Financing for Green Infrastructure Investment

By Olga Rosca
@olgarosca


EBRD President Sir Suma Chakrabarti calls for an enabling environment for green infrastructure.

Now that 175 countries have signed up to last December’s ground-breaking Paris Agreement on climate change, the focus has switched to how pay for the implementation of the accords.

Multilateral Development Banks such as the EBRD have been identified as key players in raising the finance needed to help combat climate change and more broadly to deliver the new Sustainable Development Goals (SDGs) that were universally adopted in 2015.

The MDBs are seen as ideally placed to translate the billions of dollars already dedicated to development assistance into the trillions that are required by the new development agenda, especially via the mobilisation and leveraging of private sources of finance.

An event at the EBRD on 10 May, just ahead of the Bank’s 25th Annual Meeting, looked at how to finance green infrastructure investment, bringing together two of the key SDGs:  the calls for urgent action to combat climate change and to deliver resilient infrastructure.

In his opening remarks, EBRD President Sir Suma Chakrabarti said: “With 50 per cent of greenhouse gas emissions originating in infrastructure, getting infrastructure investment right can drive sustained growth and prosperity, while also reducing climate risk.”

Green infrastructure is a crucial element in the EBRD regions' transition story, helping to lay the foundations for economic growth while promoting resource, energy, and carbon efficiency and reducing harmful impacts on the environment.

In the last ten years the Bank invested almost €20 billion in over 1000 sustainable energy and resource projects. And the total value of those investments is over €100 billion. 

According to Sir Suma, the leveraging effect is perhaps even more important. “For every euro of EBRD’s lending, an additional two euros has been mobilised and catalysed by other financing sources.”

The President also called for the creation of an enabling environment for green infrastructure to thrive in in the countries where the EBRD invests - via a suitable regulatory framework within the financial sector.

Echoing Sir Suma, keynote speaker Simon Zadek of the United Nations Environment Programme (UNEP) stressed that sustainable development can be delivered through action within the financial system.

According to him, there are four reasons to act in the financial system: managing risk (market failures in the financial system can aggravate externalities), promoting innovation (upgrading the standards and regulations required to catalyse investment, for example, in bond markets), strengthening resilience (environmental factors can pose risks to assets and system stability) and ensuring policy coherence (between financial regulation and wider goals, such as long-term investment, access to finance, environmental security).

The event’s major conclusions were: 

  • International standards for green finance, such as for green bonds, must be mainstreamed quickly to be able to scale up investment levels while the reductions in greenhouse gas emissions that the countries have committed to should move beyond politics.
  • It will take concerted and coordinated efforts by the IFI community to develop a pipeline of green infrastructure projects, building on the IFIs' unique relationships with emerging market governments to leverage and promote green investments.
  • Continued subsidies for carbon remain a major hurdle, making green alternatives unattractive for investors. The panellists agreed that the world needs to agree a price for carbon, so that “black” projects pay for the pollution and global damage they cause. Once carbon pricing is accepted globally, this will mark a major push for immediate green infrastructure investments.
  • IFIs must diversify their product range to include credit enhancement for crowding in the massive amounts of institutional investor money available. But these credit enhancement products must be standardised across the MDBs to cut down on complexity and preparation time.

Drawing the conclusions of the two-panel event, Mattia Romani, Managing Director for Economics, Policy and Governance at the EBRD, stressed the need to build on the generational and regulatory shift in infrastructure financing.

On the one hand, millennials and women take more control of how financing is being spent and on the other hand, changing regulations in emerging markets create a more enabling environment for green infrastructure financing.

“We need to act quickly,” he concluded.