Q&A - European Investment Bank: Supporting policy objectives through finance

inspiratia speaks to Andreas Heinz, principal adviser at EIB's renewable energy arm, on the aspects that set EIB apart from private banks. We discuss its Energy Lending Policy and its participation in the REPowerEU initiative.

"Our mission is to support the EU through projects both within its borders and outside," says Heinz.

The European Investment Bank (EIB) is the lending arm of the European Union. It stands at the crossroads of being an EU institution and a commercial bank, driven by a not-for-profit mission to support the EU's objectives.

Considering that EIB shareholders are EU countries rather than private entities, how does the bank differ from other lenders?

You mentioned the unique ownership structure of the EIB. This gives us a distinct mandate, which is to prioritise the economic development and policy objectives of the European Union. We are not out there to maximise profits. Our mission is to support the EU through projects both within its borders and outside. We are highly selective in our support, ensuring that every loan is tied to a specific, assessed project that aligns with our eligibility criteria. To appraise potential financing options, our teams comprise banking, risk, legal, and compliance experts, as well as economists, engineers, and environmental, climate and social specialists in the various sectors we cover. These experts form the "projects directorate", and the Bank is quite unique in that it has so much expertise at its hands when scrutinising projects.

Looking at the energy sector, for instance, the EIB Energy Lending Policy sets out our objectives, as well as the assessment and prioritisation process in the sector. When we updated it in 2019, we took a ground-breaking decision to phase out our support for energy projects relying on unabated fossil fuels. At the time, we were the first multilateral financial institution to even think about this.

We also apply strict environmental and social standards to all our projects. They are derived from EU policy and laws and may even go beyond national legislation, particularly when looking at projects outside of the EU. To make sure that all applicable Bank policies are respected by the projects we support, we engage upfront with project promoters – the public or private entities that develop, implement, and own the project. In this way, we can often bridge gaps and draw attention to project-specific risks, such as, for instance, forced labour risks in the supply chains of solar photovoltaic modules. Transparency is crucial, and we collaborate with the European Commission to push for it.

Finally, the EIB also offers advisory services that comprise both technical and financial expertise. Our assistance allows promoters to develop and implement robust projects that are in line with our requirements. This service, along with our policy-driven approach, sets us apart from other banks.

The EIB has increased financial support for renewable energy projects through the REPowerEU programme. How does EIB identify suitable investments under the initiative?

Yes, REPowerEU is an EU initiative that aims to accelerate the green transition in Europe. The intention is to enhance Europe's energy independence, particularly by reducing our reliance on fossil fuel imports from Russia. In 2023, the EIB invested more than €21 billion, contributing to the initiative. This massive financing for energy transition projects is driven by increased demand from the market. More and more project promoters approach us with suitable projects.

While it is not a mandatory requirement for projects, we can statistically track contributions to the REPowerEU initiative. This is relevant for projects inside the EU if they focus on renewable energy, electricity networks, energy efficiency, EV charging infrastructure or green innovation, and if the finance contract is signed between 2022 and 2027.

Where in the renewables sector is EIB interested now?

The EIB has a wide-ranging interest in renewables and adopts a supportive approach based on a set of key principles. These principles include low carbon emissions, economic viability, and compliance with our environmental and social standards. We also consider the technology maturity but make no exclusions in principle.

Up to now, we supported projects in onshore and offshore wind (fixed-bottom and floating), solar, hydropower, geothermal, concentrated solar thermal power, wave energy, and green hydrogen production. We are ready to engage in diverse technologies.

How does the EIB collaborate with project developers and other stakeholders throughout the investment process to ensure successful outcomes for renewable energy projects?

The EIB ensures the successful implementation and operation of its supported projects through its appraisal cycle. It identifies eligibility conflicts and potential risks during on-site visits and discussions with the promoters and assesses their risk management.

When needed, it proposes conditions to mitigate risks in the finance contract. These conditions often relate to environmental and social standards. They are crucial for approval. After the finance contract is signed, the EIB maintains its collaboration with the project promoter. For instance, it receives regular progress reports and completion updates.

If a project is abandoned or experiences major changes, the promoters must promptly inform the EIB and Bank services will reassess the situation. In an extreme case, the promoter may have to repay the bank loan immediately.

What mechanisms does EIB use to provide financial support for renewable projects or initiatives?

An important mechanism to channel private investment into green projects is the green bond. Often, our clients are not even aware, but the money we disburse to them is money that we raise on the international financial markets. To do so, we can use green or "traditional" bonds. Our triple-A rating guarantees favourable conditions under both options, but green bonds are particularly attractive for many bond investors. In 2007, we were the first ones to bring a green bond to the market. Last year, approximately 35% of the annual EIB funding came from two thematic bonds: the climate awareness bond and a sustainability awareness bond. The climate awareness bonds have a substantial portion supporting renewable energy and networks, public transport, and related infrastructure.

Another important mechanism to provide financial support for renewable projects are partnerships. Under InvestEU the European Commission works together with the EIB and other public financing institutions to promote green growth, quality jobs and well-being across Europe. Thanks to budget guarantees, this programme helps mitigate the risks that the EIB takes to fund certain projects. As a result, we can support more projects in EU priority areas, including renewable energy.

The EU Innovation Fund is a programme specifically designed to scale-up innovative low-carbon technologies. It supports innovative projects financed by the EU emissions trading scheme revenues and underscores the EU's commitment to fostering ground-breaking technologies. The EIB provides support services to the European Commission in this context, including advisory services to promoters to enhance the maturity of their Innovation Fund projects. Programmes like this are crucial because nascent technologies can be game changers for climate change mitigation, as we strive for carbon neutrality by 2050. Hence, we need to be able to finance them now, despite the risks they bear.

Speaking of risks, public financing alone will not be enough to transform our economies and societies at a sufficient rate to avoid climate disaster. We are therefore happy to also partner with private entities like Bill Gates' Breakthrough Energy Catalyst, which aims to finance companies with avant-garde technology. Breakthrough Energy Catalyst aligns with our mission to scale up technology that can be transformative for climate change mitigation, not only in the US but also in Europe.