To make a success of the green industrial transition, the EU’s cohesion policy needs to place a greater emphasis on raising the innovation potential of its less advanced regions

Europe is on the verge of a new industrial revolution. To decarbonise its economies for the sake of the climate and the future of its health, security and economic competitiveness, every region will need to transform over the coming decades. This will require innovation and massive investment, both public and private. But not all regions in Europe are starting from the same point. Each has its own particular investment needs and innovation potential. To succeed together and ensure that no one is left behind in this necessary transition to carbon neutrality, the European Union needs to rethink its approach to cohesion in order to meet the evolving needs of its regions.

Europe’s cohesion policy— the policy of investing in its economically weaker regions to raise living standards—has always been one of the most visible expressions of European solidarity and interdependence. It has served as a key driver for economic convergence and growth throughout Central and Eastern Europe and proved an effective tool of support during recent crises. But cohesion is not about economic redistribution, it is about economic efficiency. It helps to balance the internal market and contributes to Europe’s economic competitiveness.

Many of the regions that currently receive the most support from Europe’s cohesion policy are also those that are least well positioned to benefit from the green industrial transition. This is in large part due to the “innovation divide”. The EIB’s recent report on cohesion shows that Europe’s poorer regions continue to invest less in innovation, digital and human capital than its more advanced regions. Reflecting their disadvantaged starting point, poorer regions also tend to invest more in the enabling infrastructure for investment rather than in research and development or the manufacturing of advanced technologies, which tends to be the focus in more developed regions. Unless they can bridge the innovation divide, less developed regions are at risk of falling further behind in the net-zero industrial transition in Europe.

The European Investment Bank has been committed to cohesion since its inception. In 2022, the EIB Group, which includes the European Investment Bank and its SME-focused subsidiary the European Investment Fund, financed a record €28.4 billion of investment in cohesion regions, of which about half was in less developed regions. This represents 44%, or nearly half, of all our financing in the EU and is considerably more than the 30% achieved during the previous long-term EU budget.  

In 2021, the European Investment Bank adopted a bigger, bolder and more focused approach to cohesion. Since then, we have increased our support for Europe’s weaker regions, while at the same time ensuring that fully half of all our lending goes towards climate action and environmental sustainability. To meet the needs of these regions, we also need to do more to address the innovation divide. 

The process has already begun. Since 2021, we have stepped up support for mid-cap companies in less developed regions to help them adopt proven, advanced technologies. To improve their access to finance, we have also begun lending directly to mid-caps in addition to our intermediated programmes. Public investment is not enough to get us through green, digital, industrial and demographic transitions. Public funds need to be used in an effective way to crowd in private investment in climate action, R&D, skills training and infrastructure. One way in which the EIB can help is through financial instruments. This is an easy way to enhance and accelerate investment.

We are stepping up our advisory and technical assistance work to ensure that authorities and businesses in less developed parts of Europe are able to take full advantage of all the financial support available from the EU. Around two-thirds of the EIB’s advisory services are targeted towards cohesion countries with an increasing proportion specifically focused on climate and the environment as well as innovation and digitalisation.

At a meeting in Murcia, Spain, on 29 September, EU ministers discussed the future of cohesion policy and how cohesion policy needs to be more flexible to adapt to the needs of each region. But cohesion policy  also has a fundamental role to play in integrating innovation and green transition objectives into national and regional development strategies. Cohesion policy has the potential to catalyse investments in a way that supports structural transformation towards a green and digital economy. This will work best by supporting innovation based on unlocking each territory's unique potential and building specialisation. And we need to use EU funds to leverage private investment in order to meet the huge investment needs for the green transition.

Cohesion financing by EU grants and EIB lending has proven to be a powerful tool to strengthen Europe’s economic and social fabric, fostering unity, solidarity and convergence among its diverse regions. The European Investment Bank is committed to working closely together with the Union and its Member States to ensure that one of the EU’s most potent policies continues to serve as a powerful force for realising our common objectives from regional development to climate, to innovation, and competitiveness. As we move forward, we need to work together more closely than ever. We need to ensure a systemic approach to make the most of all funding and financing instruments we have at hand to build resilience of our regions and cities.