Luise Holscher, EBRD Vice President
Our investment in the Central Asian region is now over € 10 billion, says EBRD President
Thank you very much for inviting me to speak to you today.
- EBRD at 25 and the EBRD in Central Asia
We at the EBRD have been investing in Mongolia for ten years now and in the rest of Central Asia ever since the beginning of the 1990s.
In fact, this spring we celebrated our 25th birthday. We were founded after the collapse of the Berlin Wall, just as Central and Eastern Europe and points east were entering an exciting new era.
Last year alone we invested more than € 1.4 billion in your region, up 75 per cent on 2014, in 82 different transactions.
We’re also the largest green financier in the region.
So we have contributed a lot to ‘green development and investment in Central Asia’, the title of this panel, already.
That means I have a lot to share with you in my speech today.
But I will try to be brief!
- Great challenges of our time
I’m sure you will agree with me when I argue that, together, climate change and the need to up our levels of green financing to invest in a sustainable future for us all, represents one of the great challenges of our time.
It’s a challenge that we at the EBRD have been alive to ever since our birth a quarter of a century ago.
Indeed, sustainability, a requirement to promote ‘environmentally sound and sustainable development’, is written into article two of our constitution.
That commitment, as well as the many other goals that inform what we do day to day to invest in changing lives, was made in the name of ‘transition’.
As with other aspects of transition, the shift to an environmentally sustainable economy entails the transformation of markets, behaviours, products and processes.
It also requires the large scale deployment of new technologies and new skills.
That, along with our focus on the private sector and our client-driven business model, is what we at the EBRD specialise in.
Our engagement with the private sector means that we have many different ways of having an environmental impact.
Working directly with the private sector has also allowed us to leverage a significant amount of private financing for climate purposes.
That client-driven business model combines investment, technical assistance and policy dialogue.
And in the 25 years since our birth we have learnt many lessons about getting much better at it.
And yet, the truth is that many of the countries where we invest began their transition suffering a major handicap, the communist era’s legacy of environmental neglect and wasteful energy use.
In spite of significant capital stock transformation during the past last quarter of a century, as well as other improvements, carbon intensity and other environmental standards are still poor.
Market failures to internalise and monetise the cost of environmental damage have only exacerbated this difficult situation.
Yes, significant progress has been made in energy efficiency and the use of renewable energy.
We have played a major role in encouraging that dynamic in the more than 30 countries where we work.
But the pan-European region, together with North America, still has the highest carbon emissions per capita in the world — over five times the limit which would stabilise global warming by 2050.
Some countries of Eastern Europe, the Caucasus and Central Asia have among the most carbon intensive economies on the planet.
Fossil fuel subsidies are still high throughout our regions.
In some transition economies artificially low prices for electricity and heat inevitably result in waste.
Moreover, despite ambitious pledges to reverse the loss of biodiversity, ecosystems are still under threat.
Income growth has been accompanied by deteriorating key environmental indicators, so much so that the pan-European region has the highest ecological footprint of anywhere in the world.
Indeed, many countries in the EBRD regions are running a bio-capacity deficit; they consume more resources than they have within their borders.
- SEI and SRI
At the same time as we were opening for business here in Mongolia, we were also significantly upping – and systemising – our commitment to sustainable development.
We did so in the form of our Sustainable Energy Initiative, the SEI, launched a decade ago.
It was so successful that we later expanded what we did in this field into what we called our Sustainable Resource Initiative, the SRI.
Both initiatives relied on our proven business model, combining finance with technical assistance and policy dialogue to promote energy efficiency, renewables and adaptation projects.
Technical assistance played a key role here, including a wide range of activity from sustainability financing and market analysis and resource audits to training and awareness-raising.
We recognised the importance of policy dialogue early on. It is no coincidence that the first policy experts in our banking operations department were hired in the climate area.
Our policy dialogue with governments aimed to support the development of strong institutional and regulatory frameworks, the prerequisite for delivering sustainable resource investments.
So the SEI and SRI became the key strategic and operational instruments for building our climate financing activity - from a pilot in 2006 to a central strategic business area today.
Green finance is by now core to what we do – and to who we are.
Last year it accounted for 30 per cent of our total investment.
Overall, since the launch of SEI in 2006, our total financing in this area has reached almost €20 billion.
And our work in this area is not only good for the environment.
A recent review showed that, in terms of transition impact and financial return, the SEI and SRI were the best performing of all our major initiatives.
- SEI and SRI in Central Asia
So much for the financial numbers, the theory as to why we are committed to green development and how we approach it
But what does all this look like on the ground?
Well, you don’t have to travel too far from where we are today to find out.
A mere 70-kilometre journey will take you to the Salkhit wind farm.
It was the first large-scale renewables project and the first new electricity generator here for decades.
