European investment banks criticized on climate commitments

Even as they align their activities to the goals of the Paris Agreement on climate change, two major European multilateral development banks are drawing some criticism from politicians and civil society who want them to move faster.

The European Bank for Reconstruction and Development officially committed to achieving that alignment by the end of 2022 at a meeting of its board of governors earlier this month.

The European Investment Bank, which is owned by the European Union’s member states, is in the first year of executing its Climate Bank Roadmap, which was designed to support the European Green Deal and, ultimately, Europe’s goal of being carbon-neutral by 2050. EIB has also promised to stop funding all fossil fuel projects by the end of this year.

The roadmap “extends this framework to account for all high-emitting sectors,” an EIB spokesperson told Devex, including transport, industry, buildings and agriculture. “It also requires [developing] a process to ensure EIB projects are routinely assessed for future climate risks.”

But in two reports adopted by the European Parliament last week, lawmakers highlighted opportunities for EIB to accelerate its commitment, including a call for a larger role in meeting the European Commission’s 2030 Climate Target Plan and contributing to the €350 billion ($415 billion) annual increase needed to meet the plan’s targets. Both reports also emphasized the need for EIB to adopt a more concrete transport funding policy that prioritized public transport and cycling.

An EIB spokesperson told Devex that an upcoming revision of the bank’s Transport Lending Policy will align it with the Climate Bank Roadmap.

“In a way, it is only at the beginning of the journey. EIB is not yet a climate bank. It has to deliver on its climate roadmap,” said Xavier Sol, the director of Counter Balance, which monitors the activities of European public finance institutions. “If EIB would be implementing even half of these demands from the Parliament, we would really consider it as an important step toward accountability.”

The parliamentary report on the bank’s 2020 finances praised EIB for reaching 40% investment in environment and climate-related activities in 2020, but also urged EIB to ensure it achieves full compliance with the Paris Agreement by 2023.

The Parliament approved the reports last week in response to EIB’s 2019 and 2020 financial activities. Though they are non-binding, the reports still play an important role in oversight of the institution, Sol said.

“There is not so much public, democratic debate about what investment banks are doing in general,” he said. “The parliamentary process is quite an important one because it’s one of the few moments they can say something about this massive public bank.”

Even as politicians highlight the steps EIB must take to complete its transition to a climate bank, civil society groups are pressing EBRD to catch up to its MDB counterpart. That includes calls for the bank to commit to end funding for all fossil fuel projects.

Instead, the bank’s board of governors agreed to plans to stop financing upstream oil and gas projects, but not midstream or downstream projects, like transportation and refining. The projects it does continue to fund will have to be aligned with or contribute to the goals of the Paris Agreement, though there is no overall alignment strategy yet.

An EBRD spokesperson confirmed that “work on this has started and will be streamlined throughout all bank activities,” though the bank did not respond to requests for details on when the upstream financing moratorium would come into effect.

“It’s really disappointing,” said Fidanka Bacheva-McGrath, EBRD policy officer for CEE Bankwatch, an NGO network. “We were hoping the EBRD could be a trendsetter in terms of pulling investments away from fossil fuels. Unfortunately, with one hand they give to renewables and with the other hand they give to fossil fuels.”

In announcing the decision to align with the Paris Agreement, EBRD emphasized that the countries it prioritizes have a higher carbon dependency than average, which makes it difficult to reduce emissions. Opened 30 years ago to help former Soviet bloc countries transition to market-based economies, EBRD now operates across three continents, though it maintains an outsized presence in Eastern and Central Europe.

Bacheva-McGrath said civil society will be monitoring the bank’s ongoing efforts to develop a methodology for assessing the climate impact of its projects, which is being developed jointly with other MDBs — even as they press for EBRD to more aggressively shift over to investments in renewable energy sources in its new energy strategy due in 2023.

The push to speed up the MDBs’ alignment with the Paris Agreement comes as both institutions, along with the European Commission, are competing to lead a hypothetical new European Climate and Sustainable Development Bank. Recommended in 2019 by a High-Level Group of Wise Persons, the institution would consolidate Europe’s disparate and overlapping financing architecture for development and climate projects, while helping to refine the continent’s overall strategy in these areas.