PowerPoint Presentation - Forum for Strategisk CSR · European Investment Bank Page 2 Outline •...

European Investment Bank

Stephen Hart, Head of Office EIB Group, Copenhagen

© BEWAG

Green Bonds and Sustainable Finance

28.8.2017


Outline

• Introduction to EIB Group

• Green Bonds / Climate Awareness Bonds

• Sustainable Finance

• Long term finance

• Financing Instruments


The EIB: the EU bank

• Natural financing

partner for the EU

institutions since 1958

• Around 90% of

lending is within the

EU

• Shareholders: 28 EU

Member States

Investing in

Europe’s growth

05/09/2017


The EIB at a glance

• Largest multilateral lender and borrower in the world – We raise our funds on the international capital markets

– We pass on favourable borrowing conditions to clients

• Some 450 projects each year in over 160 countries

• Headquartered in Luxembourg and has 40 local offices

• Around 3 000 staff: – Not only finance professionals, but also engineers, sector

economists and socio-environmental experts

– Almost 60 years of experience in financing projects

05/09/2017


The EIF at a glance

• Shareholders:

– European Investment Bank (59.9%)

– European Commission (28.1%)

– 30 public & private financial institutions (12%)

• Strong capital base (EUR 4.5bn)

• AAA-rated by the three major rating agencies

• Over 20 years of market experience in SME financing

• Over 400 staff

05/09/2017 5


EIB Group financing in 2016

05/09/2017 6

EUR 83.8bn

EUR 280bn

Total investment

supported


EIB supported investment

05/09/2017

0

50

100

150

200

250

300

2012 2013 2014 2015 2016

Inve

stm

en

t su

pp

ort

ed

(E

UR

bn)

EIB Group signatures EIB Group estimated investment supported


Impact where it’s needed

05/09/2017

JOBS 4.4m jobs in small

businesses

HEALTH 10m people with

access to improved

health services

EDUCATION 890 000 students

benefiting from EIB

projects

WATER 25m people

benefiting from

safe drinking water

TRANSPORT 960m additional

passengers

ENERGY 4m households

powered by EIB

projects

URBAN 120 000 households

in social and

affordable housing

DIGITAL 11m people with

new or upgraded

connections


Our priorities

05/09/2017

SMEs Infrastructure Environment Innovation

EUR

16.9bn

EUR

19.7bn

EUR

13.5bn

EUR

33.6bn


Climate finance pioneer

05/09/2017 European Investment Bank Group 10

EUR

19bn

for climate

in 2016

USD100bn

2016-2020


EIB financing since foundation

05/09/2017


Funding from capital markets

05/09/2017

Europ

e

Asi

a

Middle East

and Africa

America

s

68%

19% 11%

66.4bn

2%

EUR

in 2016


EIB Group financing in 2016

05/09/2017

Signatures EFTA &

Enlargement Countries

EUR 3.35bn

Eastern Neighbours

EUR

1.65bn

Africa, Caribbean,

Pacific, South Africa EUR

0.77bn

Asia and Latin

America

EUR 0.98bn

Southern Neighbours

EUR

1.63bn

European

Union

75. 4bn

Outside

EU

8.38bn

EUR EUR

Total EUR 83.8bn


EIB products

LENDING BLENDING ADVISING

Loans

But also:

Guarantees

(trade financing)

Equity participation

Combining EIB finance

with EU budget

(Project Bond Initiative)

Higher risk projects for

innovation (InnovFin)

Prepare, evaluate and

support the

implementation of

projects (JASPERS)

Support for

public/private

partnerships (EPEC)

Attracting FUNDING for long-term growth

05/09/2017

We help catalyse investment


EIB project cycle

05/09/2017

Sound and

sustainable

projects

EIB project cycle

Step 1 Proposal

Step 2 Appraisal

Step 3 Approval

Step 4

Signature Step 5

Disbursement

Step 6 Monitoring

and reporting

Step 7 Repayment

• Financial

• Economic

• Social

• Environmental • Technical

assessment

• EIB Management Committee

• Investment Committee (for operations potentially benefiting from an EU guarantee under EFSI)

