Sustainable finance

The EBRD uses a range of instruments to provide capital and know-how for sustainable finance in various types of financial institution, including banks, microfinance institutions, collective investment vehicles, such as funds (equity and debt), and non-banking financial institutions (NBFIs), such as leasing firms, stock exchanges and insurance companies.

Intermediated financing channelled through a wide range of eligible financial intermediaries (FIs) is a key instrument in promoting sustainable development and sustainable financial markets and in developing financial sector partnerships to drive the transition to green, low-carbon economies.

The EBRD’s sustainability impact in the financial sector focuses on environmental and social risk management, green financial systems, green economy transition and climate risk management. 

The eManual has retired and should you need to refer to it, please contact us at: ESD-FI@ebrd.com. 

The nature of intermediated financing means that financial intermediaries (FIs) will assume delegated responsibility for environmental and social (E&S) risk management and monitoring, as well as overall portfolio management in relation to such risks. The nature of the delegation may take various forms depending on a number of factors, such as the type of finance provided and where the FIs make equity investments.

The Bank’s Environmental and Social Policy (ESP) and associated Performance Requirements (PRs) guide the EBRD’s commitment to promoting “environmentally sound and sustainable development” in the full range of its investment and technical cooperation activities.

In the case of FIs, the key E&S risk management requirements established by the ESP and PRs relate to:

• labour and working conditions of FI employees (PR2)
• health, safety and security on FI premises (PR4)
• managing E&S risks associated with sub-borrowers and sub-projects financed by the FI and benefitting from the proceeds of EBRD investment (PR9).

Each PR sets out the EBRD’s specific requirements (including, but not limited to, compliance with relevant national law) based on good international practice.

Under its Green Economy Transition (GET) approach, the EBRD supports the development of green financial systems that have the potential to significantly accelerate the transition to a green, low-carbon economy. It aims to do this by increasing the scale and depth of local financial markets.

At a global level, and in the economies in which the EBRD operates, financial regulators, credit rating agencies and capital markets are increasingly calling for greater disclosure and management of climate risks by financial institutions and the redirection of capital flows to climate-positive and green investments.

The EBRD works with clients to meet market and regulatory expectations by supporting the adoption of sustainable financing policies and best practices for climate risk management and disclosures. The EBRD engages in policy dialogue with financial regulators and central banks, as well as with international stakeholders and standard setters such as the Network for Greening the Financial System, the Vienna Initiative’s climate change working group, the European Union Platform on Sustainable Finance and related expert groups.

Green financial products

The EBRD offers a range of green financial products, including its flagship Green Economy Financing Facilities (GEFFs). The GEFFs develop local financing markets for sustainable energy and resource efficiency projects. Through them, the EBRD offers credit lines and technical assistance to local partners who then support businesses and homeowners.

The EBRD’s award-winning Trade Facilitation Programme (TFP) also offers the Green TFP, set up in 2016. The Green TFP allows partner banks to use their existing trade finance facilities to finance the export, import and local distribution of imported green technologies and materials to aid climate change adaptation and mitigation.

The Bank’s green work extends to green and sustainability bonds, green leasing and green equity investments, as can be seen in Poland and Türkiye.

The EBRD has also developed tools for policy-based green investment, such as the Green Technology Selector. This online shopping-style platform offers a country-specific directory of products and vendors that offer high-performing technologies to businesses.

Paris alignment for intermediated finance

The EBRD is fully dedicated to supporting its clients in the economies where it invests to meet their goals and commitments under the Paris Agreement and to make financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. Its methodology sets out how the Bank will determine whether the activities it might finance are “aligned” or “not aligned” with the mitigation and adaptation goals of the Paris Agreement, and covers indirectly financed investments with partner financial intermediaries.

Training for partner financial intermediaries

The EBRD’s Green Finance Academy assists the financial sector in unlocking new business opportunities through a deeper understanding of green standards and regulations. Two series are available to clients: the Green Finance Series and the Climate Risk Series.

The Bank assists its clients with finance and also offers broader support centred on transforming business models over time as part of “transition plans”. The EBRD’s Corporate Climate Governance Facility supports clients in developing credible transition plans, including a range of priority actions and investments.

For financial institutions, climate risk refers to the financial effects on clients of a changing climate. A large part of an FI’s climate risk is in its loan portfolio, which will become apparent in unexpected changes to a client’s cash flows. However, financial institutions also experience climate risk through impacts on tradeable securities, including an FI’s bond holdings. These risks can manifest in material changes in asset values due to fluctuations in expected revenues and costs, as well as the value of capital assets. Climate risk can be divided into two categories: transition risk and physical risk.

The financial impacts of climate risk, including changes in corporate profitability, household income and gross domestic product growth, affect individual FIs and can become concentrated in the financial system, resulting in systemic contagion. What is more, responding to climate change by restructuring the economy towards lower-carbon intensity and building resilience to physical climate changes requires significant amounts of capital, presenting a considerable opportunity for the financial sector, especially those first movers who can swiftly identify and assess the risks.

The EBRD’s Green Economy Transition (GET) approach delivers investment capital and technical assistance to help FIs successfully pilot and mainstream specialised financial products that help local businesses improve their energy efficiency, lower their carbon footprint and increase their resilience to climate risks.

GET activities can consist of a standalone project, multiple standalone projects under a larger programme, a component of a standalone project, or a programme financed through financial intermediaries.

Annex 5.8. Financial intermediary operations  provides guidance on the GET eligibility of operations financed through financial intermediaries and typically addressing multiple eligible small or medium-scale investments (“sub- projects”) in specific target sectors, for example, residential, commercial, industrial or public sectors.

Eligibility criteria are defined in an annex to the financing agreement between the EBRD and the financial intermediary (for example, in the form of a policy statement). The eligibility criteria meet both the qualifying principles and criteria of the Bank’s GET approach and performance requirements (PRs) 2, 4 and 9 of the EBRD Environmental and Social Policy (ESP) of May 2019.

The Environmental and Social (E&S) eligibility criteria below have been prepared to assist and to support EBRD’s partner Financial Intermediaries (FIs) who are considering the provision of financing to sponsors/developers of renewable energy projects. This includes both GEFF credit lines and FI finance whose primary purpose is not green investment but whose sub-projects may include GET components.

These criteria set out the specific environmental and social criteria for FI sub-loans involving renewable energy to qualify for GET financing and are additional to the eligibility criteria to meet the Bank’s GET approach. As such, these criteria correspond to the requirement established in EBRD PR9 for Financial Intermediaries, which states that “EBRD may require FIs to adopt and implement environmental and social requirements, depending on the nature of the FI, its business activities, and the level of environmental and social risks and impacts associated with its portfolio and sub-projects, as applicable.”

Prior to approval, all applicable renewables sub-projects are subject to review by EBRD’s Environment and Sustainability Department against these criteria.