EIB climate action - Putting the Paris Agreement to work
Direct financial contribution from governments to the climate cause can only be limited. This is when the intervention of public finance institutions such as the European Investment Bank has demonstrated its value, including through cooperation with others, sharing experiences and combining efforts.
The Paris Agreement on climate sets the framework for greater global action towards a world where global warming is kept well below 2°C. Strong political will and a common vision have made the deal a reality, now it is time to put it into practice. We must start curbing greenhouse gas emissions at a much faster pace if we want to prevent further increase of the earth’s temperature, which is essentially what is causing climate change. We can limit further damage and protect ourselves from worsening negative impacts by investing significantly more in green technologies and increasing the climate resilience of our natural and built infrastructure and economies. Two ingredients are essential for a long-standing solution: global action and significant sums of money. Concerted and coordinated initiatives are crucial not only because climate change is a global issue, but also because the damages caused by it are hitting the whole planet hard – and in particular its poorest regions. This is where financial means become critical. We must mobilise sufficient amounts for the most needed action and develop the most effective solutions. And we know that the volume of funding needed is huge – in the range of trillions of euros.
Governments have many different priorities to which they need to respond. Their direct financial contribution to the climate cause can only be limited. This is when the intervention of public finance institutions such as the European Investment Bank (EIB) has demonstrated its value. The EIB is one of the biggest climate action financiers globally and will alone invest around €100 billion in climate action over the next five years. However, no single actor can provide sufficient finance alone. The combination of funds from public sources such as the European Commission and the Green Climate Fund (GCF) with finance from EIB and other financial institutions allows a crucial leverage effect and increased impact on the ground. Cooperation with other financial institutions is essential to mobilise greater private sector finance when funding is insufficient, projects are too risky, or they require technical and financial advice. Many projects with a positive climate impact may lack the necessary funding, for example because their financial risk goes beyond acceptable levels for potential private investors. This can be the case for a new innovative clean technology in its pilot phase or when there is the need to develop green infrastructure in geographic areas where this has proven difficult. To encourage private finance flows to ‘riskier projects’, the EIB has developed a number of innovative finance products that help lifting part of the financial risk of projects and make them attractive for investors. For example, the EIB has been developing a pilot programme in the framework of the Renewable Energy Performance Platform (REPP). The REPP was created in support of the UN Sustainable Energy for All (SE4All) initiative and alongside the United Nations Environment Programme. This Platform will stimulate the bankability of innovative small and medium-scale renewable energy projects such as run-of-the-river hydro in sub-Saharan Africa by helping them to access risk protection and financing products.
But collaboration does not end at financing projects jointly. Throughout the years, the EIB has developed a strong network of institutions with whom it works to tackle climate finance collectively rather than in a competing manner. EIB has cooperated closely with other Multilateral Development Banks, national and international financial institutions, the OECD and other key actors on a number of issues from tracking climate finance flows to defining what an adaptation activity is, to reporting on greenhouse gas emissions. Building on this cooperation is crucial to work more effectively and provide consistent advice and messages to countries when they build their strategies on climate - as international finance institutions underlined again recently on the occasion of the World Bank and International Monetary Fund meetings in Washington D.C. The EIB is in a unique position of being able to share its climate knowledge from the EU in the developing world. There are however also cases where developing countries are ahead of the curve in certain areas - for instance in terms of how to build resilience to climate risks in projects - and we can learn from them. This has clearly been the case in relation to the work we have developed with the Caribbean Development Bank (CDB) to build the climate resilience of small island states. Although much smaller than the EIB in size, the knowledge of CDB in this area is extensive and the sharing of experience between EIB and CDB brings huge dividends. A combination of EIB finance and EU funds for technical assistance has allowed building the necessary climate resilience features in highly vulnerable projects such as a coastal highway in Belize and a reservoir and dam in San Lucia. The knowledge built and shared between these two institutions will be crucial to replicate similar projects and cooperation in other contexts.
The EIB has been active on climate for many years using a diverse range of instruments and approaches. It has worked with both the public and private sector within and outside Europe to leverage finance, develop traditional and niche green technologies and provide technical advice on how to make projects more climate friendly and climate resilient. It has also led the field in terms of innovative initiatives. A very successful example is ‘green bonds’, an advantageous way of raising funds for environment and climate friendly investments, in which EIB was the first issuer in the market with its Climate Awareness Bonds focussed specifically on Renewable Energy and Energy Efficiency investments. The extent and urgency to develop collective solutions requires a more strategic approach to the climate challenge. This explains the adoption of an EIB climate strategy last year which will focus on the three areas where EIB can provide the most added value. Firstly, while maintaining its commitments in terms of financial volumes, EIB wants to prioritise climate initiatives with the highest impact on climate change. Its climate finance will thereby gain in efficiency. Secondly, the EIB are going to dedicate greater attention to what specialists call ‘climate adaptation’. We must accept that climate change consequences will keep hitting us even if we manage to curb emissions. We will have to live with them and adapt our economies and infrastructure accordingly. Finally, the EIB will reinforce the ‘climate lens’ that it uses when developing any of its internal processes and rules for financing. This third set of actions is meant to strengthen the climate friendliness of all EIB’s investments and activities across the board. These three pillars will be used to drive forward the EIB’s efforts to support implementation of the Paris Agreement. The author was a key member of the EIB’s delegation at COP21 in December 2015 - see her interviewed in Paris here: https://www.youtube.com/watch?v=HUXr9JpUCLs About the author Nancy Saich is Senior Technical Adviser at the Environment, Climate & Social Office of the European Investment Bank (EIB).
