Today’s global context indicates that disparities and inequalities in human development are widespread across the world and they will probably increase in the aftermath of the coronavirus pandemic. The availability of natural resources is limited and global warming, linked to human activity, is putting the survival of forests, cities and people at risk. Geopolitical implications prompt policymakers to look at existing and new connectivity infrastructure more as a proxy of their sovereignty than as an opportunity for inclusive economic growth. Yet economies and societies are now so interconnected that a virus, first identified in China and then spread worldwide, has significantly impacted economic growth on a global scale. Against this rapidly changing and uncertain backdrop, there are reassuring signs of increased awareness of global interdependencies and calls for global solutions to address common issues. In 2015, world leaders marked an important consensus on both the United Nations Sustainable Development Goals (“SDGs”) and the Paris Climate Agreement COP21 (“COP21”) that could lead to fairer, more sustainable and more inclusive use and distribution of the world’s natural resources. Achieving SDGs and COP21 goals requires policymakers as well as public finance institutions to act rapidly and seize the unique opportunity to benefit from historically low interest rates to support much-needed connected investments. Europe, for example, should invest (i) to sustain the digital revolution and enable European firms to compete and leapfrog globally; (ii) to lead by example in fighting climate change towards a carbon-neutral economy, first within its own borders and then worldwide; and (iii) to re-build social inclusion to reduce economic and geographical disparities. The current epidemic has triggered an unprecedented economic downturn, estimated by the IMF at -3.0% worldwide and -7.5% for the Eurozone (-7,7% according to the latest EU Spring forecasts): the crisis will probably trigger a collapse in private investments, despite currently advantageous financing conditions. Therefore, structural investments are more urgent than ever to cope with the transformation of economies and societies, as well as to achieve the ambitious European goals to speed up the zero carbon transition, support sustainable and inclusive growth and reap the upside of the technological transformation.
The role of Big Data for sustainable investments
Currently available technologies can gather enormous amounts of data that track the preferences and habits of people in every area of the world concerning what they eat, how they move and how they communicate. Big Data can show what people need, and can help policymakers and public finance institutions make the right choices in relation to existing and future infrastructure for them to be long-lasting and to serve the target community appropriately. Decisions on mobility infrastructure, for example, are more rational and efficient if based on previously collected data that allow for flexibility to adapt to future technological developments. Means of transport for a given community should be safer, cleaner, integrated and dependent on actual and measured needs, while bearing in mind the foreseeable development of digital and automation technologies (e.g. Connected and Automated Vehicles) that is expected to occur during the life of the investment. Along these lines, an interesting investment concluded by the EIB in the mobility sector concerns the Free Flow Tolling System in the most congested sections of the Slovenian motorway network.
From an economic and sound banking viewpoint, decisions of public finance institutions concerning infrastructure to be built or maintained should take “backward planning” into consideration. This involves focusing on the end of the lifecycle rather than on the present, as well as the dynamic development of both needs and available technology. The objective is to concentrate financial efforts on quality infrastructures that guarantee the desired social and economic impact at the lowest cost, while ensuring the flexibility to integrate future digital technologies and accommodate future demands. Regarding the attempt to define internationally agreed terms on sustainable investment, also worth noting is the Action Plan on Financing Sustainable Growth that was adopted in March 2018 by the European Commission. One of the plan’s aims is to “reorient capital flows towards sustainable investment in order to achieve sustainable and inclusive growth”.
