Pierre Heilbronn, Vice President Policy and Partnerships
Charlemagne Building, Brussels, Belgium
Europe’s strategic long-term vision for a prosperous, modern, competitive and climate-neutral economy is quite clear. It is in particular clear about what is required of us all.
Climate action is essential.
It needs to be immediate.
And it must be decisive as also the “Fridays for Future” or “School Strike for Climate” protests remind us.
Now the two principal challenges in implementing the Paris Agreement are: timing and scale.
As the recent IPCC special report emphasised, time is running out for engaging in a determined manner on the low carbon pathways compatible with Paris.
And the scale of investment we need to stay on that pathway is immense, both for developed and for emerging and developing economies.
We do not need to remind you that an estimated EUR 6.2 trillion of annual investment in energy, transport, buildings and water infrastructure would be required over the next 15 years to be consistent with the 1.5° Celsius scenario.
The public sector cannot stem this alone. We are therefore acutely aware of the role the private sector will have to play to generate the volumes of investment required for this transition.
And most importantly, to achieve the Paris Agreement goals and to reach a decarbonised world by 2050 will have massive implications for financial flows.
As summarised by the French Minister of Finance in the run up to the One Planet Summit in 2017, “la finance devra être verte ou elle ne sera pas”; “Finance will have to be green, or there will be no finance at all”.
We need this shift towards green finance to drive the greatest systemic transformation in history, one which addresses the most fundamental challenge confronting the human race today.
This has to be our common cause.
And here I would like to salute the European Union and the leading role it is playing in rising to this challenge, both within the EU and beyond.
We see this reflected in its work on Sustainable Finance and the implications flowing from it in terms of policy, regulation, financial market practices, norms and behaviours.
Turning now to the theme of our session on leveraging synergies between public and private networks, let me start saying that we at EBRD see this objective as one of the most fundamental one we have to deliver on and consider it as our core mission.
The EBRD was born in the aftermath of the fall of the Berlin Wall. And we have always focussed on systemic transformation through policy, investment and capacity- building and a business model that is anchored in the private sector.
Sound environmental practices and sustainability was part of our mandate from the start – in 1991. And already since 2006 we have put climate finance at the centre of the financing that we do.
In the run up to COP21 we set ourselves an ambitious green finance target of 40% of total investment by 2020, up from 25% in the previous strategic period.
We are well on course to hit this target, having reached a green finance ratio of 43% in 2017 and 36% in 2018.
The EBRD is accordingly particularly well equipped to support the transition to a low carbon economy through policy and operations in the countries where we work.
These countries range from central, eastern and south-eastern Europe, Central Asia, and the southern and eastern Mediterranean. Some of these are emerging markets, some not yet, and some economies are only finally reaping the fruits of past policies in terms of economic growth.
Some are resource intensive, some will be very hard hit by climate change (in particular water shortages) – some embrace climate finance, others are more reluctant.
And based on that experience of delivering around 40% of our financing in the area of green finance, 60% of which with the private sector and whilst maintaining active policy dialogue with the public sector, I am talking to you today about synergies between the public – and the private.
I want to touch upon four distinct dimensions which are crucially important in building the right synergies between the public and private sectors.
These four areas reflect the strong complementarity between top down measures driven by policies and regulations on one side and, on the other, bottom up measures linked to a pipeline of bankable investments and their financing by or with the private sector
- First, public policies are key drivers of private sector action. We all know that carbon prices closer to the values provided in the Stern-Stiglitz curve would have a massive impact of resource allocation and on shifting private finance at scale towards lower carbon investments. We know that price signals are the most powerful signals we can get.
But we are also aware of the sensitivity of such measures particularly in periods of slowing economic growth and uncertainty.
In this context we should highlight the importance of the work of the Finance Ministers Coalition for Climate Action in terms of the use of fiscal policy and public finance to drive climate action. Their discussion on:
- good practices in areas such as environmental fiscal reform,
- embedding climate-change into budgeting and planning; and
- climate informed public investment and public procurement management,
can make a substantial difference to public policies that drive private actions.
We look forward to working with Minister Orpo and his colleagues to contribute our operational knowledge to their important work.
Similarly, at the policy level, a good example of the synergy between the public and private sector comes from Egypt.
Here, EBRD’s (and IFC’s support) for the definition of a bankable regulatory and contractual framework for renewable energy investment attracted multiple private investors to the country. At the same time it is a sustainable and affordable framework for public counterparts.
