A lot of new colours are emerging in the realm of Climate Change – as we understand with EIB experts here. And one among them is ‘Blue’
With many suitcases still getting unpacked after a trip to COP27, there are many cans of worms that are still open. This year’s United Nations Climate Change Conference or Conference of the Parties of the UNFCCC held in Egypt, raised many dust-storms. Like on- loss and damage fund, attention to developing countries, onus of developed nations and bogus pledges.
All is not bleak and stormy. In fact, as per Forrester’s reckoning, leading Global 200 firms are advancing their environmental sustainability performance in various ways. About 61 per cent of G200 firms have created a position for a director, VP, or executive to lead their sustainability program; and 51 per cent of G200 firms have set a carbon-neutral or net-zero goal for their direct emissions and their purchased electricity. As many as 46 per cent of G200 firms have committed to reducing their scope 1 and 2 emissions by a set percentage by a specific year.
The wheel that’s the most notable as the world moves towards more accountability is the once-most-least-heard-of word – Green Finance. It was almost impossible to hear ‘green’ and ‘finance’ in the same breath, just a couple of years back.
But today, green finance exceeds more than $700 billion globally. Forrester has estimated that the US and the EU alone are currently spending $1.4 trillion toward environmental sustainability and climate adaptation; there is $17.5 billion in VC funding for green tech; and the market for green financial instruments globally is $658 billion. Not just that, the green market revolution is set to transform the transportation, energy, and construction sectors; investment in sustainable finance products; and the sourcing and delivery of sustainable goods and services.
But ‘Green Finance’ is not an alien term for the European Investment Bank (EIB). It has been working in this area with a lot of projects and years in its métier. It is a long-term lending institution of the European Union (EU) owned by its Member States. As the EU’s climate bank, the EIB committed to support €1 trillion of climate action and environmental sustainability investments in the next decade.
What’s very interesting in these green areas, is the attention to ‘blue’ parts of the world. Under its Clean and Sustainable Ocean Programme, of which the Clean Oceans Initiative is one important pillar, the EIB supports investments that will contribute to improve the health of the oceans and their resources.
At the COP27 in Sharm el-Sheikh, EIB, the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB) and the Union for the Mediterranean (UfM) announced the creation of the Blue Mediterranean Partnership.
In this announcement we saw how the Mediterranean Sea is significant – having formed over millions of years as an interface between Europe and the MENA region, connecting them naturally and by destiny. And how it has been suffering with environmental fragility, pollution and irreversible degradation. The Mediterranean Sea basin is a recognised marine biodiversity hotspot and a vital resource of economic activities for 480 million people living in the region’s 22 countries. Today, the Mediterranean Sea’s ecosystem is under threat from habitat loss and degradation, over-fishing, pollution and climate change.
This Partnership aims at supporting and attracting investments in the sustainable blue economy and policy reforms, prioritising innovation and including where possible, natural capital and nature-based solutions for climate mitigation and adaptation. It will entail financing of wastewater treatment facilities, solid waste management and plastic waste reduction, will help reduce pollution going to the sea, decrease pressure on fisheries through sustainable aquaculture, improve coastal resilience investments, and reduce emissions through sustainable marine mobility.
This was a good chance to sit down with these passionate and seasoned experts, and catch up on what’s been done in India and Climate Change work – and what’s on the drawing board already.
Let’s join them and see if we can see some more swans.
With 21 projects, and about $ four billion spent in India by EIB, what’s the momentum here on climate-change action?
Nina Fenton, Head of Regional Representation of the EIB in South Asia: At COP27, India has been showing important leadership on pushing for an accelerated global path to decarbonisation. The EIB is fully supportive of India’s green transition where 90 per cent of our lending is focused on climate action. The EIB is supporting renewables, mainly wind and solar, as well as clean and affordable transport solutions that get people off of polluting, congesting roads and give them access to economic and educational opportunities.
Can you share any examples that you are most proud of?
Nina Fenton: The metro projects that we have been supporting, like the Bangalore Metro, are improving environment, notably air quality which is a big issue in India, and fighting climate change by taking people off roads and onto clean and affordable transport and they also have a positive effect on women’s safety.
Can you elaborate on the emphasis on renewable energy, or on progress of Green Bonds and on Metro transport projects?
Nina Fenton: The EIB as the EU climate bank has a big focus and expertise on renewables. In India we have done this by partnering with very solid institutions in country, such as SBI, IREDA and IIFCL. We continue to look for ways to support India’s phenomenal progress in switching its energy mix towards renewables and we also support initiatives like the International Solar Alliance where India is taking global leadership and sharing the expertise it has gathered, for example in solar.
