European Bank for Reconstruction and Development

Promotion of green finance

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 alignedThe Bank works with a wide array of actors to support green finance, including innovative bond portfolios and market structures.

Explanation

Green bonds

The EBRD started issuing green bonds in 2010 and, up to December 2019, has committed €8.5 billion to projects, and has €4.5 billion in currently operating funds across 350 projects. However, this is not a major proportion of the total in the region given that Europe is the largest region in the world in terms of climate-aligned bond issuance. The EBRD is a part of the Green Bond Principles Executive Committee, and actively contributes to the development of the green bond market. In addition, the Bank issues Green Transition Bonds (which can include investments in energy efficiency, resource efficiency including the circular economy and sustainable infrastructure including low-carbon transport and green logistics), Sustainability Bonds (which can include investments in energy efficiency, renewable energy, water management, waste management, pollution prevention and sustainable transport) and recently launched the first Climate Resilience Bond (which will cover resilient infrastructure, business or commercial operations and agriculture or ecological systems). The Climate Resilience Bond was introduced in September 2019, in line with the Climate Resilience Principles, published by the Climate Bonds Initiative.

Greening the system

According to the OECD, credit lines supported by international financial institutions are the main source of long-term funding for green investments in EU Eastern Partnership Countries.  Key within this is the EBRD Sustainable Energy Finance Facilities (SEFF) programme which operates in 23 countries and extends credit lines to local financial institutions for on-lending to energy efficiency and small-scale renewable energy projects. In addition, the EBRD’s Green Economy Financing Facility (GEFF) provides credit lines to local financial institutions so that they can finance green investments. In addition to this, the GEFF technology selector helps users by optimising transaction costs while involving technology providers, resulting in accelerated deployment of climate technology throughout the region.

Through its Sustainable Energy Initiative (SEI) from 2006 to 2015, the EBRD has worked with governments to support the development of strong institutional and regulatory frameworks that incentivise sustainable energy investments. The EBRD has also been involved in promoting green banking markets in Africa. In 2017, the EBRD launched a study to assess the potential for a green financial system in Kazakhstan, which resulted in the first green bond issuance for the country. Moreover, in Turkey, the EBRD has been working with banks and financial regulators on clarifying the role of carbon pricing and offsetting, with an advisory study commissioned in 2019.

The Bank has played a role in the development of the green finance classifications or taxonomies. It developed the first classification on Circular Economy with EIB which was a direct input to the EU Taxonomy. It then participated in the EU Sustainability Taxonomy Working Group, as well as developing the methodology for climate risk assessment in its early stages of development.

The EBRD’s cooperation with financial intermediaries includes an emphasis on environmental and social risk management including “10 Performance Requirements that cover key areas of E&S issues and impacts”.

The GET 2.1 approach’s emphasis on supporting green economies is in part helped by the Green Trade Facilitation Program (TFP), a program the Bank uses to support trade to, from and between its member countries by providing guarantees that mitigate risks associated with cross-border travel and distributing cash allowances to banks and companies in the region that promote more resilient trade. .

The EBRD and Green Climate Fund (GCF) have set up the High Impact Programme for the Corporate Sector, which will promote the industrial sector’s low carbon transition in Armenia, Jordan, Kazakhstan, Morocco, Serbia, Tunisia and Uzbekistan. This approach focuses on uptake of “high climate impact technologies and stimulating behavioural change at the corporate governance and management level”. The project is set to operate through 2024.

Within its Green Economy Transition Approach (GET 2.1)  “greening the financial sector” is one of its thematic priorities. The EBRD intends to work with partner institutions as well as national and subnational financial institutions to develop enabling environments, which could potentially lead to a “transformational” assessment.

The EBRD is also a signatory to the Sustainable Blue Economy Finance Principles. The Sustainable Blue Economy Finance Principles are the gold standard to invest in the ocean economy. Launched in 2018, they are the world’s first global guiding framework for banks, insurers and investors to finance a sustainable blue economy. They promote the implementation of United Nations Sustainable Development Goal 14 (Life Below Water), and set out ocean-specific standards, allowing the financial industry to mainstream sustainability of ocean-based sectors.

The Bank’s track record on delivering the Sustainable Blue Economy Finance Principles includes, notably, work on the Northern Dimension Environmental Partnership (NDEP), promoting environmental remediation in the Baltic and Barents Seas, with a particular focus on supporting wastewater treatment to improve the health of the marine environment and fight eutrophication. Over the past 20 years, this programme has supported 23 wastewater treatment facilities with €182 million in grants for a total project value of €1.3 billion, treating two million cubic metres of water per day – or 1,000 Olympic swimming pools.

Case Study: Egypt Energy Renewable Financing Framework Market failure to be addressed: access to finance for project sponsors, perception of first mover risk for project sponsors, infrastructure constraints and limited institutional capacity for administering renewable energy tenders. Egypt has significant renewable potential; wind conditions in the Suez Gulf are as favourable as the North Sea and it receives some of the highest solar irradiation in the world. Furthermore, the policy framework is already in place to attract the necessary investment. However, at present the majority of its renewable energy is sourced through large-scale hydro, but there is limited potential to expand this, and water scarcity is an issue because of climate change. The government is proposing to significantly increase renewable output, but at present results have been insufficient and the only ones which have been successful are directly government-backed. This framework aims to unlock two other categories of projects – Feed-in-Tariff scheme projects and competitive tenders. A key challenge in sourcing financing for projects is that Egyptian commercial banks cannot provide loans in hard currency when the revenues from the project (the feed-in tariffs) will be in Egyptian Pounds. This meant that projects relying on the feed-in tariffs were unable to proceed, whilst competitive tenders to supply electricity directly to the grid have also been unable to progress as they rely on a pricing mechanism to be determined by the feed-in tariff market.   The EBRD and Green Climate Fund (GCF) project aims to address this by providing up to $500m as debt financing for projects, to provide up to 50% of total project costs based on a minimum equity contribution by the project sponsor of 25%, with the remaining debt sourced from a commercial financial institution – aiming to provide access to a reliable and predictable source of long-term finance to help de-risk projects for first movers. This financing, coupled with technical assistance, has the potential to play a key role in unlocking Egypt’s renewable energy resources. The expected impact is to build on the existing regulatory framework to double the current renewable energy capacity, which is a part of the Egypt’s NDC.

Last Update: December 2020

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