• EIB Board of Directors

Finance contract is signed


9/5/2017 16

As a complement to its lending activity, the Bank may provide technical

assistance (art. 18.7 of the Statutes)

…in doing so the Bank must ensure that it:

Brings value to customers

…improving project delivery, efficient utilisation of funds and attractiveness of

the investments

Acts in the interests of the EU and its Member States

…acceleration and facilitation of investment by providing services which

contribute to EU strategy and act counter-cyclically

Contributes to the COP objectives

…supporting lending and project quality, improving the pipeline and speeding

up disbursements

EIB Technical Assistance

05/09/2017


So what is a GREEN BOND? A mainstream capital market instrument to raise private

capital for policy objectives; a Bond (… with classic

features …)

… the proceeds of which go to green projects

… with money and project outcomes tracked carefully

… and transparency and reporting

The Green Bond market is to help mobilize private sector

financing and enhance transparency of environmental

finance.

EIB Climate Awareness Bond (CAB) world’s first Green

Bond (in 2007).

05/09/2017 17


How are they sold/where to find them?

Primary Market

(Sold mainly to institutional investors through investment

banks)

Secondary Market

(OTC)

Luxembourg Stock Exchange:

https://www.bourse.lu/programme-securities/Programme-BEI/11734


• EIB Climate Awareness Bonds currently focus on RE and EE, in line

with art. 194 c) of the Lisbon Treaty and the Energy Action Plan adopted

by the European Council in 2007

1. Allocation of proceeds to a dedicated Treasury portfolio

2. Transparent reduction of the dedicated Treasury portfolio by

amounts matching eligible disbursements following issue date

(Treasury portfolio = performance indicator)

3. Issuer’s accountability vs. external stakeholders on eligible

disbursement flows (quantitative accountability) and expected

impacts of eligible projects (qualitative accountability) via

systematic reporting

• This approach can in principle be applied to any area of Climate Action

• Where the “line is drawn” depends on the issuer’s individual circumstance

Green Bonds create accountability of project disbursements,

which explains policy makers‘ increasing attention to this segment

BUT…:


EIB Climate Action – mitigation and adaptation

Mitigation – addressing a malicious global problem

• Renewable Energy – wind, sun, geothermal, hydro etc

• Energy Efficiency – buildings, industry, transport,

• Modal shift in transport to lower carbon modes

• Research & development in EE&RE technologies

• Biological sequestration – afforestation and reforestation

• Methane reduction and Other

Adaptation – a complicated local problem (often water-related…)

• Adaptation: Changes/modification to projects/systems that help cope

with climate change – these are incremental actions or activities to

address climate change impacts – these are the climate action

components - rarely the whole project .

The system or project that has been adapted is sometimes called “climate

resilient” … in the future – nearly everything we finance will need to be

analysed against this requirement – this will be the “new normal”


Green Bond Principles (GBPs)


Components of the GBP


Background to EIB CAB


EIB Climate Awareness Bonds (CABs) vision


05/09/2017

EIB CABs – Strategy and Key Features

Financial Impact

Transparency and Accountability

• First green bond: EIB was the first issuer to introduce labeled green bond in 2007

• Scale: Large Green Bond issuer to date (EUR 16.7bn)* and largest SSA Green Bond issuer 2016 ytd (EUR 2.9bn)*

• Liquidity: Largest Green Bond in EUR (3bn), liquid size in USD (1.5bn) and GBP (1.8bn)

• Green Bond curve in EUR: three references in 4-, 8-, and 11-yr tenors

• Exposure to EIB credit not projects: CABs pari passu with other EIB bonds (Triple A)

• No premium charged - priced like other EIB bonds of same size & maturity

• No refinancing: Project allocations are made only once upon disbursement

• Aligned with Green Bond Principles: clear reporting on alignment

• Clear sector focus: Projects in Renewable Energy and Energy Efficiency

• Quality: Project due diligence expertise, applying high EU standards

• Transparency: Detailed reporting on use of proceeds (Newsletter/Sustainability Report)