Metro is a sector we are very pleased to engage with because of environmental benefits but also social including gender, so we hope to do more projects in this sector.
The EIB together with other European Development Finance Institutions is working on the design of Global Green Bond Initiative (GGBI), an investment fund with a target size of $1.5-2.0 million to purchase green bonds in emerging and developing markets, including India. Through the catalytic effect of the EU Guarantee expected to be provided to the GGBI, the fund will have the risk bearing capacity at scale to enable the private sector to invest via green bonds in sustainable infrastructure and other green projects in emerging markets.
A Forrester report recently pointed out that 61 per cent of G200 firms have created a specific sustainability role in their organisations that Green Finance is past $700 billion mark now, the market for Green Financial Instruments is $658 million, and VC funding is about $17.5 bn. Also, as a fresh EIB Survey noted, 88 percent firms have taken action and 32 percent are investing in new less-polluting tech and businesses. With all this traction happening, what are the gaps that still remain – what can we improve about green financing and corporate-level commitments?
Aldo Romani, Head of Sustainable Finance, Finance Directorate, EIB: The key to increasing green financing volumes and their effectiveness is to enhance clarity, comparability and reliability with regard to the green use of the funds. What is needed is a coherent and conducive policy framework for green finance with clearly defined sustainability objectives, easy-to-use and comparable reference criteria for the measurement of investment contributions to such objectives, and the reliability of the information made available to stakeholders, in the first place capital market participants. This set of conditions can provide more certainty and scale up public – and most importantly private – green investment, while also facilitating cross-border and cross-market flows. Such a framework will also help to set more accountable and therefore more credible corporate-level commitments.
The European Union is at the forefront in the regulation of sustainable finance along these lines and therefore taking a leading role internationally, notably with its EU Taxonomy. Our experience with green bonds – the EIB pioneered the green bond market with the issuance of its Climate Awareness Bond in 2007 – has shown that these are excellent tools to engage various stakeholders in a constructive dialogue towards more clarity within this framework and are thus a powerful instrument to scale up green finance, within as well as beyond EU borders.
Any thoughts on the relevance of a ‘loss and damage fund’ that came up as a debate during COP27?
Nancy Saich, Chief climate change expert at the EIB: The EIB welcomes the breakthrough agreement by the COP27 climate conference to establish a dedicated fund to assist developing countries in responding to loss and damage. As the EU climate bank, the EIB is supporting the EU and we are committed to work with the international community to support financial flows to reduce the potential for loss and damage.
We are in discussions with our partners in the EU and multilateral development banks to bring in our expertise on climate finance and ensure synergies with existing financial instruments to maximise the impact of a new Loss and Damage Fund for countries hit hardest by the climate crisis.
Under its Climate Bank Roadmap, the EIB will work with countries across the world, multilateral development banks and the private sector to accelerate investments in climate mitigation and adaptation projects, aiming to unlock one trillion euro by 2030. EIB financing will contribute to decarbonise the global economy and build resilience to impacts of climate change already happening today. More investments for mitigation and adaptation reduces the need for Loss and Damage payments in the future.
Where do Green VCs fit in?
Merilin Hörats-Beasley, Senior Climate Officer, Strategy & Business Development at European Investment Fund (EIF): Green venture capital and private equity play a crucial role in accelerating high-impact climate-focused investment. The European Investment Fund (EIF), part of the EIB Group, is Europe’s largest venture capital and private equity financier. The EIF made its first cleantech VC investment in 2006 and since then has channelled over € 1 billion to climate and environment VC and Private Equity (PE) funds. These investments are estimated to have helped catalyse €3.4 billion for climate innovation from third party investors.
Partnering with cleantech and greentech fund managers has provided access to finance for technological breakthroughs and helped to back the expansion and growth of companies with tested products and technologies. We partner with value-add fund managers that are focusing on climate and environment thematic and issues to help finance and support the companies that are developing or already commercialising innovative solutions in these fields.
How?
Merilin Hörats-Beasley: In VC, the EIF sees itself also as having a market building role. We’re trying to support the development of an adequate VC/PE ecosystem in climate and environmentally relevant sectors and across funding stages and geographies. As an example of the targeted industry initiatives that we are developing, to address specific market gaps, is under the BlueInvest launched in 2020 with the European Commission (DG MARE), where we bring together all actors in the industry – investors, industry corporates, start-ups, public organisations – through dedicated events and workshops to raise awareness, attract more capital, build connections, and share market expertise.
