European Investment Bank

Climate risk, resilience and adaptation

This page is part of the E3G Public Bank Climate Tracker Matrix, our tool to help you assess the Paris alignment of public banks, MDBs and DFIs

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Paris AlignmentReasoning
Some progressSome progress – EIB systematically screens projects under the Climate Risk Assessment (CRA) system since 2019. The Climate Bank Roadmap has ambitious targets for risk assessment to be applied across the institution, but the implementation and adherence to those plans remains to be seen. EIB has one of lowest share of adaptation finance across MDBs.
Project-level climate risk management proceduresScope of coverage of project-level climate risk managementEnhancing client climate resilience Adaptation  
finance 
The Climate Risk Assessment system is comprehensive.Approach will cover all sectors vulnerable to the negative effects of climate change, including agriculture, buildings, energy, forestry, transport, urban development, water and wastewater management, and industry.Intentions to increase advisory service to clients.EIB remains low in its levels of adaptation finance. 

Explanation

The European Investment Bank (EIB) has a comprehensive climate risk screening approach. The EIB is committed to applying best practice in risk assessment and develop use of climate risk and vulnerability assessment.  

The Climate Risk Screening Process follows a 4-step approach:  

  1. Climate Risk Triage: Initial climate risk for a project. Based upon country and sector.  
  2. Climate Risk Screening: Project contact reviews climate sensitivity, using tools such as AWARE.  
  3. Climate Risk Assessment on projects vulnerability and how this will be addressed.  
  4. Monitoring and Reporting of projects post signature*. 

The Climate Risk Assessment (CRA) system has been implemented in 2019. It is a two-tier risk assessment system that supports the identificaiton of physcial climate risks across project lending.

Also, the EIB estimates and reports on the residual physical climate risk of each investment loan as a qualitative output metric of the resilience of its investments and overall portfolio. The residual physical climate risk is defined as “the risk that an investment loan may still be affected by climate change after adaptation measures have been incorporated”. 

This estimate is carried out ex-ante before EIB financing is approved. The estimate range is low, medium, high, or unacceptable. A project will be rated with low residual physical climate risk if:  

  1. The initial vulnerabilities identified for the project have been reduced through adaptation measures. 
  2. The analysis of physical climate risk and possible adaptation solutions is carried out in accordance with EIB acceptable practice; and 
  3. The MDBs three steps for tracking adaptation finance are met. 

To help ensure this alignment at the level of individual projects, in 2019 the EIB introduced a climate risk tool – the EIB Climate Risk Assessment system (CRA). This provides a systematic assessment of the physical climate risk in investment loans. This way, all projects supported by EIB are adapted to current weather variability and future climate changes. This approach will cover all sectors vulnerable to the negative effects of climate change, including agriculture, buildings, energy, forestry, transport, urban development, water and wastewater management, and industry. 

As part of the sustainability due diligence process, as indicated above, the EIB makes a separate economic appraisal of the investment projects to assess the costs and benefits to society as a whole. This takes into account the resources used by the project (human, technological or natural), in some cases using shadow prices, including for greenhouse gas emissions, and gauges the value generated by the project to determine whether there are overall gains for society. 

EIB also created a task force to enhance consideration of all climate-related risks in their portfolio, including both physical and transition risks. 

In the Climate Bank Roadmap, EIB states to develop an approach to systemically integrate climate resilience considerations into the due diligence process for financial intermedies.

EIB argues that through its alignment framework, high-carbon projects with a large exposure to transition risks are already excluded. Other transition risks will be mitigated by the strong carbon price that the Bank will employ, pricing transition risks accordingly.

Climate risk for counterparties will be assessed with a screening tool, providing an assessment from 1 (low risk) to 5 (high risk). The screening will be applied across EIB’s five credit segments and EIF’s equity portfolio. While initially used for the internal reporting and monitoring, EIB states that in the future “the scores could be used as a basis for strategic decisions (e.g. risk appetite, credit policies, credit approval) and be used as input for internal rating models and downstream processes (e.g. capital allocation) in line with European Central Bank’s supervisory expectations outlined in May 2020.”

EIB will also report on aggregate portfolio climate risk, based on the aggregated project and counterparty risk assessments.

Perhaps most notably, the Roadmap also states that EIB is also developing country‐ and sector‐specific climate change risk scores, modelling both physical and transition risk for all countries where the EIB Group operates. This will be closely monitored.

On adaptation, the Roadmap commits EIB to support the EU Adaptation Strategy to be adopted in 2021, but stops short of concrete commitments to increase EIB’s share of adaptation finance.

EIB continues to lag in the share of their climate finance going to adaptation, which is under 15%. There seems to be no sign of change over the years.  

The EIB is also a member of the European Financing Institutions Working Group on Adaptation to Climate Change (EUFIWACC). More detail on this Working Group is available under the EBRD Climate risk page. 

*Information received from EIB, dated March 2018.  

Last Update: November 2020

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