• Verification / audit: external audit of reporting on use of proceeds

• Reporting project impact + linking bonds to projects: Both launched in 2015

*As of 7 April 2016


Exponential quest for transparency = Exponential issuance growth


Evolution of the Green Bond market*


28

• 2016 Continued strong supply of CABs: EUR 3.3bn raised via 10 transactions in USD, EUR, GBP, CAD, SEK and

TRY ytd*

• 2015 Volume EUR 4.0bn, first SSA CAB in CAD (CAD 500m)

• 2014 First EIB CABs in USD (USD 1bn), GBP (GBP 1bn), CHF and JPY (Samurai format)

• EUR CAB due 11/2019 Largest outstanding Green Bond in the market (at EUR 3bn)

• Building the Green Bond curve in EUR EUR 3bn (Nov 2019); EUR 1.5bn (Nov

2023); EUR 1.25bn (Nov 2026)

EIB CABs - Issuance

EIB CAB issuance by currency**

**As of 9 September 2016

*Source: Crédit Agricole CIB; as of 12 August

2016

Outstanding environmental bonds

issued by MDBs (size > USD 100m)*

EIB 51%

IBRD 16%

IFC 11%

NIB 8%

ADB 7%

AFDB 5%

EBRD 3%

EUR 48.7%

GBP 16.3%

USD 14.5%

SEK 8.2%

ZAR 2.4%

CAD 4.7%

CHF 1.9%

AUD 1.2%

TRY 1.0%

BRL 0.9% JPY

0.2%


EIB CABs - Projects

Non-EU represents EUR 878m

(12.1% of total CAB allocations)

Country / region CAB allocation

(EUR m)

Chile 17

Dominican Republic 2

DRC (Congo) 5

Egypt 19

Georgia 17

Iceland 173

India 54

Israel 55

Jordan 45

Kenya 49

Latin America 20

Liberia 30

Mexico 79

Morocco 40

Nicaragua 24

Russian Federation 58

South Africa 186

Zambia 7

1,713m; 23.6%

737m; 10.2%

694m;

9.6%

678m;

9.3%

574m; 7.9%

488m;

6.7%

297m;

4.1%

259m;

3.6%

251m; 3.5%

196m; 2.7%

154m; 2.1%

100m; 1.4%

79m; 1.1%

45m;

0.6%

16m;

0.2%

60m; 0.8%

24m; 0.3%

Project allocations in EUR m

* As of June 2015

18m; 0.2%

104 projects in 41 countries within and outside of the EU*


POLICY

&

RISKS


The “Ambition Gap” between Science & Policy….

NDC –Nationally Determined Contribution – individual country submissions to the

UNFCCC, to be reviewed and updated every 5 years under the Paris Agreement.

Currently we are a long way from staying «well below 2oC» – so Climate Action

Mitigation must continue to focus on low carbon pathways.


TRY EXPLAINING THIS TO YOUR CHILDREN

”Stigende ressourceproduktivitet”

“Afkobling mellem økonomisk vækst og drivhusgasser”

”Nordsøolien afgørende for dansk velfærd

”Togprojekter risikerer skrotning efter fald i oliepriser”

”i Danmarks interesse at fortsætte olie- og gasproduktionen i Nordsøen”

“Indenlandske materialeanvendelse er defineret som dansk

ressourceindvinding + import – eksport. Indikatoren angiver vægten af alle

materialer, der i året anvendes i den danske økonomi.”

“ Material Footprint of Nations”, http://www.pnas.org/content/112/20/6271.full


December 2015 - COP 21 in Paris


PARIS AGREEMENT:

without accountability, facts cannot follow words

Policy

Makers

Project

experts

Capital

market

practitioners

Civil

Society

Paris Agreement

Implementation:

- China

- France

- G20

- European Commission (HLEG)

...

CL

IMA

TE

JU

ST

ICE

H

UM

AN

RIG

HT

S

LEGISLATION


WHAT IS THE BIG IDEA?.

