CIS Interview: Vice President Ambroise Fayolle, the European Investment Bank
1) Can you tell us how the European Investment Bank helps fight climate change?
The EIB has been supporting climate action for a long time. Since 2012, we have provided €170 billion of finance, which mobilised over €600 billion for projects around Europe and the world. These projects reduce emissions, help people adapt to the impacts of climate change both those affecting us today and anticipated in the future, and bring us closer to the environmental sustainability goals. We are one of the world’s largest financiers of climate action and environmental sustainability.
Last year, the European Council and the EU Member States asked the EIB to strengthen its role as the EU climate bank by helping to design and implement the European Green Deal and accelerate the transition to an economy that is carbon neutral and resilient to climate change by 2050.
The EIB is going to raise its annual contribution to climate action and environmental sustainability to more than 50% of our financing by 2025. By the end of this decade, the EIB Group will support at least €1 trillion in climate action and environmental sustainability investments. We will be the first multilateral development bank to align all financing activities with the goals of the Paris Agreement by the end of this year.
In addition, the EIB’s energy lending policy is a crucial step in the fight against global warming. The Bank’s Board of Directors decided in November 2019 to end financing of unabated fossil fuel energy projects, including natural gas.
2) Are you sure that the goal of 50% for climate and environmental sustainability is going to be strong enough?
50% represents a big jump in our climate action. But this doesn’t mean that the other 50% of our work will do bad things for the planet. There would be little point in dedicating 50% of financing to climate action and environmental sustainability, while using the other 50% for projects that take us away from the goals of the Paris Agreement.
We will make sure that all our financing activities align with the goals of the Paris Agreement by the end of 2020. Specifically, the Agreement says that we must make “finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”
3) Can you tell us more about the EIB Climate Bank Roadmap?
The Climate Bank Roadmap is a new five-year plan for the EIB Group. It will ensure that we support a green recovery from the COVID-19 crisis, that we fully back the European Green Deal, that we keep supporting countries in need outside the EU, and that we make sure our work supports sustainable development.
The EIB Board of Directors will review this Roadmap in November. The involvement of many groups from civil society, the private and public sectors was central to the development of the Roadmap. We met with hundreds of organisations and people in the first half of the year to discuss what we are doing correctly and what we should change to meet the exceptional challenges in the future.
The Climate Bank Roadmap focuses on a number of activities, such as how we will align with the Paris Agreement,” which is helping to make sure all our future activity is consistent with the vitally important 1.5 degree temperature goal.
The EIB Group will now focus even more on clean and low-carbon development, innovative technologies and many other projects that reduce emissions and prepare people adequately, as societies become increasingly digital and automated. We especially want to help communities and regions whose economy will be impacted by the green transition. That’s why the EIB Group will continue to support projects that help people live better lives and that bring countries closer together and make the EU more cohesive. A lot of this work will be done under the EU Just Transition Mechanism.
Another important area of our financing is climate resilience. We need to work much harder to make sure economies, communities and all people are prepared for the impacts of climate change happening right now and those anticipated in the future. This is why we need new risk management methods to understand climate change, and this is why the Bank is going to increase its leadership in the development of financial products and support for the capital markets, to make sure the financing we do today will be resilient and successful long into the future.
We also will intensify our advisory services to EU countries, city officials, regional authorities, private financial institutions and business of all sizes. Technical advice and other related services make sure good ideas find the right financing, but they also ensure that projects succeed.
4) Is it possible to help the economy recover from the pandemic and fight climate change at the same time?
It is imperative that Europe – and the world – recover quickly and that people find jobs. But even in this type of global crisis, we cannot neglect the climate and environmental emergencies. Climate change is not going to fix itself or slow down. And the biodiversity and ecosystem losses to date won’t just return one day without help. The latest United Nations Emissions GAP report is clear: we must reduce greenhouse gas emissions by 50% this decade, regardless of the pandemics that we also must solve.
This work will be very difficult. Government budgets have been cut because of the coronavirus. It is harder today to raise money to keep supporting the green transition. This means that we need to get the private sector more involved. There is still a big gap between the amount of finance needed in society and the amount of money private financial institutions are willing to invest. The EIB knows a lot about mobilising finance. Our seal of approval on projects encourages large amounts of private investors to get involved.
