EBRD President Odile Renaud-Basso
The City of London Guildhall
City Week 2023
Many thanks for inviting me to London City Week a second year running.
Ladies and gentlemen, the science is clear, the impact is real, and the clock is ticking.
If we want to hold to temperature goals set by the Paris Agreement, mitigation finance flows to developing countries must increase by 4 to 7 times. Adaptation finance must increase by 5 to 10 times.
What does that mean in concrete terms? Across low- and middle-income countries, excluding China, that is an investment need of well over 2 trillion dollars every year by 2030.
Public funds, whether from multilateral development banks or governments, will not be sufficient to cover the trillions required to transition to a resilient, low-carbon world.
The bulk of the capital needs to come from the private sector.
But we see that first and foremost as an opportunity for emerging markets and for the private sector. The energy crisis the world has experienced since last year has of course a disproportionate social and economic impact of the poor and the most fragile. But it also offers a unique opportunity to accelerate the transition towards greener solutions and technologies, and to a lesser dependence on fossil fuels – a large part of them coming from unfriendly and volatile jurisdictions.
We, at the EBRD, are a private sector focused multilateral development bank. With our headquarters here in London, we were established in 1991 to drive progress towards market-oriented economies and promote private and entrepreneurial initiative in post-Soviet economies – and more recently in the Middle-East and in North Africa.
Three quarters of our activity is in the private sector. And at our foundation, we committed to development that was environmentally sound and sustainable, a first for the MDB world.
The latter is particularly relevant to our regions, ranging from Central Asia to Eastern Europe and North Africa.
Many of the 36 economies where we currently operate are amongst the most carbon intensive in the world.
The EBRD regions host approximately 11 per cent of global coal reserves and exhibit a strong dependency on high-carbon assets, such as refineries and steelmaking plants.
At the same time, our regions are highly vulnerable to the impacts of climate change.
In recent times, heatwaves in Central Asia have reached temperatures of 45 degrees Celsius, severe flooding across the Balkans caused millions of Euros of damage, and droughts required water rationing in North Africa.
The economies where we work show some of the common barriers to climate investments: weak regulatory environments, an absence of carbon pricing, persistent fossil fuel subsidies, a lack of climate data, and limited technical and administrative capacity.
In many of our countries, we are the single largest investor when it comes to climate investments.
Over the last two decades we have committed more than €50 billion in green projects.
Last year alone, we provided over €6 billion in green finance.
But we pay just as much attention to how much money, especially private money, we mobilise from others alongside us.
In 2022, we estimate that our direct and indirect mobilization of climate funds from private sources reached €10 billion.
The EBRD’s operating model – one quarter public sector and three quarters private sector – is very well suited to address the climate crisis because the investment needed will materialise only when public levers are pulled to release private funds.
We combine finance, including concessional funding from donors, with technical assistance and policy dialogue.
The focus of our policy dialogue is on systemic reforms that create durable, pervasive market structures.
If we want private investors to invest across an economy, and to invest again and again for years to come, we need market structures that incentivise them, that ensure that they can earn a decent return on their investment.
To do this we work across a variety of themes and sectors.
For example, in our countries of operation – as in many others – the absence of a price signal is a fundamental market failure. We strongly support the introduction of price and market mechanisms, while taking into account the social dimension in a Just Transition way.
In Kazakhstan for instance, we helped the authorities establish an emissions trading scheme.
This might take time to generate a strong economic signal, but we have seen with the EU Emissions Trading Scheme how, once established, it can prompt significant economy-wide private investments. And the perspective of a Carbon Border Adjustment Mechanism in the EU is already definitely pushing some countries and some companies in the European neighbourhood to accelerate their transition to keep a competitive access to the European markets.
Greening supply chains is another way to generate demand for low-carbon products and green investments.
For example, we worked with Citi Bank to support the supply chain financing programme of the Finnish company Metso Outotec.
Metso is a technology and services provider for the minerals processing and metals refining industries.
The company has joined the Science-based Targets initiative and aims to reduce its emissions – including those in its supply chains.
Our support enables Metso’s suppliers operating in the EBRD’s countries to access finance for their own green transition, driving a range of low carbon investments throughout the economy.
