Help countries build green, low carbon, and resilient economies through green financing and policy support

Context

• European Bank for Reconstruction and Development (EBRD) launched the Green Economy Transition (GET) approach in 2015 to accelerate investments that drive environmental benefits.
• Following the severe impact of the COVID-19 health emergency, GET 2.0 was proposed to contribute to a green economic recovery post–COVID-19.

Problem

• Private finance mobilisation has been an increasingly important priority for governments due to infrastructure deficits, lack of growth following global financial crises, and commitments to sustainable development goals to address climate change.
• Historically, less than 1% of the capital from non-traditional private institutional investors has been allocated to infrastructure due to inadequate project risk return profiles.
• EBRD has become more engaged in pursuing private capital mobilisation by developing a range of financing channels and capacity-building tools.

Stakeholders involved

• European Bank for Reconstruction and Development
• Climate Investment Funds
• European Union
• Global Environment Facility
• Green Climate Fund

Innovation

• EBRD facilitated a wide range of financial instruments to address green economy opportunities, according to country and sector needs:
  • Direct EBRD financing and syndication in the form of private, non-sovereign and sovereign guaranteed loans, direct equity, equity funds and credit lines
  • Co-financing with the private financial sector, public sources such as multilateral donor funds, and other international financial institutions
  • Selective use of subsidies
  • Carbon finance.
• GET also worked with governments on regulatory frameworks that encouraged knowledge transfer and provided policy guidance.

Timeline

Results and impact

• The EBRD exceeded the target GET ratio of 40% relative to its total annual investment; the green financing ratio as a percentage of Annual Bank Investment (Annual Bank Investment is the volume of commitments made by the bank during the year) reached 43% in 2017 and 46% in 2019.
• Impact in the green economy. As at the end of 2020, the EBRD had signed EUR36 billion (USD44.03 billion) in green investments and financed more than 2,000 green projects, which are expected to reduce carbon emissions by 104 million tonnes annually.
• Focus on green recovery. GET 2.0 highlighted areas of opportunity to support green recovery. These include green-oriented measures such as providing emergency short-term liquidity to preserve green businesses and priorities, and defining green standards in the provision of financial support such as emission reduction targets.

Key lessons learnt

• Funding capacity: Speeding up the rate of recycling capital by syndicating to third-party investors increased EBRD’s financial capacity over the project lifecycle, relieved constraints on new lending, and reduced the need for capital replenishment.
• Procurement: Well-designed structured financial instruments should reflect institutional investors’ requirements in areas such as minimum risk characteristics, liquidity in capital markets, and standardisation of instruments.
• Governance: The EBRD establish good internal governance and incentive structures to set new targets, developed a system to track and measure progress, and created procedures to coordinate across divisions.