The EU Recovery Fund and the Path to Environmental Sustainability

The European recovery fund marks a “seminal moment”, reminiscent of US President Franklin D. Roosevelt’s ‘New Deal’, according to Andrew McDowell, Vice President of the European Investment Bank (‘EIB’).

The EUR750-billion fund is not only “about using the EU budget for the first time ever as a stabilisation and stimulating tool”, McDowell said on a recent episode of ‘A Sustainable Future’ podcast, hosted by Man Group’s Co-Head of Responsible Investment Jason Mitchell. It is also “about using those resources to make sure the recovery generates a different type of economy, a recovery that leads to us to environmental sustainability.”

Indeed, more than two-thirds of the recovery fund is being proposed for the member states’ resilience and recovery plans. “These are plans that the member states will be asked to put together to show how they intend to finance new investments to accelerate the green and digital agenda,” he said. “These are intended to be well-aligned with the new national energy and climate plans that each of the member states have put together to show how they intend to deliver their part of the 50% reduction in greenhouse gas emissions across the Union by 2030.”

“There is also going to be extensive new guarantees from the EU budget underpinned by the new debt issuance to the EIB, which will help the bank finance a lot of private-sector investments that are going to be necessary for the European green deal, in particular in renewable energy but also in energy efficiency and public transportation, in new clean-tech innovations and so on,” McDowell said.

Indeed, as the lending arm of the European Union and the largest multilateral financial institution in the world, the EIB’s mission is to support investment projects that help deliver on the policy goals of the EU. Where a decade ago this involved aiding those still reeling from the effects of the Global Financial Crisis, recent years have made it clear to McDowell and the EIB that the bank would have a role in dealing with the climate crisis and that it would be its top priority. Culminating in its ambitious new climate strategy and energy lending policy unveiled at the end of 2019, climate change and the sustainable energy transition is now central to all the bank’s actions over the next five to 10 years.

This explicit mission has strengthened the relationship the EIB has with its shareholders, says McDowell. “I think that’s going to obviously give people some confidence that the Union has answers that calls for it to play a greater role, not just in response to the COVID-19 crisis, but also the longer-term climate and environmental crisis.

The guarantees given to the EIB following the agreement of the recovery fund will help accelerate the bank’s plans and provide further assistance for those member states who are more reliant on fossil fuel energy production with their transition to more sustainable sources.

McDowell hopes that the level of commitment from the EU and the tangible actions taken by the EIB – for instance, the end on financing fossil fuel energy projects from the end of 2021 – will be a powerful signal to other institutions about the role banks and the investment community can play.

Furthermore, a climate-first mission can be a strong motivational force for an organisation’s culture and recruitment efforts, said McDowell: “It’s often the single greatest reason people want to come and work for us.”

Comments may have been edited and condensed for editorial purposes.

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