Speech delivered by Sir Suma Chakrabarti, EBRD President, to Sida in Stockholm, Sweden.
Introduction
Ladies and Gentlemen
It is a great honour to be invited here today.
I’d like to thank Charlotte for giving me this opportunity to come back to Sida itself – and for this chance to speak to you all.
Sweden is one of the EBRD’s firmest friends.
It is not just one of our founding shareholders, with us right from the start of our journey almost 25 years ago.
Sweden is also one of the most generous supporters of our work on sustainable transition, improving living conditions and economic opportunities for countless people. From Morocco on the Atlantic to Mongolia in Central Asia and further onto the Pacific.
Sweden is the largest bilateral donor and an important contributor to our multilateral efforts as well, not least to the Eastern Europe Energy Efficiency and Environment Partnership Fund, also known as E5P. I will return to the subject of E5P later.
In total, Sweden’s contribution to our donor funds to date stands at €242 million. That is a very substantial sum indeed, for which we at the EBRD are immensely grateful.
The Context
Our hosts have suggested that I speak to you today on the subject of ‘Stepping up green financing: the EBRD’s Green Economy Transition approach’.
This gives me a great opportunity to reflect on a topic of key strategic importance to the EBRD, both in terms of its record to date and its future.
It is also a topic that addresses one of the great challenges of our time, many would argue the greatest.
And it is no exaggeration to say that the weeks ahead will be crucial for setting the scope and agenda for action, particularly on the climate change front.
These really are momentous times for all of us who are seriously concerned about our planet’s future.
The new Sustainable Development Goals – which commit us all to ensure access to affordable, reliable, sustainable and modern energy and to take urgent action to combat climate change and its impacts, to cite only two relevant targets – have been adopted.
Indeed, the sustainable use of all the planet’s resources is, not surprisingly, one of the major themes of the SDGs as a whole.
And in the coming weeks I hope world leaders will enhance the SDGs with a legally binding and universal agreement on climate change.
I will be there at COP21 in Paris doing all I can to contribute to a successful outcome and clear next steps.
Multilateral development banks such as the EBRD have a major role to play in delivering the SDGs.
We know that and global leaders know that too.
This summer’s G7 Summit declaration called on “MDBs to use to the fullest extent possible their balance sheets… in delivering climate finance and helping countries transition to low carbon economies”.
And a recent letter from the Ministers of Finance of France and Peru invited the EBRD to “initiate a discussion with all shareholders on the possibility to enrich EBRD’s current mandate with a specific ‘transition towards green economy’ strategic pillar which could lead to forward-looking declarations and announcements ahead of COP21”.
That is exactly what we have done.
We are already an acknowledged leader in the field of climate finance. But we are determined to do much more.
So, just days after the SDGs were adopted, we announced a major scaling up of our contribution to the global fight against climate change.
This new Green Economy Transition approach, one unanimously endorsed by our Board of Directors, foresees €18 billion of green financing over the next five years.
That’s as much as we have delivered in this field in the whole of the last decade – and reflects our strategic intent to further scale up our climate finance activity.
The goal is to increase our level of green financing as a percentage of our total annual investments to 40 percent by 2020, up from a target of 25 percent for the strategic period ending this year.
Those are the headline numbers. And very challenging and exciting they are too.
I will come back to them and look at this new Green Economy Transition approach in more detail later on.
But first, I will attempt a brief overview of how we got to where we are today - and highlight how environmental sustainability and action are now a core strategic activity of ours.
The EBRD’s Green Record
I mentioned earlier that we will soon be celebrating our 25th birthday, next spring in fact.
We were founded in 1991 to help build a new post-Cold War era in Central and Eastern Europe and what was soon to become the former Soviet Union.
Right from the start of our history we were committed to furthering progress towards ‘market-oriented economies and the promotion of private and entrepreneurial initiative’.
And as part of that commitment we pledged to promote in the full range of our activities ‘environmentally sound and sustainable development’. This is a direct quote from article 2 of our constitution.
That pledge, as well as the many other goals that inform what we do day to day, was made in the name of ‘transition’.
I hope you all agree with me that, as with other aspects of transition, the shift to an environmentally sustainable economy entails the transformation of markets, behaviours, products and processes.
It also requires the large scale deployment of new technologies and new skills.
That, along with our focus on the private sector and our client-driven business model, is what we specialise in.
Our engagement with the private sector means that we have many different ways of making an environmental impact.
We can work with SMEs and energy-intensive industries. We can make a difference via residential energy efficiency or major utilities.
Working directly with the private sector has also allowed us to leverage a significant amount of private financing for climate purposes.
That client-driven business model combines investment, technical assistance and policy dialogue.
Quite simply, this is what we do, day in day out.
And over the last quarter of a century we have learnt many lessons about getting much better at it.
And yet the truth is that most of the countries where we invest began their transition suffering a significant handicap: the communist era’s legacy of environmental neglect and wasteful energy use.
In spite of significant capital stock transformation during the past 25 years, as well as other improvements, carbon intensity and other environmental standards are still poor.