Transparency and Accountability


Green bonds are pushing multiple debates

in markets and policy circles on how to ensure comparability

Carbon

footprinting

Asset

allocation

Portfolio

transitioning

Discussion on

common

definitions for

use of

proceeds

Discussion on

common

measurement

instruments and data

sets

(e.g. for GHG-

emission estimates)

Discussion on

common

reporting

principles and

indicators

Discussion on

external review

standards

Increasing market-oriented public guidance in

DEFINITIONS, measurement, reporting,verification, targeting


Definitions of Climate Finance

• EIB’s Climate Action definitions are harmonised with Multilateral Development

Banks (MDBs) since 2012 and with International Development Finance Club

(IDFC) in 2016. Harmonisation means we agree on the activities to be counted. It

does not indicate compatible reporting on finance. With many different

approaches around – transparency on content for Green Bonds is KEY –

particularly on fossil fuels.

• MDB Joint Climate Finance Reports 2011-2015 provide a lot more about the

mitigation and adaptation definitions:

http://www.eib.europa.eu/attachments/documents/joint_mdb_report_on_cli

mate_finance_2015.pdf

• EIB Climate Action used in our Green Bonds i.e. the CAB eligibilities, are:

• Energy Efficiency (EE) (this is not BAU)

• Renewable Energy (RE) (this may require confirmation on GHG emissions)

(These RE & EE activities may be a whole project or a component)

plus

• 100% dedicated intermediated credit lines for EE & RE

Our Energy Lending Criteria were publicly consulted:

http://www.eib.org/attachments/strategies/eib_energy_lending_criteria_en.pdf

http://www.eib.europa.eu/attachments/documents/joint_mdb_report_on_climate_finance_2015.pdf







OTHER (POSSIBLE) CAPITAL MARKET INSTRUMENTS

• Asset Backed Securities (purchasing granular portfolios in well

understood sectors, eg. energy efficiency)

• Notes in funds (bundling of retail impact investors through SPV

participation in funds)

• Covered Bonds (recourse to end borrowers in addition to issuer)

• Ecosystem Bonds (investment diversification strategy for geography or

sector)

• Conservation Bonds (coupons invested, swapped for returns on fund

with floor)


The Capital Markets Union (CMU), part of the

third pillar of the Commission’s Investment

Plan for Europe:

“Reforms for sustainable finance are

necessary to support investment in clean

technologies and their deployment, ensure

that the financial system can finance

growth in a sustainable manner over the

long term, and contribute to the creation of

a low-carbon, climate resilient economy.”

“need to support EU green bond

standards“ “establish an expert group to

develop a comprehensive European

strategy on green finance”

=> High Level Working Group

COMMUNICATION FROM THE EC; Sep 2016

SUSTAINABLE FINANCE


• Provide a vision for sustainable finance

• Integrate sustainability into the EUs

regulatory and financial policy framework

• Mobilise capital for a sustainable economy

INTERIM REPORT:

https://ec.europa.eu/info/sites/info/files/170713

-sustainable-finance-report_en.pdf

PUBLIC CONSULTATION (questionnaire) until

21.9.2017:

https://ec.europa.eu/eusurvey/runner/sustaina

ble-finance-interim-report-2017

HLEG INTERIM REPORT - SUSTAINABLE FINANCE

https://ec.europa.eu/info/sites/info/files/170713-sustainable-finance-report_en.pdf









https://ec.europa.eu/eusurvey/runner/sustainable-finance-interim-report-2017












HLEG INTERIM REPORT - SUSTAINABLE FINANCE


HLEG INTERIM REPORT – BIG IDEAS

A FEW BIG IDEAS:

Addressing the compression of time and risk in the finance system ……

Putting ESG at the heart of investment and disclosure …….

Common definition of fiduciary duty……

From passive to active responsible ownership …..

Rewarding/compensating long term focus in decision-making ….

“Signposting” towards sustainable assets ….

Accounting treatment of equity ….

Political guarantees ….

Scaling up efforts to develop projects ….