The EIB as the Climate Bank of the European Union
The call for sound finance for sustainable infrastructures is possibly even more applicable to a policy-driven and non-profit financial institution such as the Bank of the European Union, the EIB. Financing projects that prove to be sustainable in the long term has always been a key driver for the EIB. For over 60 years, the treaties of the European Union have required the EIB to provide competitive, long-term funding for investment projects that contribute “to the balanced and steady development of the internal market in the interest of the Union”. Concerning green finance, the importance the EIB gives to the environment and the effects of climate change are all but new. Over time, the Bank started to assess and report on the greenhouse gases produced by its investments and committed itself to dedicating at least 25% of its global activity to projects aimed at tackling climate change. More recently, and in the context of COP21, the Bank committed to granting $100 billion of climate finance worldwide during 2016-2020 and to increasing the proportion of its lending in support of climate-related investments in developing countries to 35%. Both objectives are being achieved. Therefore, it became natural for the EIB to listen to the calls of President Emmanuel Macron and other EU heads of state, as well as the President of the Commission, Ursula von der Leyen, to step up its climate role and ambition. In November last year, the EIB Group approved its new energy lending policy which, as one of the Group’s initiatives to contribute to delivering the ambitious European Green Deal and its Sustainable Europe Investment Plan as announced by the Commission, will unlock €1 trillion of green investments until 2030. In this respect, the EIB will leverage the resources of the next Multi-Annual Financial Framework of the European Budget (InvestEU) and provide a special facility within the Just Transition Mechanism aimed at supporting the European regions that are most affected by the ambition to move Europe towards carbon-neutrality. As the new Climate Bank of the European Union, the plan is (i) to dedicate 50% of total EIB financing to climate action and environmental sustainability as of 2025 (current target 25%); (ii) to finance only projects aligned with COP21; and (iii) to stop financing fossil fuels by the end of 2021, making the EIB the first international financial institution to make such a commitment. This ambitious plan will provide an additional opportunity for promoters willing to invest further in Europe’s competitiveness, new technologies and innovation. Moreover, the EIB will support environmental projects (e.g. water, waste-water, waste management, hydrogeological risk management and disaster recovery) and cleaner transport and social infrastructure (e.g. health and education). There will also be a focus on developing housing for low and middle-income families with a focus on energy efficiency to reduce running costs and CO2 emissions, while also building in resilience to flooding and extreme heat. Such investments will be particularly critical to creating additional jobs and ensuring alternative opportunities and a just transition, particularly in regions and rural areas that have a longer way to go to achieve carbon-neutrality and are still heavily reliant on fossil fuels. Climate action, however, does not mean the EIB is doing less in cohesion or development finance both within and outside Europe. On the contrary, climate presents an opportunity to channel additional investments into a more sustainable and inclusive future that leaves no one behind in Europe and beyond. A path that is even more pressing today, turning an unprecedented crisis into a chance to radically transform the economy and society for the better.
The Climate Bank Outside the European Union: The Case of the Western Balkans
The Western Balkans region is historically, culturally and geographically part of Europe. As such, there are no chances of success for the new European Green Deal without encompassing the Western Balkans in the ambition of making Europe carbon-neutral by 2050. The European Union and its Climate Bank will not turn their backs on this urgent issue, which also requires a fair and just transition, in line with areas of the European Union that rely heavily on fossil fuels. In particular, it is essential to seek synergies between a green and a digital agenda for the region and to support investments that facilitate its digitalisation and more efficient use of energy. This will improve living standards and support sustainable economic growth that is increasingly decoupled from increased energy consumption. Certain countries have already started moving rapidly in the right direction. Montenegro is planning to decommission the existing Pljevlja coal-fired power plant within the next two decades and has introduced a carbon price on new investments to finance the cost of decarbonisation. North Macedonia has approved a national energy strategy that considers the hypothesis of a coal phase-out before 2030. The Climate Bank will support these ambitious plans, particularly insofar as green electricity generation is concerned. For example, in Bosnia and Herzegovina, the EIB will partner on electricity generation from renewable sources to demonstrate that European finance is dedicated to green investments rather than to a new Chinese-financed and Chinese-constructed 450MW thermo power plant, which, by contrast, raises several questions as to its long-term sustainability. Along these lines, in December last year, the EIB concluded the very first deal as the Climate Bank in the Western Balkans with a €68 million loan and a €10 million ERI investment grant to finance the first waste-water treatment plant in Skopje, North Macedonia. Concerning support for cleaner transport, the EIB has provided €100 million to facilitate a more integrated system designed to encourage a modal shift from road to waterway transport, through the rehabilitation and upgrading of existing fluvial infrastructure to improve the navigability of the Danube and Sava rivers.
In conclusion, the Climate Bank of the European Union is ready to build on its capacity and expertise to support the extension of the European Green Deal to the Western Balkans. The EIB looks forward to the upcoming adoption of a new Green Deal for the Western Balkans and is eager to engage with the relevant stakeholders to enable the region to transition away from a carbon-intensive economy towards a fully European carbon-neutral environment in the near future.