In response to the COVID-19 crisis, the EIB Group has proposed many types of financial assistance to help companies, improve healthcare and revive the wider economy. We are working with the European Commission and many national partners to make sure Europe recovers quickly, while supporting green investment. Our largest recovery initiative to date, the European Guarantee Fund, is expected to mobiliseup to €200 billion of financing, with a focus on the small businesses that are the backbone of Europe’s economy. Outside of the EU, we also work with the European Commission as part of “Team Europe” to support our partner countries and clients.
5) How does the EIB help climate projects outside the EU?
Climate change and environmental degradation are causing significant problems in many parts of the world, especially in poorer countries. We are investing in renewable energy around the world. In Africa, we have supported many small-scale projects, especially in rural areas, that offer people solar power kits to bring renewable energy into homes that are not connected to electricity lines. We also are helping countries adapt to climate change by building better bridges and roads and other infrastructure, and improving economic systems, so communities can fight the disruptive effects of climate change.
In 2015, the EIB committed to dedicating 35% of its finance outside Europe to projects that help fight climate change by 2020. We exceeded this target in 2019, with €3 billion of investment, representing 43% of total EIB lending outside Europe. When doing business outside the EU, we apply the same environmental, social and quality standards that we apply in the Union.
Let me give two concrete examples: To further help cities across the world fight climate change, this summer the EIB, together with the World Bank, the governments of Germany and Luxembourg, and the Global Covenant of Mayors, developed the City Climate Finance GAP Fund. This fund offers technical and advisory services targeted for cities, to help local leaders prepare and find financing for smart climate projects at an early stage. The goal is to accelerate green projects in cities, improve their quality and make sure the plans make economic sense.
Another example of our global outreach is our partnership with the German and French development banks. Together, we created the Clean Oceans Initiative, which recently added Spain’s and Italy’s development banks as a new partners. This initiative is providing up to €2 billion in financing over five years for projects that keep plastics and other waste out of the ocean. This initiative will help developing countries around the world.
6) Are there any conflicts between the EIB’s climate objectives and its goal to make Europe’s economies and societies more cohesive?
The transition to a sustainable, low-carbon society will lead to significant changes in our economies and our way of living. We must make massive investments to modernise cities and switch away from fossil fuels. This requires big changes to transport, energy use, power generation and industrial production. This is also a huge opportunity to increase the competitiveness of our industries, create jobs and grow the economy.
While we forecast that green energy will create around 500 000 jobs in Europe over the coming decades, the transition to a green society will not be good news for everyone. Not all regions and sectors will benefit. We need to ensure that the parts of society hurt by this transition receive extra assistance. We should not neglect people who lose jobs when industries change. We need to create new industries and offer more training to help everyone make the transition successfully to a climate-neutral economy.
As the EU’s climate bank, our environmental goals go hand in hand with economic development and social cohesion. The EIB is committed to working with the European Commission to ensure a just transition, for example through the EU Just Transition Mechanism.
7) How is the EIB supporting sustainable finance and in particular green bonds?
To make the amount of investment needed to protect the climate, we need to raise more money on the capital markets. Green, social and sustainability bonds are growing fast, but they are still a small part of the whole bond market. The EIB pioneered the green bond market, so we understand the potential for growth in this unique investment tool.
Since the beginning of 2020, the EIB has issued a record volume of €10.5 billion in Green Bonds and Sustainability Awareness Bonds (SABs), more than double the amount of highest prior year issuance. Since the outbreak of the COVID-19 pandemic, the EIB has issued new SABs with a total volume of €3.5 billion, contributing to environmental- and social sustainability objectives and contributing to the United Nations’ sustainability development goals, including Universal Access to Affordable Health Services. We see an increasing demand for the green and sustainable bond segment and we have worked – by extending sector eligibility and aligning bond documentation to the EU Taxonomy – to ensure that we are prepared to meet this demand.
The financial system and sustainability need to be closely connected. The EU is moving quickly in this direction with its Action Plan on Financing Sustainable Growth. We have contributed to the landmark EU Taxonomy for sustainable finance. By establishing clear, robust definitions of “green” investments and by requiring proper reporting, the Taxonomy will attract more investment for the multitude of new projects needed to create a low-carbon world.
We need more cooperation on sustainable finance across European institutions and across the world, and new initiatives should be better coordinated with more countries and more organisations. In this sense, the EU’s International Platform on Sustainable Finance will be a major step toward more dialogue beyond European borders.