HLEG INTERIM REPORT – EARLY RECOMMENDATIONS

• Develop a classification system for sustainable assets

• Establish a European standard and label for green bonds and other

sustainable assets

• Clarify that fiduciary duty encompasses sustainability

• Strengthen ESG reporting requirements

• Introduce a ‘sustainability test’ for EU financial legislation

• Create ‘Sustainable Infrastructure Europe’ to channel finance

into sustainable projects

• Enhance the role of the ESAs in assessing ESG-related risks

• Unlock investments in energy efficiency through relevant accounting

rules


TRANSFORMATIONAL POWER OF LONG TERM FINANCE

• Ability to solve multiple problems/seize multiple opportunities over

longer time scales

• Deal with timing uncertainties of natural process/ecosystem recovery

• Enables less blueprint-based / more performance-based project

design

EXAMPLES:

• Althelia Climate Fund; changes livelihoods on the interface of

ecosystems and human settlements

• Land Degradation Neutrality fund; land restoration/halting land

degradation

• REDD and GCF support for integrated landscape approach, with

performance payments against avoided carbon

• Green Tech; more capital intensive / slower to mature in regulated

industries


05/09/2017

EIB lending instrument

For Investment Grade operations

Project

Public Sector

Financing Project Finance

Direct Loans

Intermediated

Loans

Project Finance

with direct

project risk

Risk Sharing Equity through

Funds

Banks

EIB special activities

For Low and Sub Investment Grade operations

What can the EIB do? – Financing Instruments

The EIB has an extensive range of instruments to finance public and private

sectors at investment and sub-investment grades of risk to its disposal.


Lending

Grants

Risk mitigation

Potential for leverage


Innovative Use of Bond

Proceeds

Innovative use of bonds proceeds for equity fund investments

Equity Funds

Improve bankability of small projects

Product EIB

Examples Overview

Leverage Potential for Private Sector

Fund of funds with first loss

protection

Innovative risk water fall for fund of funds focused on RE and EE in

emerging markets and economies in transition to attract private co-

investment

Layered funds

First loss protection for funds focused on specific policy outcome

to allow public and private co-financing

Paving the way for private capital

Access to risk protection and

financing products for small RE

project in Sub-Saharan Africa

Catalyse and leverage additional

private investment (‘’halo effect’’)

and enable investment into new

asset classes.

Engage Institutional

Investors

Credit exposure to EIB credit not

projects: CABs pari passu with

other EIB bonds (AAA rated)

Madagascar Climate/

Conservation Bond (under

development)

(ICF supported)

http://www.eeef.eu/

http://www.ggf.lu/---_site.index..html_dir._likecms.html


Layered-risk funds

05/09/2017

Layered-risk funds allow the issuance of different share tranches and notes to offer

investors different risk-return profiles.

The capital structure of such an investment vehicle typically rests upon the provision of a

first loss piece (termed junior C shares in the figure below) by donors.

Once the asset side of the fund develops, this structure allows the possibility to issue

notes to private investors who remain most senior in the cash waterfall.

Junior – C Shares

Mezzanine – B Shares

Senior – A Shares

Private Investors

IFIs

IFIs

Donors

Notes


Global Energy Efficiency & Renewable Energy Fund

05/09/2017

Rationale – EE & RE in Developing Countries Structure

Impact on People, Planet and Profit

Innovative Aspects – Mobilising Private Finance by Using Public Funds

Funds of funds which provides global risk capital to

EE and RE projects in developing countries and

economies in transition, constrained by high risk, lack

of upfront capital and high transaction costs.

• People Social development and

economic growth of local communities.

• Planet Access to sustainable energy and

increased energy efficiency

• Profit Achieve robust financial returns.

• Anchor specialised private equity funds focused on RE and EE projects in emerging markets.

• Harness ODA (official development aid) to catalyse private investments

• Create a multiplier effect For every €1 ODA invested, >€ 50 were deployed in final projects on the ground.

GEEREF is one of the first instruments that has demonstrated that it is possible to mobilise private financing by using

public funds as risk capital in a financing structure.

