NZI Special: The European Investment Bank’s Climate Finance Footprint

The European Union’s decarbonisation targets are fairly ambitious - the group has said it wants to cut emissions by 55% before the end of the decade. The EU even revised the previous 40% target in a bid to position itself on a more aggressive climate strategy. 

Being aggressive implies an “all hands on deck” approach - it will require a herculean effort by the EU’s institutional components.

One of these components is the European Investment Bank (EIB). Established in 1958, the bank is known as the EU’s “lending arm”. Its loan book matters for global climate finance - it currently has a €36bn climate portfolio. That is roughly 58% of the EIB’s lending. 

The bank has published data on its public private partnership financing between 1990 - 2022. Looking into the the climate-related PPPs in the dataset, a few trends stand out:

Why PPPs?

The data only includes information on PPP lending, which is a powerful debt instrument for climate finance. They are often seen as a critical public sector tool to incentivise and mobilise private capital in mitigation projects. 

In fact, evidence suggests that they might be more effective than green subsidies.

These instruments tend to be particularly common in developing countries, given the relatively higher levels of project risk: in the Democratic Republic of Congo, home to the world’s second largest electricity constrained population, PPPs are being used to finance 180 MW installed solar capacity. In Nepal, they are being used to unlock the country’s hydropower capacity.

So where and how the EIB pursues climate-related PPP lending is a rather pertinent question.

Regional mitigation

Within the loan portfolio, there does appear to be a recently generated regional tilt. 60% of the top 10 climate-related PPP finance destinations are in Europe.

The map below charts EIB’s climate finance lending to projects in Europe and the UK. They range from a smaller €13m investment in Greece to a total €451m lent to PPP projects in the Netherlands. 

In addition, the lending portfolio in Europe includes a heavy dose of mitigation finance: for instance, a waste-to-energy plant in Poland that targets reductions in methane emissions. The plant, located in Olsztyn, received a €44m loan in 2021.

This focus on mitigation in a way is surprising given that adaptation finance has historically been one of the EIB’s target areas. In 2018, the EIB’s Vice President Emma Navarro said, “at least 25% of our investments go to climate change mitigation and adaptation”. 

To be fair, some capital has been deployed in adaptation: the Dutch flood defence systems for instance. However, these remain exceptions rather than the norm - the PPP loan book has a distinct mitigation flavour to it.

Interestingly, a bulk of the EIB’s European PPP finance is not in energy or environment categories. Projects in transport, healthcare and education are far more common.

Financing renewables in Africa

Interestingly, a significant portion of the bank’s climate lending went into projects outside the European continent. One theme that stands out here is the focus on renewable energy projects in Africa.

In 2019, the EIB extended a €13m loan to finance solar projects in Senegal. The Bank’s rationale behind the lending was that it contributed to not only Senegal’s climate objectives but also the EU’s commitment to pursue sustainable development globally. The loan came a year after a €50m loan was extended to a hydropower project in Cameroon.

In many cases, the EIB is part of a consortium of lenders investing in the project. For example, in Uganda, Bujagali Energy Limited borrowed €92m in 2008. 

The underlying project is a 250 MW hydro-electricity project on the Nile. The African Development Bank, IFC, KfW and Standard Chartered Bank were all involved in the final loan. 

This, according to the EIB is a sign of investor confidence in the PPP model: “This project combines the strengths of the private sector in financing, building and operating an asset of this nature and size, with the Government’s commitment to address certain adverse factors such as variations in demand or water available for production”, the EIB argued.

Global agenda

Partnering with institutional capital to finance mitigation efforts is a recurring theme in EIB’s projects. For example, in Mexico, the EIB financed three solar plants in 2016 with Caisse de dépot et placement du Québec, and CKD Infraestructura México as partners. 

The €20m loan extended to Morrocco’s Parc Eolien De Tetouan in 1998, was one of the region’s first wind farms. The map below shows the EIB’s global climate-related PPP lending over the last 32 years.

While the average loan amounts tend to be higher for European borrowers, the EIB’s global climate footprint includes a wide range of developing countries with high demand for mitigation and adaptation financing.

Atharva Deshmukh is Net Zero Investor's head of research.