EU to channel €200bn into low carbon investment via strategic fund and create sustainable finance expert group

The European Commission (EC) is to channel €200bn of its giant European Fund for Strategic Investment (EFSI) into low carbon energy, with EFSI itself expanded from €300bn to €500bn by 2020 and to €630bn by 2022, under moves outlined in the State of the Union 2016 speech yesterday (Sep 14) by Jean-Claude Juncker, Commission president.
The EFSI is the centrepiece of the EU’s plans to boost investment, jobs and growth. The huge green finance commitment will seriously boost Europe’s low carbon energy transition. In his speech, Juncker said that ‘swift ratification’ of the COP21 Paris Agreement by the EU and Member States is a policy priority, calling delays “ridiculous”.
Outlining how the EC will ensure that EFSI projects are sustainable and in line with COP21 objectives, it said the fund would focus on sustainable investments in all sectors to contribute to meeting COP21 targets. The EC has proposed that at least 40% (€200bn) of EFSI projects under the infrastructure and innovation window should contribute to climate action in line with COP21 objectives. In addition, it has proposed that the European Investment Advisory Hub, which is overseeing infrastructure investment plans, further supports climate-friendly projects, in particular in the context of COP21.
The Commission places a significant focus on energy within EFSI. The majority of projects approved so far for EFSI financing in the energy sector (23% of EFSI investment) cover renewable energy and energy efficiency. A further 5% of EFSI investment covers the environment and resource efficiency sector. As a result, the EC says a third of EFSI investments so far support environmentally-friendly projects.
Juncker says the EC is also backing quick adoption of Energy Union and Climate Change proposals such as proposed reforms of the EU Emissions Trading System, and adoption of the EU Action Plan for the Circular Economy.In addition, the EC will establish an expert group to develop what it calls a “comprehensive European strategy on sustainable finance”, that will support investment in green technologies and ‘ensure’ that the financial system can finance sustainable growth, it said in an announcement accompanying the speech.
The Commission said the expert group would be set up within months. Its work will feed into the EU’s Capital Markets Union (CMU) plans, which aim to better connect savings to investment and broaden financing options for retail and institutional investors.
More specifically, under the CMU plans, the EC said that at least 20% of the EU 2014-2020 budget for climate action would be earmarked for areas such as resource efficiency and building a platform for the circular economy. The CMU Action Plan has also identified the need for EU Green Bond Standards, which will be likely be part of the work of the expert group.
On ESG issues, the Commission noted that it had already adopted mandatory ESG disclosure requirements for some large companies and will soon adopt non-binding guidelines on a methodology for reporting ESG information to investors and consumers. The EC said it was also still assessing a recent consultation on long-term and sustainable investment which has emphasised the importance of ESG issues for the healthy longer-term performance of companies and investors.
Juncker also announced the creation of a new European External Investment Plan that will use €3.5bn of EU budget funds to mobilise up to €88bn in total public/private investment with a focus on achieving the UN Sustainable Development Goals.
Ingrid Holmes, director at E3G, the London-based environmental consultant, said: “An expanded EFSI with a clear focus on supporting climate-resilient investment is a strong signal the EU is intent on delivering a sustainable future. This will be a core tool to help the EU to become a global leader in renewable energy and put energy efficiency first.”