Financial Law
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Overview
The energy, climate change and sustainability (ECCS) focus area of the Legal Transition Programme (LTP) cover a wide range of initiatives in the EBRD region. The agenda of the focus area could be broadly divided into three categories: (a) Sustainability Governance and Regulation; (b) Climate Change Governance; and (c) Energy Market Legal Reforms.
The EBRD’s commitment to sustainable development
The concept of sustainability has grown in prominence in the recent years and currently is at the epicentre of international policy-making. Sustainability is closely associated with sustainable development and can be defined as ‘’meeting the needs of the present generation without compromising the ability of future generations to meet their own needs’’ (UN Brundtland Report, 1987). Governments, businesses, international organisations and other stakeholders play a crucial role in achieving the Sustainable Development Goals (SDGs). The need for a coordinated approach between these actors has been further highlighted by the 2015 Paris Agreement and the aim to keep the average global temperature rise “well below 2 degrees Celsius” compared with pre-industrial levels. Such a coordinated approach entails clearly defined commitments, adequate (sustainable) financing and tailored policy reforms.
At the national level, each economy has set out in its Nationally Determined Contributions (NDCs) the ways it plans to contribute to this collective endeavour following the Paris Agreement. Multilateral Development Banks (MDBs) constitute drivers of change by providing adequate financing in line with the Addis Ababa Action Agenda (AAAA) and are frontrunners of policy reforms by internalising sustainability objectives.
The EBRD’s commitment to sustainable development serves as the cornerstone of the Bank’s operations and is enshrined in its foundation document, the Agreement Establishing the Bank, which specifically highlights the commitment to ‘’promote in the full range of its activities environmentally sound and sustainable development’’. To this end, the EBRD and other MDBs signed a joint declaration in 2018 committing to align their activities with the goals of the Paris Agreement, and in 2019, pledged in a joint statement, to increase global climate action investments each year to US$ 175 billion by 2025. In addition, the EBRD has adopted and revised its core sustainability-linked policies and strategies, including its Green Economy Transition (GET) 2021-2025 approach as well as its Environmental and Social Policy (ESP), and amended its concept of ‘transition qualities’ to incorporate and prioritise the ‘green’ dimension as an integral aspect of economic decision-making.
The LTP’s role
LTP is the EBRD’s landmark initiative to create a stable, predictable and investor-friendly legal environment in the economies we invest in. The Legal Transition Programme engages in policy dialogue, conducts assessments and training events and contributes to the development of action plans, legislation and regulation, as well as new practices. In particular, the ECCS focus area supports the implementation of the SDGs and other climate-related objectives under the Paris Agreement by providing policy advice and technical assistance to sovereigns, corporates and standard-setting bodies to adopt sustainable practices and strategies, enhance transparency and develop sustainability-sensitive legislation and regulations.
Examples of some core initiatives are presented below:
- Sustainability Governance and Regulation is an umbrella category covering initiatives ranging from enhancing transparency of environmental, social and governance (ESG) disclosures to developing good practices to tackle food loss and waste (FLW). Indicative examples of recent projects include: the development of ESG Guidelines for the Bucharest Stock Exchange (BVB), Romania; promoting ESG Reporting in the Warsaw Stock Exchange (WSE), Poland and the Macedonian Stock Exchange (MSE), North Macedonia; and guidelines for the reduction of FLW at the retail level in Greece and Turkey.
- Climate Change Governance initiatives aim to enable the transition to a low-carbon economy by assessing climate strategies and/or NDCs, and supporting the private sector to develop the necessary corporate governance mechanisms which will allow them to better identify, assess, manage and disclose their climate-related risks and opportunities. The team has worked with and undertaken a series of projects within the auspices of the EBRD Corporate Climate Governance Facility, including the development of a Corporate Climate Governance Guidance (‘Toolkit’) for EBRD’s non-executive directors (NEDs) and the development and subsequent implementation of Corporate Governance Action Plans (CCGAPs) in investee companies.