This article was published in GREAT Insights Volume 5, Issue 3 (May/June 2016).
Climate change threatening our planet
The Paris Agreement on climate sets the framework for greater global action towards a world where global warming is kept well below 2°C. Strong political will and a common vision have made the deal a reality, now it is time to put it into practice. We must start curbing greenhouse gas emissions at a much faster pace if we want to prevent further increase of the earth’s temperature, which is essentially what is causing climate change. We can limit further damage and protect ourselves from worsening negative impacts by investing significantly more in green technologies and increasing the climate resilience of our natural and built infrastructure and economies. Two ingredients are essential for a long-standing solution: global action and significant sums of money. Concerted and coordinated initiatives are crucial not only because climate change is a global issue, but also because the damages caused by it are hitting the whole planet hard – and in particular its poorest regions. This is where financial means become critical. We must mobilise sufficient amounts for the most needed action and develop the most effective solutions. And we know that the volume of funding needed is huge – in the range of trillions of euros.
Leveraging climate finance
Governments have many different priorities to which they need to respond. Their direct financial contribution to the climate cause can only be limited. This is when the intervention of public finance institutions such as the European Investment Bank (EIB) has demonstrated its value. The EIB is one of the biggest climate action financiers globally and will alone invest around €100 billion in climate action over the next five years. However, no single actor can provide sufficient finance alone. The combination of funds from public sources such as the European Commission and the Green Climate Fund (GCF) with finance from EIB and other financial institutions allows a crucial leverage effect and increased impact on the ground. Cooperation with other financial institutions is essential to mobilise greater private sector finance when funding is insufficient, projects are too risky, or they require technical and financial advice. Many projects with a positive climate impact may lack the necessary funding, for example because their financial risk goes beyond acceptable levels for potential private investors. This can be the case for a new innovative clean technology in its pilot phase or when there is the need to develop green infrastructure in geographic areas where this has proven difficult. To encourage private finance flows to ‘riskier projects’, the EIB has developed a number of innovative finance products that help lifting part of the financial risk of projects and make them attractive for investors. For example, the EIB has been developing a pilot programme in the framework of the Renewable Energy Performance Platform (REPP). The REPP was created in support of the UN Sustainable Energy for All (SE4All) initiative and alongside the United Nations Environment Programme. This Platform will stimulate the bankability of innovative small and medium-scale renewable energy projects such as run-of-the-river hydro in sub-Saharan Africa by helping them to access risk protection and financing products.
Cooperation as means to enhance impact
But collaboration does not end at financing projects jointly. Throughout the years, the EIB has developed a strong network of institutions with whom it works to tackle climate finance collectively rather than in a competing manner. EIB has cooperated closely with other Multilateral Development Banks, national and international financial institutions, the OECD and other key actors on a number of issues from tracking climate finance flows to defining what an adaptation activity is, to reporting on greenhouse gas emissions. Building on this cooperation is crucial to work more effectively and provide consistent advice and messages to countries when they build their strategies on climate - as international finance institutions underlined again recently on the occasion of the World Bank and International Monetary Fund meetings in Washington D.C. The EIB is in a unique position of being able to share its climate knowledge from the EU in the developing world. There are however also cases where developing countries are ahead of the curve in certain areas - for instance in terms of how to build resilience to climate risks in projects - and we can learn from them. This has clearly been the case in relation to the work we have developed with the Caribbean Development Bank (CDB) to build the climate resilience of small island states. Although much smaller than the EIB in size, the knowledge of CDB in this area is extensive and the sharing of experience between EIB and CDB brings huge dividends. A combination of EIB finance and EU funds for technical assistance has allowed building the necessary climate resilience features in highly vulnerable projects such as a coastal highway in Belize and a reservoir and dam in San Lucia. The knowledge built and shared between these two institutions will be crucial to replicate similar projects and cooperation in other contexts.
Looking ahead: The new EIB Climate Strategy
The EIB has been active on climate for many years using a diverse range of instruments and approaches. It has worked with both the public and private sector within and outside Europe to leverage finance, develop traditional and niche green technologies and provide technical advice on how to make projects more climate friendly and climate resilient. It has also led the field in terms of innovative initiatives. A very successful example is ‘green bonds’, an advantageous way of raising funds for environment and climate friendly investments, in which EIB was the first issuer in the market with its Climate Awareness Bonds focussed specifically on Renewable Energy and Energy Efficiency investments. The extent and urgency to develop collective solutions requires a more strategic approach to the climate challenge. This explains the adoption of an EIB climate strategy last year which will focus on the three areas where EIB can provide the most added value. Firstly, while maintaining its commitments in terms of financial volumes, EIB wants to prioritise climate initiatives with the highest impact on climate change. Its climate finance will thereby gain in efficiency. Secondly, the EIB are going to dedicate greater attention to what specialists call ‘climate adaptation’. We must accept that climate change consequences will keep hitting us even if we manage to curb emissions. We will have to live with them and adapt our economies and infrastructure accordingly. Finally, the EIB will reinforce the ‘climate lens’ that it uses when developing any of its internal processes and rules for financing. This third set of actions is meant to strengthen the climate friendliness of all EIB’s investments and activities across the board. These three pillars will be used to drive forward the EIB’s efforts to support implementation of the Paris Agreement. The author was a key member of the EIB’s delegation at COP21 in December 2015 - see her interviewed in Paris here: https://www.youtube.com/watch?v=HUXr9JpUCLs About the author Nancy Saich is Senior Technical Adviser at the Environment, Climate & Social Office of the European Investment Bank (EIB).
This article was published in GREAT Insights Volume 5, Issue 3 (May/June 2016).
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