which the EIB is a central actor, aims to mobilize capital from institutional investors to finance climate and environment projects by developing green bond markets. Backed by a €1 billion Team Europe and UN fund, which aims to mobilize $15 billion to
$20 billion over its lifetime, it is just one example of the kind of new thinking that is needed.
- Read more about the EIB’s support for the European Union’s Global Green Bond Initiative here
The EIB is uniquely placed to work on green bonds, as the Bank pioneered them in 2007 under the name of Climate Awareness Bonds (CABs), which were followed in 2018 by Sustainability Awareness Bonds (SABs). The EIB is today the largest multilateral development bank issuer of green and sustainability use-of-proceeds bonds with €70.5 billion in issuance (CABs: €56.6 billion; SABs: €13.9 billion) across 23 currencies.
I would like to conclude by stressing the importance of partnerships. Just last month in New York, on the side-lines of the UN General Assembly, the EIB signed a cooperation agreement with five United Nations institutions that enables the EIB to directly finance technical assistance or advisory support provided by this core group of UN partners: the United Nations Development Programme, the World Health Organization, the Food and Agriculture Organization, the United Nations Office for Project Services, and the International Organization for Migration. UNICEF might soon join us.
This will make it easier to work on joint initiatives, in which UN partners help project promoters prepare and implement projects eligible for EIB financing, whether for climate action, clean and efficient energy or for healthcare. This will allow us to work in parts of the world that are most in need and where conditions are most challenging.
A version of this article originally appeared in Green Deal Watch, Issue 11