New EU report on mobilising private finance for climate from ClimateBonds+friends: green the Capital Markets Union, expand credit support, green securitization & more

Last week the European Commission’s Directorate-General of Climate published report on mobilising private finance for climate, co-authored by the Climate Bonds Initiative.

The report, Finance the Future, provides EU policymakers with an “actionable toolbox” for mobilising private finance for climate-friendly investments, focusing on tapping into the capital pools of institutional investors. It highlights how actions to increase climate-friendly investments can be integrated with the current financial policy agenda in the EU, in particular the Investment Plan for Europe, launched by the President of the Commission back in November, and the Capital Markets Union green paper which was just out in February.

Download the full report at

The estimated share of climate-friendly assets in the portfolios of EU institutional investors is between 1-2%. A lack of common definitions for climate-friendly assets and data makes it difficult to estimate and track climate-friendly assets. Clearly however, the order of magnitude is too low compared to investment needs. In the EU alone, the annual climate investment needs to 2020 are an estimated EUR200bn, significantly more than present levels. Untapped potential from institutional investors can contribute to closing this gap.

The report includes lots of concrete action points for EU policymakers that will fit with the current policy agenda of the Commission. The shorter-term policy options are all about making urgent climate-friendly assets more attractive for institutional investors. Some highlights for the green bond agenda:

  • Increase the volume and acceptance of green bonds with more cornerstone issuance and investment from the EIB, EBRD and others; integrate green bonds in technical support programmes, such as the proposed Investment Hub under the Investment Plan. “Investing in Europe” workshops proposed under the Investment Plan should include sessions on green bond investment opportunities. The EC can convene EU covered bond regulators to explore the development of green covered bonds, and work with the European Banking Authority (EBA) to integrate issues related to green covered bonds in their next best practice guidelines.
  • Improve the risk-return profile of green bonds through credit enhancement initiatives. This includes making existing and proposed credit enhancement initiatives — such as the Investment Plan’s proposed European Fund for Strategic Investments (EFSI) and the Project Bond Initiative — prioritise green bonds. Renewable energy investments should be brought into the eligibility criteria for an extended Project Bond Initiative. Additionally, EU policymakers should explore setting up a separate Green Project Bond Initiative specifically designed for climate-friendly investments.
  • Supporting green securitisation. Support for ‘high-level securitisation’ in the context of the Capital Markets Union agenda should place a particular emphasis on green securitisation. This includes supporting the development of standards loan contracts for climate-friendly assets, and supporting warehousing structures – such as the EIB’s proposed Renewable Energy Platform for Institutional Investors (REPIN). Adding credit enhancement to the green asset-backed securities where required is another potential action point: a model to follow already exists for this in the SME Initiative.                         
  • Improve accounting & disclosure of financial products. For green bonds this means supporting the development of standards for green bonds. The Capital Markets Union green paper explicitly highlights that standardisation is a mechanism to kick-start markets.

The report doesn’t stop there, though. Additional action areas explored includes the potential of policy risk insurance; the role of the EU in engaging the financial sector in the international climate negotiations and a set of medium- and longer-term policy options targeting investors’ decision-making framework. Action areas here include lengthening time horizons of institutional investors; explore the use of tax incentives on climate-friendly financial products (such as green bonds); improve governance of institutional investors, accounting and disclosure of financial institutions.

The report gives EU policymakers more than enough options to give a boost to sorely needed green infrastructure in the EU.

Happily, many of the recommendations were echoed by a recently published paper from the The Institutional Investors Group on Climate Change “12 fixes to the Juncker Plan”. The IIGCC is a voice to be reckoned with: they represent more than 100 European investors worth a combined EUR10 trillion.

Lead partners in the project were the Frankfurt School of Finance and Management’s UNEP Collaborating Centre for Climate & Sustainable Energy Finance, CDC Climat and Triple E Consulting, with 2 degrees Investing also involved in report writing. Others involved were CDP, Get@C and ClimateKos. The European Investment Bank provided valuable input.

Next step: We’ll be holding seminars around Europe to discuss the findings of the report – details to follow.