Financial law
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Overview
The energy, climate change and sustainability (ECCS) focus area of the EBRD's Legal Transition Programme (LTP) covers a wide range of initiatives in the regions where the Bank invests. The agenda of the focus area can be broadly divided into three categories: (a) sustainability governance and regulation; (b) climate change governance; and (c) energy market legal reforms.
The EBRD’s commitment to sustainable development
The concept of sustainability has grown in prominence in recent years and become a central consideration of international policymaking. Sustainability is closely associated with sustainable development and can be defined as ‘’meeting the needs of the present generation without compromising the ability of future generations to meet their own needs’’ (UN Brundtland Report, 1987). Governments, businesses, international organisations and other stakeholders play a crucial role in achieving the UN Sustainable Development Goals (SDGs). The need for a coordinated approach between these actors has been further highlighted by the 2015 Paris Agreement and the aim to keep the average global temperature rise “well below 2°C” compared with pre-industrial levels. Such a coordinated approach entails clearly defined commitments, adequate (sustainable) financing and tailored policy reforms.
At the national level, each economy has set out in its Nationally Determined Contributions (NDCs) the ways it plans to contribute to this collective endeavour following the Paris Agreement. Multilateral development banks (MDBs) constitute drivers of change by providing adequate financing in line with the Addis Ababa Action Agenda and are frontrunners of policy reforms by internalising sustainability objectives.
The EBRD’s commitment to sustainable development serves as the cornerstone of the Bank’s operations and is enshrined in its foundation document, the Agreement Establishing the EBRD, which highlights the commitment to ‘’promote in the full range of its activities environmentally sound and sustainable development’’. To this end, the EBRD and other MDBs signed a joint declaration in 2018 committing to align their activities with the goals of the Paris Agreement, and in 2019 pledged in a joint statement to increase global climate action investments each year to US$ 175 billion (€155 billion) by 2025. In addition, the EBRD has adopted and revised its core sustainability-linked policies and strategies, including its Green Economy Transition 2021-25 approach and its Environmental and Social Policy, and amended its concept of "transition qualities" to incorporate and prioritise the "green" dimension as an integral aspect of economic decision-making.
The Legal Transition Programme’s role
The LTP is the EBRD’s landmark initiative to create a stable, predictable and investor-friendly legal environment in the economies in our investee economies. It engages in policy dialogue, conducts assessments and training events and contributes to the development of action plans, legislation and regulation, as well as new practices. In particular, the LTP's ECCS focus area supports the implementation of the SDGs and other climate-related objectives under the Paris Agreement by providing policy advice and technical assistance to sovereigns, corporates and standard-setting bodies to adopt sustainable practices and strategies, enhance transparency and develop sustainability-sensitive legislation and regulations.
Examples of some core initiatives are presented below:
- Sustainability governance and regulation is an umbrella category covering initiatives ranging from enhancing transparency of environmental, social and governance (ESG) disclosures to developing good practices to tackle food loss and waste (FLW). Recent projects include: the development of ESG Reporting Guidelines for the Bucharest Stock Exchange in Romania; promoting ESG reporting on the Warsaw Stock Exchange in Poland and the Macedonian Stock Exchange of North Macedonia; and helping create guidelines to reduce retail-level FLW in Greece and Türkiye.
- Climate change governance initiatives aim to enable the transition to a low-carbon economy by assessing climate strategies and/or NDCs, and supporting the private sector in developing the necessary corporate governance mechanisms to allow them to better identify, assess, manage and disclose their climate-related risks and opportunities. The team has worked with and undertaken a series of projects within the auspices of the EBRD Corporate Climate Governance Facility, including the development of a Corporate Climate Governance Guidance Toolkit for the Bank's non-executive directors (NEDs) and the development and subsequent implementation of Corporate Governance Action Plans in investee companies.
- Energy market legal reforms target the transition to a net-zero economy by supporting further investments in the renewable energy sector through the strengthening of institutional structures and the adoption of energy-efficient policies, legislation and regulations. Recent projects include the development of the first Greek Offshore Wind Law and the provision of technical assistance to the governments of Romania and Moldova to amend their Energy Law and Gas Law, respectively.
Knowledge exchange and public engagement
To raise awareness and advance the initiatives under its sustainability agenda, the ECCS team collaborates with a number of partners on policy, standards, guidelines and capacity building. One example is its partnership with the Climate Governance Initiative, endorsed by the World Economic Forum, to build the understanding of NEDs and senior management of businesses and financial institutions around climate change. The partnership has resulted in the launch of two dedicated platforms, also known as Chapter Zero; one in Egypt and one covering Ukraine, Georgia and Armenia. The team has also worked with the Food and Agriculture Organization of the United Nations (FAO) to produce an investment brief that analysed the role of MDBs in reducing FLW and in setting best practice standards. The team has also been involved with the Network for Greening the Financial System concerning climate-related litigation trends and risks. The team is also due to commence a project in 2023 with the International Institute for the Unification of Private Law to assess sustainability and climate change due diligence practices in global value chains.
National energy-efficiency action plans
Despite awareness of the importance of introducing energy-efficiency standards and measures, little has been done in many of the economies in which the EBRD invests. Formulating a dedicated policy approach that includes an assessment of the energy-efficiency potential and policy targets in various sectors would help improve energy-efficiency standards and measures, and ensure their alignment with international standards and best practices. The EBRD’s Legal Transition Programme helps governments with the drafting of strategic policy documents. Such policy documents set overall and intermediate national indicative energy-savings targets for the public and private sectors, and work towards proposing concrete measures and actions to meet these policy targets, including the introduction of legal and regulatory mechanisms to implement them.
Energy performance of buildings
Buildings account for up to 40 per cent of energy consumption in many economies where the EBRD invests. A significant number of these buildings are not properly insulated or heated, which results in high energy bills, inefficient energy spending, deterioration of the building fabric and poor living conditions. There is great potential for significant energy savings, but relatively little investment has been made in this area in many parts of the EBRD regions. Legal and regulatory frameworks are often a key barrier to attracting adequate sustainable investments, and in response the EBRD has developed local-bank credit lines that provide financing for energy-saving measures in a number of economies. These measures include the insulation of outdoor walls and roofs, the replacement of windows and the installation of heat pumps, solar thermal collectors and high-efficiency gas and biomass boilers.
We are supporting governments in developing the necessary legal and regulatory framework for the building sector in order to enable, sustain and maximise further private-sector financing of building energy efficiency. Even though many residential buildings in the EBRD regions have been privatised, the management structure (including operation and maintenance) is rarely adequate and often characterised by conflicting responsibilities between apartment owners and local state authorities (often related to ownership of and responsibility for common areas of residential buildings and/or the land).
To overcome these deficiencies, the LTP supports governments in introducing changes to building legislation and housing codes to ensure stakeholders have clear rights and responsibilities, are subject to minimum energy-efficiency performance standards and face inspection and auditing. A gradual movement to cost recovery in the energy sector and the avoidance of cross-subsidies is another essential component of a targeted energy-efficiency policy.
Promoting sustainable practices in food retail
In accordance with the objectives of the EBRD's Agribusiness Strategy (2019-23) and Green Economy Transition approach, the EBRD supports sustainable private-sector investment in food and agriculture and engages with national authorities and stakeholders. The objective of the Food Loss and Waste Guidelines for Greece and Türkiye is to identify and promote policies, regulatory measures and business practices that would have a positive impact on prevention, reduction and management of FLW at the supply and retail levels. In addition, the guidelines highlight good sector practices for integration of a circular-economy approach into the relevant stages of the food supply chain. This initiative has been implemented in partnership with FAO.