The European Investment Bank: providers of climate finance

The EIB provide finance and expertise for sustainable investment projects that make a strong impact on people’s lives in Europe and beyond.

The European Investment Bank (EIB) is the lending arm of the European Union. The EIB are the biggest multilateral financial institution in the world and one of the largest providers of climate finance. They help the economy, create jobs, promote equality and improve lives for EU citizens and for people in developing countries. We spoke to Vice-President of the EIB about the importance of European businesses investing in technologies to fight against climate change.

The President of the EIB has said that if Europe is to grow sustainably, then we need to work together to make our economies greener, more resilient, and fairer. How would you like to see that happen? And what role can the EIB play?

We already play a big role in financing projects that are related to making our planet greener. The original target was for at least 25% of our activities to focus on renewable energy, and every year we lend around €15-18bn to finance renewable energy projects, energy efficiency projects, and so on.

We have now proposed a change in scale so as to become the climate bank of the European Union. First, we intend to increase our lending to climate and environmental sustainability related projects from 25% to 50% by 2025. This is going to be an ambitious target and it means that we need to spend much more resources to identify the right projects, to increase the volumes, and to develop the right products. Secondly, we intend to grow sustainable finance from billions to trillions.

This means unlocking €1 trillion of investment for climate action & environmental sustainability in the critical decade 2021-2030. In addition to that, in the shorter-term, we will align all the EIB Group’s financing activities with the principles and goals of the Paris agreement by the end of 2020.

Is there enough appetite on the part of European businesses to invest in technologies which might help in the fight against climate change?

Let me take an example to explain. In the energy efficiency sector, there are interesting projects taking place in a number of countries. In France, public entities have been created at the regional level and supervised by the banking supervision authority, which aim at providing long-term and favourable lending to individual owners to support them in their housing works in energy efficiency, such as new roofs or better-isolating windows. This is the only task of these public entities.

In the regions that have developed such entities, this is a great success, as in Northern France where not only people who are not considered to have a very good credit rating have access to these loans, but a significant part, 70%, is paid back through savings in their energy bill. This type of scheme is easy to replicate in other geographical regions, and this can have a big impact on climate change. This is what we are looking at: replicability and scalability.

There are excellent firms which specialise in financing start-ups, but the private sector cannot be expected to provide all of the necessary funds for new start-ups. These companies also need public money. For instance, when you make a breakthrough in a clean energy project, you need public funding. By way of example, ten years ago we were financing small onshore wind farms in Europe, but that is less the case today because the private sector can often finance them. More recently, a few years ago, we also financed a lot of offshore windfarms.

Today, in many European countries, there are no real difficulties now in finding financing for these projects, especially in the current market conditions where liquidity is abundant. But for projects for floating wind farms, this is much more risky and complicated. This is the way it should work: as a public financier, we should give an incentive, and we cannot expect that the riskiest part of the business will be taken on by the private sector.

The financing community is changing, and it is through this that we will also see another way that more risky projects will be financed by the private sector at an earlier stage. We are seeing an increasing number of investors, such as infrastructure funds, asking to support projects which have a strategy to move forwards with greener projects, at an earlier ‘greenfield’ stage.

How is the EIB working with the European Commission here and elsewhere to de-risk activities which could address climate change?

There are numerous excellent initiatives at the European level. We have several financing programs in place that are guaranteed by funds from the European Commission. In fact, we could not do what we do and at the scale we are doing without the support of the European Commission. We are a bank and are thus constrained by capital ratios. If you don’t have an institution such as the Commission which can help to finance this, or cover part of the risks, then we cannot play our role of filling the market gaps.

Ambroise Fayolle
European Investment Bank
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