We also support the development of favourable regulatory environments, for example by structuring renewable energy auction mechanisms, helping banks put in place transition plans or developing low-carbon pathways for heavy industry.
These are just a few examples of our policy dialogue to create the conditions that attract private investment.
We also work on structures to attract more capital and to bring down the risk profile for private investors.
In some cases, we use our own funds for this, such as when we invest equity or provide subordinated debt.
In other cases, we blend our finance with donor money; for example, creating guarantees or first-loss structures.
And in some cases, our private co-financing partners come alongside us without any blending whatsoever.
In 2022, we attracted over €1 billion from commercial banks, insurance companies and pension funds on a full risk sharing basis to co-invest alongside some of our green investment projects.
Let me give you a practical example.
In Egypt, we helped the government to create a bankable contractual framework to attract private investment in solar energy. This catalysed the development of the Benban solar park.
With a capacity of 1.5 GW, it is the largest solar park on the African continent.
It was funded by a diverse range of private investors, the Green Climate Fund and multilateral development banks.
Since then, the sector has evolved.
First, again with the EBRD’s support, Egypt switched to competitive tendering to drive lower prices.
Second, last year we supported the refinancing of six of the Benban projects.
The EBRD combined its capacity with MIGA to de-risk a first-of-a-kind green bond which, based on the EBRD and MIGA de-risking, was subscribed to by private institutional investors.
The combination of these strategic elements – enabling regulatory environments, finance at scale, and technical assistance – under country-level transition platforms accelerate the green transition.
At COP27, we helped Egypt launch the energy pillar of the nexus-food-water-energy program, known as nowafi (NWFE) – the Nexus for Water, Food and Energy.
NWFE channels public and donor finance of USD 500 million and technical assistance to address the two fundamental barriers to increasing the supply and demand for renewable energy: expanding grid capacity and a just transition for current fossil fuel workers.
This integrated approach became a reality thanks to the effective partnerships between the Egyptian public and private sector and international donors.
With all these strategic pieces combined, NWFE aims to mobilize USD 10 billion from the private sector for investments across the Egyptian energy sector.
This is a very significant multiplier effect!
The NWFE model of country-level transition platforms can be replicated in other countries and sectors.
The EBRD is ready to support any country with transformative ambitions for low-carbon development.
The financial sector, in other words people like you, has a central role to play in the green transition.
You have a unique opportunity to drive change by directing capital towards sustainable investments and spreading the adoption of climate-friendly business practices.
We have a long track-record of working with financial institutions in our regions to increase access to green capital.
Through our Green Economy Financing Facilities (GEFFs), we channel funding to small and medium sized businesses and households via partner financial institutions.
Since 2006, we have committed €6 billion to investments under GEFFs, avoiding almost 10 million tonnes of CO2 emissions per year.
From the beginning of this year, we have aligned all our operations with the objectives of the Paris agreement.
This includes our financing, policy dialogue and internal operations.
It ensures that all our transactions are consistent with the 1.5-degree future and support the climate resilience of our clients.
As we apply a climate lens in all our investments through Paris alignment, we also work to support our almost 300 partner banks in their transition to a zero-carbon world.
We launched the Corporate Climate Governance Facility to support banks with transition planning.
This Facility enables banks to assess, manage and incorporate climate considerations into their governance, strategy, and risk management structures. It helps them identify priority green investments and raise capital.
Our work with the financial sector goes beyond the provision of finance.
As an observer to the Network for Greening the Financial System, we support regulators and central banks in developing methodologies and taxonomies.
We supported the Macedonian Stock Exchange to establish ESG reporting guidelines for companies listed in the exchange. Such rigorous standards will strengthen Macedonian capital markets and increase investor interest.
These are just a few examples of how we mobilise private capital in a durable and scalable way.
The upstream policy work is crucial to create an investment-friendly environment and unlock project-level opportunities.
We blend our funds with grants from donors to address needs in sectors which rely on public backing.
We strive to create more market-oriented structures and increasing commercial capital.
And we will know that we have really succeeded when we are no longer needed!
I don’t see that being the case for some time, however!
Ladies and gentlemen,
We at the EBRD believe in the importance of partnerships.
Jointly, MBDs, private investors, policy makers, donors and technology providers, and many of you sitting here today, can leverage capital and deliver solutions to the greatest challenge we face today.