Promotion of green finance

Explanation

Greening the system

The development of green financial systems is designated as a priority in the EBRD Green Economy Transition (GET) 2.1 Approach. To that end, the EBRD provides extensive support to a range of stakeholders, from financial regulators to partner financial institutions.

The EBRD was actively involved in the EU Sustainable Finance Platform where it supported technical work in the development of the EU Taxonomy. It sits on the steering committee of the Network for Greening the Financial System (NGFS) and is also involved in the G20 Sustainable Finance Working Group. Furthermore, the EBRD was the first MDB to support the Task Force on Climate-related Financial Disclosures (TCFD) in 2018. The Local Currency and Capital Markets Development (LC2), a key initiative of the EBRD, supports partner countries in building deeper and more resilient local financial markets which can support the development of enabling frameworks for more ambitious climate action. For instance, the programme supported EU Taxonomy implementation and the development of a sustainable finance roadmap in Latvia and Estonia.

The EBRD is also increasingly undertaking work on transition planning, including to support the greening of both the financial sector and corporates. For instance, the EBRD’s Corporate Climate Governance Facility supports clients in improving their climate governance, managing climate-related risks and unlocking green investment opportunities through the development of transition plans (which help financial institutions in preparing for a new regulatory environment).  In 2023, the EBRD launched a comprehensive pilot capacity building program aimed at supporting the alignment of Armenia’s financial sector with the Paris Agreement. This program included targeted regulatory capacity building for the Central Bank of Armenia, as well as a transition planning initiative for financial institutions. Additionally, the EBRD organised a series of climate transition planning “masterclasses” designed to assist the broader financial community. In 2022, Jordan’s Bank al-Etihad became the first partner bank to adopt the EBRD’s Paris Alignment Methodology and secured a USD 35 million loan to strengthen its lending capacity.

Further examples of the Bank’s “greening the system” efforts include:

• The Green Economy Financing Facility (GEFF), which supports businesses wishing to invest in green technologies by extending credit lines to local financial institutions for on-lending to energy efficiency and small-scale renewable energy projects.
• The Sustainable Energy Initiative (SEI), through which the EBRD engages in policy dialogues with governments and regulators to help establish or develop the policy and regulatory frameworks necessary to support renewable energy development.
• The Green Trade Facilitation Programme (TFP), established in 2016. This programme supports trade among member countries by providing guarantees to mitigate cross-border risks and distributing cash allowances to promote resilient, sustainable trade.
• Signing the Sustainable Blue Economy Finance Principles, which set the gold standard for investing in the ocean economy. Introduced in 2018, these principles are the world’s first comprehensive global framework to guide banks, insurers, and investors in financing a sustainable blue economy.

Innovative financial mechanisms

The EBRD has developed a number of financial instruments to address climate mitigation and adaptation throughout its operations. For example, the EBRD is one of the main partners in InvestEU, the EU’s main guarantee-based instrument, through which it aims to leverage EUR 2.1 billion in investments from EUR 450 million of guarantees, including for sustainable infrastructure. At COP28, the EBRD announced EUR 168 million in EU guarantees aiming to leverage EUR 1 billion in new investments that promote the uptake of climate technologies. Other innovative instruments on offer by EBRD include bridge financing (temporary financing to cover companies’ short-term costs until regular long-term financing is secured), including for renewable energy projects in Poland. The EBRD has also explored synthetic securitisation schemes for green financing, including in deals with Santander Bank Polska, which allow credit risks to be transferred from local banks to the EBRD, freeing up the local banks’ lending headroom for future projects, though not yet for its own operations.  

The EBRD is also part of the group of MDBs to have shown leadership by announcing their intention to offer climate-resilient debt clauses (CRDCs). The EBRD will offer CRDCs in new loan agreements with sovereign-guaranteed and municipal clients of lower-middle-income countries, which will enable the deferral of principal payments in the event of natural disasters linked to climate change.

Green bonds

The EBRD has a long-standing green bond programme dating back to 2010, when the Bank launched the Environmental Sustainability Bonds (ESB) framework. The ESB supports a broad range of climate and environment projects covering all project categories under the Green Bond Principles (GBP). This comprises investments in energy efficiency, renewable energy, water and waste management, and air pollution prevention. Projects are screened against eligibility criteria, which are set by the EBRD’s Green Project Portfolio and periodically reviewed by a special internal group, the GET Clearing House, and externally by independent auditors.  

In 2019, the EBRD introduced two new green bond categories: Climate Resilience Bonds (CRBs) and Green Transition Bonds (GTBs). 

• CRBs aim to finance projects that build climate resilience by mitigating climate risks and vulnerabilities. They are earmarked for investments in climate-resilient infrastructure (energy, water, transport, communications and buildings), business and commercial operations (agri-processing manufacturing/services, logistics/retail and extractive industries) and agriculture and ecological systems (primary agricultural production). CRBs are aligned with the Climate Bond Initiative’s Climate Resilience Principles.
• GTBs are targeted towards the decarbonisation of key carbon-intensive sectors of the economy. They are therefore earmarked for investments in the EBRD’s Green Transition Project Portfolio, which covers energy efficiency, resources efficiency (including circular economy), and sustainable infrastructure (including low-carbon transport and green logistics).

The CRBs and GTBs are the first and only green bonds issued by an MDB to be targeted specifically at climate change adaptation and industrial decarbonisation. All green bond categories align with the Green Bond Principles framework. The Bank reports on use of proceeds yearly in its Sustainability Report, and this is measured against an impact framework. As of December 2023, the EBRD had issued EUR 5.7 billion of ESBs in 104 transactions, EUR 1.2 billion of CRBs in 13 transactions, and EUR 1.7 billion in GTBs in 18 transactions.

The EBRD has also been supporting the development of green bond markets globally. It has been part of the Green Bond Principles Executive Committee since 2015. It is also part of the consortium of European Development Finance Institutions leading the Global Green Bond Initiative (GGBI), an EU-led Global Team Europe Initiative intended to develop green bond markets globally to facilitate the flow of private capital from institutional investors to climate and environment projects. It has recently partnered with the Intra-American Development Bank (IDB) and the African Development Bank (AfDB) to pursue these objectives in Africa and the Latin American and Caribbean region. The EBRD further invested in the “Amundi Planet – Emerging Green One” fund, the world’s largest green bond fund and the first exclusively dedicated to emerging markets.

The EBRD further assists prospective issuers in preparing for their first green issuance by improving their ability to identify, monitor, and track green assets, thereby increasing the supply of such assets over time. For sustainability-linked bonds, the Bank supports issuers in setting ambitious green criteria or performance indicators. It also supports green bond issuance through direct investments in local bonds of operating countries. For instance, in 2022 it invested USD 100 million in a green bond issued by Scatec, a renewable energy solutions provider in Egypt, which was the first private green project bond issuance in Egypt and the wider Southern and Eastern Mediterranean region (SEMED) region.

Recommendations: 

• Building on its existing synthetic securitisation schemes which allow credit risk to be transferred from local banks to the MDBs, the Bank could explore synthetic securitisation further by developing a scheme for its own operations, as AfDB had successfully done through the ground-breaking “Room2Run” deal.
• As the first and only green bonds issued by an MDB to be targeted specifically at climate change adaptation and industrial decarbonisation, Climate Resilience Bonds (CRBs) and Green Transition Bonds (GTBs) can be considered some of the most innovative green bond products developed by MDBs. In order to maximise its impact, the EBRD should share the expertise it has built up in its development of these bond types with the wider PDB ecosystem, including working with MDBs in other regions to encourage inter-operability.