Smart Energy Finances: EIB investment survey and COP27 finance highlights

Smart Energy Finances: EIB investment survey and COP27 finance highlights
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This week’s edition of Smart Energy Finances breaks down some of the EIB’s key findings on the state of EU firms in the energy transition and details COP27 financial highlights.

The past week has been a key period for investment decisions, pleas and pledges within the financial community. Tuesday saw COP27’s finance day take the global stage with commitments and calls to action being announced across the board.

At the same time, the European Investment Bank (EIB) released its 7th annual investment survey, breaking down how firms have been faring in the energy space in the midst of the continuing effects of the war in Ukraine.

EIB Investment Survey (EIBIS)

On Tuesday, coinciding with COP27s Finance day, the EIB released the seventh edition of its annual investment survey, which provides unique firm-level information collected from April to July 2022.

The survey looks at investment decisions and investment finance across the EU and the US, covering investment activities in climate action and digitalisation, and investigating the impact of the war in Ukraine and COVID-19.

The EIB Group, EU institutions and EU Member States use the survey as a tool to identify needs and understand constraints holding investment back.

According to the EIB, EU firms continue to lead the fight against climate change compared to the US and across the EU. In the survey, 88% of firms say they have taken action to address Greenhouse Gas (GHG) emissions with more than half of EU firms having already invested in climate action.

However, the war in Ukraine and subsequent shocks are testing firms’ resilience. Firms’ perceptions of investment conditions have deteriorated starkly, driven by the energy crisis, uncertainty and decelerating global growth.

Economic climate expectations have turned negative once again (declining from +27% to ‑53%). The perception of business prospects in the sector also reversed its trend (declining from +34% to +3%), as did the outlook for both the political and regulatory climate (-40%) and the availability of external finance (-8%).

And in the face of this, EU firms are taking action. Firms have made progress in climate action investment, including both mitigation and adaptation-related activities. Across the EU, 53% have already invested in tackling the impact of weather events and dealing with the process of reducing carbon emissions.

More than half of EU firms plan to invest in climate action over the next three years; about 57% are making investments in energy efficiency, 64% in waste minimisation and recycling and 32% in new, less polluting business areas and technologies as a way to reduce greenhouse gas emissions.

EU firms have also largely closed the gap with the United States in terms of the use of advanced digital technologies, and can now reap the benefits.

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As the EIB released its survey, COP27’s finance day was well underway.

The World Bank Group president David R. Malpass introduced SCALE (Scaling Climate Action by Lowering Emissions), a partnership to drive climate action through emission reduction programmes.

According to the World Bank, the programme – a global, multi-donor fund – will use results-based climate finance as a tool to support development goals and generate high-quality emission reductions.

In announcing the funding initiative, Malpass elaborated: “We haven’t had this [type of] fund available to the world and that’s what we’re presenting today. The SCALE trust fund within the World Bank will absorb [global] resources and apply them to projects that reduce Greenhouse Gas (GHG) emissions [and] regional efforts that bring reductions in emissions.

“It will pool funding from the global community, provide grant payments on a results-basis to client countries for lowering greenhouse gas emissions and expand funding sources for global public goods. This is the missing piece for the world community.”

Malpass added how the funding pool will allow recipient countries and stakeholders to “build a track record” of their GHG-related projects that will unlock “private sector financing for international carbon markets.

Drumming up climate investment

On the same day as the SCALE announcement, a climate financing report was released by the Independent High-Level Expert Group on Climate Finance, aiming to provide a framework for climate action financing.

Finance for climate action: scaling up investment for climate and development aims to cover the overall needs for a comprehensive approach to climate financing, as embodied in the Paris Agreement and by the UNFCCC.

The paper follows the goals of the Paris Agreement and the Glasgow Pact, analyzing the necessary investments needed, the different forms of finance and the key actions that can be taken through systems of international collaboration.

According to the report, a big investment push to enable Emerging Market and Developing Countries (EMDCs) to meet their climate and development goals will require external financing of $1 trillion per year by 2030.

The urgency of action means this financing effort must be frontloaded with a roadmap for delivery and implementation starting now. International action can move forward via four key pillars: strategy for investment; rapid scale up of Multilateral Development Banks (MDBs) and Development Finance Institutes (DFIs); new partnerships between private sector, countries and International Financial Institutes (IFIs); and concessional and innovative forms of finance.

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ETAF partnerships to mobilise $1bn

Wednesday saw an announcement come out of IRENA that three new partners officially joined their Energy Transition Accelerator Financing Platform (ETAF), a global climate finance platform aimed at mobilising capital to scale up renewable project funding in developing countries by 2030.

Cooperation agreements with the Asian Infrastructure Investment Bank (AIIB), Masdar and Swiss Re were signed on-site at the Conference.

The partnership will see:

  • AIIB intend to deploy $300 million
  • Masdar intend to contribute a potential investment of up to $200 million
  • Swiss Re help de-risk these critical investments, with insurance solutions and risk insights

Joining the founding partner and prime investor Abu Dhabi Fund for Development (ADFD) who already anchored an investment of $400 million, the announcement is seeing ETAF close in on securing a minimum of $1 billion in total funding to start Calls for Projects as of the announcement.

The official announcement took place in the presence of IRENA’s Director-General Francesco La Camera, His Excellency Majid Al Suwaidi, Director-General of the UAE-hosted COP28, His Excellency Mohammed Saif Al Suwaidi, Director-General of ADFD, AIIB President Liqun Jin, Masdar’s CEO Mohamed Jameel Al Ramahi, Swiss Re Chair of Public Sector Solutions Veronica Scotti and IDB’s Graham Watkins, Division Chief, Climate Change and Sustainable Development.

Additionally, the Inter-American Development Bank (IDB) announced its interest in becoming a partner. According to the IDB, they will endeavor to co-finance up to $100 million of ETAF projects in renewable energy and decarbonisation technologies in Latin America and the Caribbean (LAC) region.

Launched by IRENA with strategic support from the UAE at COP26 in Glasgow, ETAF is an open-ended platform that will source projects on an ongoing basis, aligned with the implementation of the Paris Agreement and SDGs.

It will help finance feasible projects and mitigate investment risks in developing countries through new financing solutions, matchmaking of project partners, technical assistance and project facilitation.

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Yusuf Latief
Content Producer, Smart Energy International

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