Since 2021, EIF is also active in infrastructure equity funds. 75 per cent of all investment that the EIF backs in infra funds have a climate and environmental sustainability element. Such investment will make a crucial contribution to the energy transition in a variety of sectors.
How do you measure the success of the projects you support?
Franck Jesus, Senior Department Climate Advisor Environment & Natural Resources Department (ENR) at the European Investment Bank: The EIB Group invests in projects and operations that make a real difference to people’s lives, as well as protecting the environment and tackling climate change. Impact therefore drives everything the Group does. Its shareholders — the Member States of the European Union — ask the Group to support investments that are not just financially sound, but also transform the lives of people across Europe and around the globe. Project appraisal at the EIB is a systematic and comprehensive review of the financial, economic, social, environmental, climate aspects, as well as a technical assessment, and a review of procurement aspects, and the promoter’s organisation and capacity.
Can you share something about the Blue Mediterranean Partnership? Why is Blue important for gong Green?
Franck Jesus: Oceans are a big part of sustainable economies. When we speak about climate change, bio-diversity, ecology and economy in the right and responsible way – we have to talk about oceans for sure. Oceans produce half of our oxygen, are buffers of heat, they absorb so much climate change impact – but they also suffer from the impact of human activity from rise in temperature to plastic pollution. They are also integral to maritime transport and its environmental implications. Pollution, shipping, global temperatures – they are also inter-linked. Hence, this initiative by EIB, EBRD and UfM started to develop a while ago.
Why this region?
Franck Jesus: The Mediterranean sea is almost a closed sea. It faces a lot of issues – such as climate change, pollution and specially over-fishing. The impact of climate change actions would be stronger here than in other areas. We identified that this area is very significant specially when we look at the Southern neighbourhood (Morocco to Jordan) and the projects envisaged here. EIB, EBRD, and other collaborators launching this partnership are expected to set up a facility supporting project preparation, grant funding to support project lending and policy reforms to support the sustainable development of the blue economy in the region. We are making the right steps with potential donors like Sweden and the right countries that will gain from this initiative. The work that we are supposed to do now is to develop the partnership rules, goals, set priorities and organize the Donor pledging Policy conference in 2023. With To deliver on this partnership in place, a lot of work is still neededs to be delivered now.
What’s the role of finance in climate-change action? Specially with the discussions on carbon credits, taxes and insurance that emerged during COP27?
Franck Jesus: Finance is only a part of the solution, albeit, an important one. It cannot solve all aspects of climate change, unless you have the right policy in place. In the EU we have set a clear path of either mitigating or adapting to climate change or lowering emissions. Climate finance is useful when there is already some idea or activity in place. It’s easier for that to accelerate then. And insurance can play a strong role- specially in sending a strong signal about risks around this area – specially for coastal regions which may suffer an impact without readiness or warning or recourse. I see a lot of private insurance players getting cognizant of the role of insurance in climate change adaptation impact.
Is there a formula to pick the right suitors for climate change finance?
Franck Jesus: Yes and No. While my colleagues will help you understand this more, I can tell you that we are looking for partners willing to create some change and are in need of finance. They propose an activity – and it can come from any source, a PSU, a government entity, a funding institution etc. We decide based on what we find is sustainable and aligned well with the Paris Agreement and our sustainability criteria. It has to be relevant for any one strong area, at least – like mitigation or adaptation or circular economy or responsible resource use. We are keen to support work in areas like sustainable mobility, nature-based solutions, coastal resilience and bio-diversity.
The world witnessed a lot of supply-chain turbulence during the pandemic. It has disoriented shipping companies and logistics strategies to a serious extent. How do you view maritime supply chains from that perspective?
Franck Jesus: Making sure that supply chains are sustainable- that’s a key part in many sectors, in particular for the bioeconomy ones (e.g- A big part of this facet also affects fish or livestock production, forestry) their survival, their food and diversity. We have taken a lot of initiatives in that regard. In the EU, for example, we strongly discourage imports related to deforestation. We want to push forward deforestation-free supply chains.
What are you excited about – anything you wish to say to our readers?
Franck Jesus: This partnership is unique because it galvanizes not just EIB, EBRD, and the EU policy-makers but a lot of relevant countries and organizations, along with the political support of the EU. It is like a Team Euro initiative. All I can say is that if you are doing something in the area of climate change and which aligns with our policy, and you want to work with EIB, we would love to listen more.
By Pratima H
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