- Energy Market Legal Reforms target the transition to a net-zero economy by supporting further investments in the renewable energy sector via the strengthening of institutional structures and the adoption of energy efficient policies, legislation and regulations. Indicative examples of recent projects include the development of the first Greek Offshore Wind Law and technical assistance to the governments of Romania and Moldova to amend their Energy Law and Gas Law respectively.
Knowledge Exchange and Public Engagement
In order to raise awareness and to advance the initiatives under its sustainability agenda, the ECCS team collaborates with a number of partners on policy, standards, guidelines, and capacity building. An indicative example is the partnership with the Climate Governance Initiative (CGI), endorsed by the World Economic Forum (WEF), to build the understanding of NEDs and senior management of businesses and financial institutions around climate change. The partnership has resulted in the launch of two dedicated platforms, also known as ‘Chapter Zero’; one in Egypt and one covering Ukraine, Georgia and Armenia. The team has also worked with the Food and Agriculture Organization (FAO) to produce an investment brief which analysed the role of MDBs in reducing FLW and in setting best practice standards. Recently, the team has been with the Network for Greening the Financial System concerning climate-related litigation trends and risks. The team is also due to commence a project in 2023 with the International Institute for the Unification of Private Law (UNIDROIT) to assess sustainability and climate change due diligence practices on global value chains.
National Energy Efficiency Action Plan
Despite awareness of the importance of introducing energy efficiency standards and measures, little has been done in many of the economies EBRD invests in. Formulating a dedicated policy approach that includes an assessment of the energy efficiency potential and policy targets in various sectors would help improve energy efficiency standards and measures, and ensure their alignment with international standards and best practices. The EBRD’s Legal Transition Programme helps governments with the drafting of strategic policy documents. Such policy documents set the overall and intermediate national indicative energy savings targets for the public and private sectors, and work towards proposing concrete measures and actions to meet these policy targets, including the introduction of legal and regulatory mechanisms to implement them.
Energy Performance of Buildings
Buildings account for up to 40% of energy consumption in many economies EBRD invests in. A significant number of these buildings are not properly insulated or heated which results in high energy bills, inefficient energy spending, deterioration of the building fabric and poor living conditions. There is great potential for significant energy saving, but relatively little investment has been made in this area in many parts of the EBRD region. It is the legal and regulatory framework which is often a key barrier to attracting adequate sustainable investments. In response, the EBRD has developed local-bank credit lines which provide financing for energy-saving measures in a number of economies; some of these measures include the insulation of outdoor walls and roofs, replacement of windows, and installing heat pumps, solar thermal collectors and high-efficiency gas and biomass boilers.
We are supporting governments to develop the necessary legal and regulatory framework for the building sector, in order to enable, sustain and maximise further private-sector financing of building energy efficiency. Even though many residential buildings in the EBRD regions have been privatised, the management structure (including operation and maintenance) is rarely adequate and often characterised by conflicting responsibilities between apartment owners and local state authorities (e.g. related to ownership of and responsibility for common areas of residential buildings and/or the land).
To overcome these deficiencies, the LTP supports governments to introduce changes to building legislation and housing codes to ensure the clear rights and responsibilities of stakeholders, the minimum energy efficiency performance standards of stakeholders, inspection and auditing. A gradual movement to cost recovery in the energy sector and the avoidance of cross subsidies is another essential component of a targeted energy efficiency policy.
Promoting Sustainable Practices in Food Retail
In accordance with the objectives of the EBRD's Agribusiness Strategy (2019-2023) and the Green Economy Transition Approach (GET), the EBRD supports sustainable private sector investment in food and agriculture and engages with national authorities and stakeholders.The objective of the Food Loss and Waste Guidelines for Greece and Türkiye (“the Guidelines”) is to identify and promote policies, regulatory measures and business practices that would have a positive impact on prevention, reduction and management of FLW at supply and retail levels. In addition, the Guidelines highlight good sector practices for the integration of the circular economy approach into the relevant stages of the food supply chain. This initiative has been implemented in partnership with FAO.