This policy work led to the financing of the Benban complex, the largest solar plant complex in Africa, involving 16 private sector companies for a project value of over 1.1 billion dollars with expected annual carbon emission reduction of 900,000 tons.
And our work does not stop there. EBRD continues to assist Egypt to shift from a feed-in tariff to competitive tenders.
This has already resulted in the lowest solar tariff in any of the countries where the EBRD works at c. 2.8 dollar cent per kWh.
This example reflects well on the powerful synergy between public policy, private investment and the beneficial impact of competitiveness on prices.
- The second top-down segment is regulation. Here I would like to single out the very important work of the Network for Greening the Financial System (NGFS) currently chaired by Frank Elderson from the Dutch Central Bank. This network comprises central banks and supervisors representing 5 continents.
Starting in 2006 and growing over time, the EBRD has developed a network of over 140 commercial banks in 26 of the countries where it works. All of these today channel green finance into their local economy.
These banks play a key role in financing energy efficiency, renewable energy, buildings’ rehabilitation and even in certain advanced cases climate adaptation projects.
This work is supported in many cases by concessional funding for capacity building, with the EU being a major source for this funding.
The further development of this network of commercial banks active in green finance could be significantly enhanced by an expansion of the NGFS network.
My point about the synergy between public and private networks is that the linking, even integration of networks could potentially spur the development of green finance by these local banks. We could potentially build on this synergy together.
At the regulatory level, it is also important to emphasise the importance of the work undertaken within the EU approach for Sustainable Finance.
This includes the integration of the guidelines developed within the TCFD – the Task Force on Climate-related Financial Disclosures.
And it also includes the development of a taxonomy for sustainable finance investments.
Both of these support the expansion of green financial products which will in turn drive the required scaling up of private climate finance.
At this point I would also like to mention the Vienna Initiative – where with banking regulators and leading banks active in Eastern European countries – we discuss what impact the EU’s approach to Sustainable Finance will have beyond the EU’s borders particularly in the Western Balkans. These discussions with public policy makers and private banks will help everybody understand how we translate the European ambition beyond its borders.
In summary, the combination of these top down actions with the leading work of the EU on sustainable finance and taxonomy set a powerful frame for driving climate action by both the public and private sectors.
- Now shifting to the bottom-up action, the potential supply of private capital steered by policy and regulatory measures needs to be matched with a pipeline of bankable projects.
Starting at the bottom of the value chain, projects need to be structured in a manner to involve the private sector and attract private finance.
This means that the first step towards increasing the synergy between a public institution like the EBRD and the private sector is to structure projects directly with the private sector.
This we do across sectors, for example in industrial energy efficiency or in renewable energy.
The second step is to structure projects in a manner where they can involve the private sector for example through PPPs in the delivery of urban services.
And the third step is to define the financial transaction to mobilise private finance alongside our finance. This requires in particular that pricing be aligned to the market to allow for syndicated loans to private banks.
For example, in Ukraine and Turkey, we have structured financing to attract private banks to syndicated loans for energy efficiency programs in the steel and chemical industry. These bottom up approaches, one by one, project by project, can deliver significant impact at scale. Replicating the experience over and over they will cumulatively lead to a decarbonisation of carbon intensive industries.
- Finally, at the organisational level, much can be done to define operational strategies seeking to maximise synergies between the public and private sectors.
For the EBRD as an organisation this means first of all formulating a climate strategy clearly oriented towards supporting and building on these synergies.
It means defining programmes articulated to channel private green finance to our countries of operations- emerging markets which may not always be the first point of call for investors.
For example, the EBRD has invested in the Amundi Planet - Emerging Green One – the world’s largest green bond fund together with IFC, hence complementing our very own Green Bond issuances.
This investment is oriented towards supporting the development of green bonds in our countries of operations.
Lastly it means developing an operational approach to aligning our investment with the Paris Agreement together with the Multilateral Development Banks as a group.
Once approved and implemented, this approach will impact the composition of financing to the private sector by MDBs towards Paris aligned investments.
And for all our organisations it means defining strategies that maximise synergies between the public and private sectors. This imperative needs to guide our climate action: from the Multilateral Development Banks to Central Banks, from individual counties’ budgets to the European budget.
In conclusion, we can see that there is a broad range of synergies between public and private networks and action across globally to address climate change and channel climate finance
We have worked with many of you on this already.
We look forward to doing much in the future.
And we need many more to join us and our networks.