In what we call the southern and eastern Mediterranean, the new region we work in which includes Egypt, Jordan, Morocco and Tunisia, the situation is not so very different, although water stress there is also a severe problem.
Market failures to internalise and monetise the cost of environmental damage have only exacerbated this difficult situation.
The Challenge
Yes, significant progress has been made in energy efficiency and the use of renewable energy.
But the pan-European region, together with North America, still has the highest carbon emissions per capita in the world — over five times the limit which would stabilise global warming by 2050.
Some countries of Eastern Europe, the Caucasus and Central Asia remain among the most carbon intensive economies on the planet.
Fossil fuel subsidies are still high throughout the region. In some transition economies artificially low prices for electricity and heat inevitably result in waste.
Moreover, despite ambitious pledges to reverse the loss of biodiversity, ecosystems remain under threat.
Income growth has been accompanied by deteriorating key environmental indicators, so much so that the pan-European region has the highest ecological footprint of anywhere in the world.
Indeed, most countries in the region are running a bio-capacity deficit; they consume more resources than they have in their territories.
That, ladies and gentlemen, is the backdrop against which we are operating.
That is the scale of the challenge we face.
EBRD’s Sustainable Energy and Resource Initiatives
The commitment to ‘environmentally sound and sustainable development’ was always central to what the EBRD did.
But it became clear that we needed to step up and systemise our approach to such an important part of our identity.
The countries where we invest were shifting their priorities. There was growing attention paid to environmental sustainability at the broader international level as well.
The result was the 2006 launch of our Sustainable Energy Initiative, the SEI. It was later expanded to cover water and materials, as well as energy, within the Sustainable Resource Initiative, or SRI, launched in 2013.
Both SEI and SRI relied on our proven business model, combining finance with technical assistance and policy dialogue to promote energy efficiency, renewables and adaptation projects.
Technical assistance has played a key role here, including a wide range of activity from sustainability financing and market analysis and resource audits to training and awareness-raising.
We recognised the importance of policy dialogue early on. It is no coincidence that the first policy experts in our banking operations department were hired in the climate area.
Our policy dialogue with governments has aimed to support the development of strong institutional and regulatory frameworks, the prerequisite for delivering sustainable resource investments.
The SEI and SRI have been the key strategic and operational instruments for building our climate financing activity - from a pilot in 2006 to a central strategic business area today.
Climate finance is by now core to what we do – and to who we are.
So much so that last year our investment in the field of sustainable resources accounted for more than a third of our total business volume.
Overall, since the launch of SEI in 2006, our total financing in this area has reached more than €18 billion.
We recently celebrated the signing of our 1000th SRI project, a financing package to support the first PVC recycling scheme for a Turkish plastic goods manufacturer.
And our work in this area is not only good for the environment.
A recent review showed that, in terms of transition impact and financial return, the SEI and SRI were the best performing of all our major initiatives.
Sweden has of course been actively involved and instrumental in making these results possible.
Take, for example, E5P, the Eastern Europe Energy Efficiency and Environment Partnership Fund.
It was first proposed during the Swedish presidency of the European Union in 2009.
The first pledging conference for E5P was held here in Stockholm. And it has received pledges of almost €170 million to promote energy efficiency and environmental investments in the Eastern Partnership countries.
We manage the fund on behalf of its many donors seeking, among other objectives, to reduce the energy intensity of Ukraine, Armenia, Georgia and Moldova.
This year we received E5P approval to use €15 million as an investment grant and additional funding directly from Sida to implement the Ukraine Residential Energy Efficiency Financing Facility.
This is a crucial project for Ukraine. Households there have seen dramatic increases in the cost of heating now that the government is phasing out subsidies and bringing tariffs to cost recovery levels.
The facility will provide financial incentives for consumers to take out loans from local commercial banks so that they can invest in energy-saving measures and reduce usage and costs.
Here’s another example of our work with you in Ukraine. Legislation there made it difficult for the private sector to make kindergartens, schools, hospitals and other such buildings more energy efficient.
Local governments were not allowed to enter contractual agreements for longer than a year. And procurement rules stipulated that the lowest bidder, not necessarily the firm guaranteeing the most energy and cost savings, should win the contract.
You, SIDA, helped cover the operational and legal costs of establishing a model law rectifying this state of affairs.
And I am happy to report that the Ukrainian parliament approved the bill for the new law this May.
In the larger scheme of things you could perhaps describe this as an incremental change.
But we should not underestimate the cumulative impact of many, many such changes in many different countries.
Nor the way such reforms can help a country such as Ukraine and its people pave the way for a greener future, one which, among other things, bolsters its energy security.
Green Economy Transition
This brings me to the present - and the future - with the launch of the EBRD’s new Green Economy Transition approach.
I’ve already highlighted our intention to deliver as much green financing in the next five years as we did over the past decade.
This translates into a total of €18 billion, with annual green financing reaching over €4 billion by 2020.
But that is not the whole story.
If you look at our climate finance leveraging to date, we expect to mobilise another €60 billion. And the €60 and €18 billions for a total project value of up to €78 billion. That is the EBRD’s financial statement of intent in this area over the next five years.Given our business model, we would also expect between half and two-thirds of that financing to be in the private sector.
