Additionality is the particular support or input that the EBRD brings to an investment project which is not available from commercial sources of finance. Alongside Transition and Sound Banking, it is one of the three founding principles underlying our work.
By ensuring that we practise additionality in everything we do, we ensure that our support for the private sector makes a contribution beyond that available on the market and does not crowd out other private sector actors.
The concept of additionality draws on Article 13 of the Agreement Establishing the Bank on Operating principles:
(vii) The Bank shall not undertake any financing, or provide any facilities, when the applicant is able to obtain sufficient financing or facilities elsewhere on terms and conditions that the Bank considers reasonable; […]
And, as further explained in the explanatory notes of the Chairman’s Report:
In sub paragraph (vii) the intention of the Delegates was that the Bank should not compete with other organizations; rather, it should complement or supplement existing financing possibilities.
Whenever a banking team considers financing a project, it analyses whether similar financing can be obtained from private sector local banks or non-banking institutions.
Many of our markets are relatively high risk, and the private sector will only lend for short periods of time or at such high rates as to make the project unfeasible. For major new projects in the field of infrastructure, for example, longer-term financing may not be available on reasonable terms or conditions. In some countries, local currency financing is safer for businesses but rarely available commercially. In these cases, EBRD financing is considered “additional”: it does not replace a similar financial product already offered locally at commercial terms.
Additionality can also be non-financial in nature, where EBRD’s interventions contribute to better project outcomes that would not have been required or offered by commercial financiers. This can include the provision of comfort to clients and investors by mitigating non-financial risks, such as country, regulatory, project, economic cycle or political risks. Additionality may also be derived from the EBRD’s involvement in helping projects and clients achieve higher standards than would have been required by the market, such as through sharing its expertise on better corporate governance or above ‘business as usual’ environmental or inclusion standards.
The project team demonstrates EBRD’s financial and/or non-financial additionality in every project, by providing evidence and knowledge of the market context of the operations. The EBRD maintains a robust internal validation process to confirm a project’s additionality, not least through a discussion by a cross-Bank investment committee. Complex, landmark projects are also discussed by the Board of Directors.
The EBRD has recently further enhanced its approach to this area of its work, introducing additional structure and evidence required to demonstrate additionality in projects.
MDB Harmonised Framework for Additionality
Additionality is already a central principle for Multilateral Development Banks (MDBS) working in the private sector, and is one of the five common principles that MDBs endorsed in 2012 to guide their engagement with the private sector to achieve development goals.
In response to a call from some shareholders in May 2017, MDBs including the EBRD agreed a Harmonised Framework for Additionality which explains in detail the principle of additionality, common definitions of both financial and non-financial additionality, a common approach to governing additionality within institutions, and provides guidance on the types of evidence that help demonstrate additionality’s presence.
This joint MDB work was also discussed with and endorsed by the G7 and the G20 in late 2018. It is consistent with the EBRD’s approach to additionality.