It received long-term financing from the EBRD and the Netherlands Development Finance Company FMO (US$ 47 million each) and further equity contribution from General Electric which also provided the turbines to harness your powerful Mongolian wind.
No wonder it won a US Treasury Development Impact Honor award two years ago.
And, of course, we have been active in green finance all over the rest of Central Asia as well.
Another award-winning project of ours is the Burnoye Solar Power plant in Kazakhstan.
Not only is it the first solar plant in Kazakhstan under the country’s new renewable energy legislation, it’s also its first privately-owned renewable energy generator.
It’s a landmark renewable energy project co-financed by us and the Clean Technology Fund with loans of well over €80 million.
It won the Sustainable Energy Project of the Year award at our own annual Sustainability Awards in May.
And I would also single out the work we have done for hydropower in Tajikistan.
Our support for the modernisation of the Qairokkum plant, which includes a US$ 50 million loan from us plus financing from the Climate Investment Funds and Austria and the UK, will help Tajikistan reduce energy shortages by generating more power, more efficiently.
That’s crucial in what is the EBRD country most vulnerable to climate change and climate risk, specifically glaciers melting and extreme precipitation.
- Green Economy Transition
We’ve achieved a lot in the field of green finance so far.
But we are well aware that the world is looking to multilateral development banks to do even more to fill the funding gap and invest even larger sums in our sustainable future.
So we are now aiming our sights even higher.
That’s why we have launched what we call our new Green Economy Transition approach.
It anticipates our investing as much in this area over the next five years as we have done in the whole of the last decade.
This translates into a total of €18 billion, with annual green financing reaching over €4 billion by 2020, by which time it would be equivalent to 40 per cent of our annual investment.
If you look at our climate finance leveraging to date, we would also expect to mobilise another €60 billion - for a total project value of up to €78 billion.
Given our business model, we would also expect between half and two-thirds of that financing to be in the private sector.
So what is our understanding of the Green Economy and how will we accelerate the transition to it?
Well, we define a Green Economy as a market economy in which public and private investments are made with a specific concern to minimise the impact of economic activity on the environment.
And where market failures are addressed through improved policy and legal frameworks aiming at:
- accounting systematically for the inherent value of services provided by nature,
- managing related risks,
- and catalysing innovation.
In contrast with the launch of the Sustainable Energy Initiative back in 2006, the EBRD is today building on an established structure and model to deliver this scaling-up.
While incremental resources and concessional funds will be needed, our operating model is ready and scalable.
The Green Economy Transition approach is to deliver increased green financing both by growing further its activity in areas in which EBRD already has experience, and by developing new environmental financing areas.
Further growth in existing activities are being developed to meet pent up demand for investment in areas such as:
- renewable energy development in the power and industrial sector,
- energy efficiency and renewable energy finance for municipal district heating, public transport, water and wastewater and solid waste management networks,
- energy and resource efficiency across sectors including residential and commercial buildings
- and infrastructure finance including: energy transmission networks and railways.
- Our Green Future and how to finance it
That’s what we at the EBRD are doing to raise our game in the field of green finance.
Here are a few suggestions as to what governments in Central Asia can do to help us – and help themselves and their peoples.
First, as with so many areas, they can improve the investment climate as a whole.
Indeed, enhancing the investment climate and governance is a central priority for us at the EBRD wherever we operate, whatever the sector.
Clearly, when we are talking about major investments – and that’s what we need to make green finance a success – then the investors themselves need to know where they stand.
They need to be sure that they will not be subject to unpredictable, ever changing tax regimes.
And foreign investors have to be confident that they will not be discriminated against.
Introducing PPP frameworks will allow investments to deploy the best available technologies.
But to do that we need clear and transparent tariff mechanisms and long term stable cash flows.
To develop renewable energy, which still relies on feed-in tariffs, we need a green tariff per Kwh.
And Central Asia needs to lower, and ideally cancel, import duties for energy efficient and clean /renewable technologies.
I should also mention the need to create credible infrastructure for a green financial system.
With that in mind, when he was in Kazakhstan in May, our President signed an agreement with the new Astana International Financial Centre to scope out how to create just such a system.
One of the newest ways of climate financing is through green bonds. Many of our Kazakh projects, from greener public transport to renewables, are already in our portfolio of green bonds.
We hope that Central Asia can encourage green bond issues in the future.
By now you must have a better appreciation of what the EBRD has been up to in the field of green finance here in Central Asia and beyond.
And also how governments in the region can help us do even more.
We are proud of our record here.
But we are not complacent.
There is much more to do and, as I mentioned earlier, climate finance and addressing the threat of climate change represent one of the world’s greatest challenges.
Together, I am sure we can do even more to unlock investment in this critical area of your economies.