And what of the outcome from all this financing? It will be very significant. We expect the Green Economy Transition to deliver an incremental cumulative Co2 emissions reduction of 50 million tonnes per year by 2020.
How will we get there? What is our understanding of the Green Economy and how will we accelerate the transition to it?
Well, we define a Green Economy as a market economy in which public and private investments are made with a specific concern to minimise the impact of economic activity on the environment.
And where market failures are addressed through improved policy and legal frameworks aiming at:
- accounting systematically for the inherent value of services provided by nature,
- at managing related risks,
- and at catalysing innovation.
In contrast with the launch of the Sustainable Energy Initiative back in 2006, the EBRD is today building on an established structure and model to deliver this scaling-up.
While incremental resources and concessional funds will be needed, our operating model is ready and scalable.
The Green Economy Transition approach is to deliver increased green financing both by growing further its activity in areas in which EBRD already has experience, and by developing new environmental financing areas.
Further growth in existing activities will be developed to meet pent up demand for investment in areas such as:
- renewable energy development in the power and industrial sector;
- energy efficiency and renewable energy finance for municipal district heating, public transport, water and wastewater and solid waste management networks;
- energy and resource efficiency across sectors, including residential and commercial buildings;
- infrastructure finance, including energy transmission networks and railways; and
- solar energy in the southern and eastern Mediterranean, where we can play an important role in supporting both the shift to a lower carbon economy and a higher share of private sector power generation.
In terms of new activity, there will be a particular focus on developing our adaptation financing activity and supporting the accelerated deployment of innovative technologies.
These could include climate resilience in power and transport infrastructure, irrigation water efficiency and the development of bioenergy.
And we will broaden the environmental scope of what we do to promote the sustainability of natural resources use, combat pollution and protect ecosystems.
That would involve increasing water supply, improving the resilience of groundwater and surface water resources, sustainable agriculture projects and work on rehabilitating contaminated sites.
The Broader Vision
I have outlined the EBRD’s track record in environmental finance and our medium-term vision reflected in the Green Economy Transition approach.
I’ve also paid tribute to the way Sweden and SIDA have made a very tangible contribution to our achievements in this field – for which we are extremely grateful.
First, we really do have a chance to transform the world’s economy for the better – and, with COP 21 fast approaching, the next few weeks will be crucial for that enterprise.
‘Green’ and ‘Growth’ no longer have to be viewed as opposites or a trade-off. They are now two ideas that complement each other.
Even a few years ago, many were reluctant to see the debate in such terms. Green values were perceived as a constraint on, rather than as a potential engine for, growth.
For many reasons, the debate is shifting.
The technology driving green innovation is getting cheaper.
Influential countries are rethinking where they stand on green investments.
Look at China, for example. Mindful of the need to reduce local pollution and reduce its dependence on carbon-based fuels, it now invests more in renewable energy (US $83.3 billion last year alone), than in fossil fuel.
It is also worth pointing out that several of the countries we invest in risk being left behind in this new race for more innovative, resilient and sustainable economic systems.
If both markets and governments fail to recognise and seize the opportunities offered by new technologies and business models, those countries will lag even further behind the rest of the world.
Second, I recognise and appreciate the huge challenges we face if we are to deliver the Sustainable Development Goals relevant to climate and energy.
The market failures and barriers to change in climate finance are well known.
For example, the refusal of most countries to levy a meaningful carbon tax – an honourable exception being Sweden, of course
And the still generous subsidies to fossil fuels in a number of countries in which the EBRD invests.
Such a lack of proper price signals suggests that concessional funding will continue to play a significant role in spurring environmental finance.
The leading role played by Sweden - both in introducing a clear price for carbon and providing concessional funding through bilateral and multilateral channels - is particularly significant here.
Third, and finally, our Green Economy Transition approach reflects the gradual, and in our view inexorable, strengthening of the economic rationale for green investments.
This new calculus is reflected in the scale and ambition of the EBRD’s work to unlock new markets, introduce new technologies and support the growth of private sector environmental finance.
We know from long experience that fostering innovation and private sector entrepreneurship in the green economy in the countries where we work will not just help reduce the costs of environmental damage and climate change.
It can also yield other substantial benefits, among them energy diversification and lessening dependence on fossil fuels.
The recent New Climate Economy report identified three ‘drivers of change’ which need to be harnessed to overcome barriers to low-carbon growth.
They are: raising resource efficiency; infrastructure investment; and stimulating innovation.
Each of them is an EBRD ‘calling card’. Each, in their different way, can be advanced by our new Green Economy Transition approach.
When people ask us to sum up what the EBRD does in just a few words, we say that we invest in changing lives.
More and more, we define the ‘change’ in ‘changing lives’ as the change from a world powered by the inefficient and harmful consumption of fossil fuels to one more sustainable and environmentally sound.
Sweden has long been in the advance guard of the movement towards such a world. And so has the EBRD.
I have every confidence that - together and in partnership with many others - we can do even more to contribute to a better future. A green future.
Thank you very much.