A Shares Public Sponsors (EU, D, NOR)

B Units Private Investors

Board of Directors

IC GEEREF Investment Decision

Approval Appointment

Appointment Investment Investment

Fund 1 Fund 2 Fund 3

Up to 30% Co-

investments with

GEEREF or other

funds

RE and EE Investee Projects


Private Finance for Energy Efficiency (PF4EE)

05/09/2017

Rationale - Address sub-optimal levels of

investment in EE.

Beyond financial intermediary’s current

practice

Innovative Aspects – Full delegation model and packaged approach

• Make EE lending a more sustainable activity

across European FIs.

• Increase the availability of debt financing to EE

investments.

• Support member states in the implementation

of National Energy Efficiency Action Plans

(NEEAPs).

• Full delegation model where EIB is managing cash

collateral on behalf of the EC (no credit risk for

EIB).

• Higher leverage effect based on the first loss

coverage on a portfolio basis.

• 80% of net loss coverage on a loan by loan basis.

• Packaged approach with EIB long term loan and

consultancy services

• Free of charge experts and advisory support to

develop tools and expertise in EE lending.

• Risk mitigation by means of cash collateral

(max 16% of total portfolio) securing up to

80% of each individual Loss.

• Long tenor EE tailor-made EIB loan to cover up

to 75% of the total investments cost.

EE Loans

Portfolio

EE

Investments

EE Loan

Risk Sharing Facility

Expert Support Facility

Financial

Intermediary PF4EE


Natural Capital Financing Facility (NCFF)

05/09/2017

Rationale – Natural capital conservation

Structure

Projects - Use of market-based instruments

Innovative Aspects – Beyond public grants

Address barriers for revenue-generating/cost-saving

projects for the conservation of natural capital

• Establish a pipeline of replicable, bankable

operations

• Demonstrate to private investors the

attractiveness of natural capital projects

• Leverage funding from private investors through

the use of EU Funds

• Payments for ecosystem services

• Green infrastructure projects

• Pro-biodiversity and pro-adaptation businesses

• Projects involving biodiversity offsets

FINANCIAL INSTRUMENTS

EUR 100-125M

(EUR 50m First Loss for EIB)

TECHNICAL

ASSISTANCE

EUR 10m

NCFF

Investments Project Level

DIRECT INVESTMENT IN PROJECTS

INTERMEDIATED INVESTMENTS

Private Equity Funds;

Credit Line to Banks

CO-INVESTORS

Private

and/or

Public

• Beyond traditional financing for natural capital

projects (i.e. public grants) by promoting

market-based instruments

• Maximising ‘’scarce’’ public funds (i.e. EU LIFE

budget) by testing new instruments to mobilise

or ‘’crowd in’’ private finance

• Technical assistance for project preparation,

implementation, monitoring and evaluation


READING

Start with:

KPMG Independent Reasonable Assurance Report

2016

https://www.icmagroup.org/Emails/icma-

vcards/EIB_External%20Review%20Form%20&%20CAB%

20Statement.pdf

HLEG Interim Report

https://ec.europa.eu/info/sites/info/files/170713-sustainable-

finance-report_en.pdf

https://www.icmagroup.org/Emails/icma-vcards/EIB_External Review Form & CAB Statement.pdf







Thank you

STEPHEN HART

Head of EIB Group Office, Copenhagen

[email protected]


DISKUSSION

Vil grønne obligationer gøre forskel for finansiering af grønne projekter?

Hvornår skal det offentlige tage risikoen på investeringer?


Aligned with EU policies

Climate Change Mitigation

• 2007: Energy Action Plan – ambitious 20-20-20 targets to be attained by 2020

• 2011: Roadmap for moving to a competitive low carbon economy by 2050

• 2014: 2030 framework for climate and energy policies - adopted by EU Council on 24th

October

GHG emissions

reduction

Renewable

Energy

Energy

Efficiency

2020 2030

20%

20%

20%

40%

27%

27%

• Binding target at EU level

• Reform of EU emissions

trading system (ETS)

• Binding target at EU level

• Indicative target at EU level

Climate Change Adaptation

• 2013: EU Adaptation Strategy

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