How the EBRD helps partners overcome barriers to climate financing: The European Bank for Reconstruction and Development (EBRD) is one of the world’s largest multilateral development banks and the organization leading the energy pillar of Egypt’s Nexus on Water, Food and Energy (NWFE) initiative. Its climate-focused regional investment includes agribusiness in Tunisia, Egypt’s Benban solar park, and a raft of recent regional loans for on-lending to climate-focused SMEs.
Hennerkes is the director for Green Financial Systems at the EBRD’s Climate Strategy and Delivery Department, meaning that she’s responsible for the organization’s sustainable finance methodologies, as well as climate-focused lending to financial intermediaries. We talked to her about the bank’s plans for regional expansion in its climate funding and how it’s helping partner organizations “greenify” their financial flows.
North Africa and the Levant are already important markets: SEMED was the second-largest regional recipient of EBRD investment in 2022, with the region’s investments standing at EUR 2.4 bn, up from EUR 5.1 bn in 2021, according to the EBRD website. Of the total investments in the region last year, 70% of the funding went to the private sector and 42% of investments were poured into the green economy. SEMED is somewhere “where we want to build business organically, but in a dedicated way,” says Hennerkes.
Expansion into Algeria and sub-Saharan Africa could be coming soon: Algeria and sub-Saharan Africa are potential upcoming target markets for EBRD’s climate-focused expansion — shareholder endorsement permitting, says Hennerkes. Engagement would be for green finance projects in general — though working with local banks is often a key part of new market entry, she adds.
From a climate perspective, these are clear target markets: “It’s obvious that adaptation is a huge topic here … and we want to contribute to the solution through our financing.” Renewable energy systems also need to expand considerably, Hennerkes notes.
The region’s financial institutions have an appetite for climate-focused lending, Hennerkes adds. Potential growth barriers include uncertainty about exactly what climate-focused lending means or whether a sub-loan is considered green. Strong collaboration with donor organizations like the Green Climate Fund and the EU allows the EBRD to provide technical assistance to help overcome these barriers, Hennerkes adds. This is exactly what happens with the Green Economy Financing Facility program (GEFF) and it’s immensely valuable, bankers noted recently.
Project bankability remains a barrier to climate finance growth: While there’s no lack of climate-focused projects or available funding, overall project bankability needs to be enhanced so the two can more effectively be matched, Hennerkes notes — echoing comments made by Shift EV CEO Aly El Tayeb at the Enterprise Climate X Forum in December about the steps needed to unlock capital for climate-friendly projects.
And DFIs can help: Blended finance is an effective de-risking strategy used by development banks, including the EBRD, Hennerkes tells us. The bank also sometimes helps with early project preparation and feasibility studies to help ready projects for financing — especially important for new technology and larger renewable energy projects “where there are quite a lot of upfront costs.” There’s also regulation to consider: For investments in renewable energy, “if the regulator sets the tendering process so that projects can be financed by commercial banks and IFIs, that helps.”
The EBRD is prioritizing the mainstreaming of green frameworks in its investment: The bank institutes an environmental and social policy, meaning it works to avoid, minimize, and mitigate adverse environmental and social risks, Hennerkes explains. It is also fully aligned with the goals of the 2015 Paris Agreement, meaning it isn’t “creating any adverse impact on the goal of limiting the global temperature increase to 1.5 degrees by mid-century,” Hennerkes says. Finally, it has a target for 50% of all its financing to be green by 2025. This includes all EBRD direct financing — as well as finance provided by intermediaries like banks — and the multilateral lender came close to reaching this target last year, Hennerkes adds.
Working with clients to help them decarbonize is key: The EBRD will build the capacity of its 300-350 financial institution clients to increase their Paris alignment and decarbonize based on sector exposure, says Hennerkes. “We’ll run a training program to explain what Paris alignment means, what a robust transition plan looks like, and how they need to review their portfolios,” she adds. The institutions will come up with their own transition plans — which, once agreed on, will form a key part of the EBRD-client relationship and be monitored, Hennerkes adds.
A c. USD 27 mn donor-funded corporate governance facility will help finance transition planning activities and this capacity building, Hennerkes adds. “We’re applying this to both corporate and financial institution clients, so we can enroll them in general capacity building programs, but also provide very specific individual assistance.”
The aim? To boost emissions reduction, without being prescriptive about sector funding: “The EBRD isn’t prescriptive in terms of sectors, but we’re sometimes prescriptive in terms of the technologies and economic activities that can be financed through our green financing lines,” says Hennerkes.