[Debrief] Financing the new climate economy: the trillion € question

The European Parliament and the Climate Investment Funds (World Bank) co-organized a short seminar about the financing of the climate transition on the 3rd of December 2019 at the European Parliament. Greentervention was there and we are offering you the following debrief on the event.

Hosted by Marlene Mortler, Member of the European Parliament (CDU, Germany), speakers included:
Mafalda Duarte, Head of the Climate Investment Funds
Astrid Manroth, Finance Director, European Climate Foundation
Constance Kann, European Investment Bank
Carla Montesi, Director of the Planet and Prosperity directorate of DG DEVCO

Financing the new climate economy : the trillion EUR question

The event included an interactive discussion on the status and direction of international climate finance, and emerging priorities for supporting low-income countries to transition to a low-carbon, resilient development pathway.

Key questions for discussion included:

– What role can concessional finance play in overcoming key challenges to climate investments in developing countries?
– What have the EU, Climate Investment Funds and other partners learnt in delivering scaled climate finance to date?
– What are the priority sectors, regions and technologies that need most targeted support in the immediate-term and how can finance help achieve transformational impact?

The four speakers, each occupying key positions in the international climate finance landscape, put forward their priorities for the coming “critical” decade. 

Ms Montesi reiterated the EU’s ambition to be a global leader in this transition and drew attention to the success of the EC’s External Investment Plan; €4 bn of contributions and guarantees from the EC budget, scaled up to €44 bn with private funds. However, taking into account that the EU’s greenhouse gas emissions are but 9% of the global total, she underlined the importance of all COP members now setting sufficient Nationally Determined Contributions (“NDCs”, i.e. the intended reductions in greenhouse gas emissions) to meet the Paris climate goals. She highlighted the European Commission’s active role in helping partner states to revise their NDCs and to establish appropriate investment plans to achieve them. Some laudable goals still massively relying on private sector goodwill.

Ms Duarte gave account of the success stories of Climate Investment Funds in developing countries and advocated a ‘programmatic’ approach to achieve system changes in relevant sectors, rather than providing funding on a project-by-project basis. She emphasized that in her experience blending (public and private) funds and multilateral financing are the most effective in achieving concrete results. Looking forward, she sees a shift in financing needs from building renewable energy generation plants to adapting and maintaining existing power grids so they can integrate the renewable energy coming in.  

Ms Manroth welcomed the new EC President’s trillion-euro climate investment goal, but noted that in order to bridge the gap between the status quo and the targets, this needs to be fresh money and not a repackaging of existing funds – which entails a collective political will, for which the European Semester should be used. As for drawing in private funds, she reiterated Ms Duarte’s point on multilateral financing, adding that the public sector has a critical role in de-risking investments to make them bankable. Regulators also need to move quickly to remove any barriers that might be preventing investors from making green investments (e.g. the Mifid II review) and to consider introducing a ‘green supporting factor’ or a ‘brown penalizing factor’ to ensure that the banking sector does its part in the climate transition. She finished with a positive message, that the money needed is out there if it can be unlocked and channeled properly

Ms Kann presented the EIB’s promising new energy lending policy by which financing for fossil fuel projects will be phased out and all financing activities will be aligned with the Paris climate goals by 2021. She also addressed one of the known criticisms of the EIB governance, with a plan that is involving a broader steering than usual including not only finance ministers but also ministries for trades or transports for instance. Responding to Greentervention’s question on the role of taxonomy in the climate finance debate, she pointed out that while work on classifying ‘green bonds’ in the EU is progressing, capital markets are global and global solutions need to be found. On the same question, Ms Manroth added that pinning down the right taxonomy is a very complex task and regulators need to get it right, as there is a lot at stake. 

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