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LIFEnews features 2015

LIFE gets new project financing tools

The European Commission and the European Investment Bank (EIB) have launched two new financial instruments to drive investment in energy efficiency, preservation of natural capital and adaptation to climate change.

Signing CeremonyKarmenu Vella, Jonathan Taylor and Miguel Arias Cañete
signing ceremony

The European Commission's contribution to the Natural Capital Financing Facility (NCFF) and the Private Finance for Energy Efficiency (PF4EE) instruments will come through the LIFE programme, expanding its sphere from the provision of action grants to projects and operating grants to non-governmental organisations.

The EIB's Vice President responsible for environment and climate action, Jonathan Taylor, said at a signing ceremony in Brussels on 16 February that much more needs to be done to achieve the challenging climate change mitigation and adaptation objectives set at EU and global level. He added: "It's clear that without the help of other key players no single institution is able to make a significant contribution to achieving those objectives."

According to Mr Taylor, the new instruments "combine Commission and EIB resources in a manner that will deliver a result with a higher impact than that we could have achieved separately. In both instances, the aim is to bring in private sector participation to further increase the impact of our combined resources."

The European Commissioner for Climate Action and Energy, Miguel Arias Cañete, said: "With these new financial instruments, we are putting the money where it matters." He added, "This is a contribution to protecting the climate, saving energy for our citizens and making Europe less dependent on imported energy."

The European Commissioner for Environment, Maritime Affairs and Fisheries, Karmenu Vella, said the instruments show that biodiversity and the economy are not on opposite poles: "Protecting biodiversity creates jobs, stimulates investment and gives European industry a competitive edge."

About NCFF

James RanaivosonJames Ranaivoson, Managerial Advisor
EIB Climate Change and Environment Division

The NCFF instrument will support projects that promote the preservation of Member States' natural capital through loans and equity investments. (For more information on PF4EE, see separate article.) 'Natural capital' is the stock of natural assets in an ecosystem which provide benefits known as ecosystem services. These include vital services such as pollination of plants, natural protection against flooding, and the regulation of our climate.   

James Ranaivoson, Managerial Advisor in EIB's Climate Change and Environment Division, says, "The main objective [of NCFF] is to provide financial solutions to bankable projects that promote conservation and management of natural capital for biodiversity and climate adaptation benefits." He explains that risk factors or regulatory issues can make it difficult to find investment for some natural capital and adaptation projects: "The idea is to demonstrate they have an acceptable return."

Such projects have traditionally been financed by grants, but the Commission and the EIB are keen to attract private sector funding as well. "To achieve this, we need to show it can be done, to provide a proof of concept," says Enrico Canu, Senior Loan Officer in EIB's Climate Change and Environment Division.

Investment methods

Berlaymont buildingBerlaymont building - EC Energy Union Strategy

NCFF will involve three different types of investment by the EIB: direct loans to projects, indirect loans to projects through financial intermediaries, and indirect investment in projects via equity funds. The EIB will provide direct loans to bigger projects, as it typically does, whilst the indirect loans and equity investments will be aimed at smaller projects.

The financial intermediaries providing loans will include commercial banks in EU Member States. The EIB will also consider other suitable intermediaries that would enable it to finance and reach smaller projects, for example, cooperative banks. "This indirect lending and investment will allow us to reach smaller counterparts than would be possible with only direct lending," notes Mr Ranaivoson.

The bank's contribution to NCFF will total €100-125 million, for loans and equity investments during the instrument's pilot phase (2014-2017). The European Commission will provide €50 million as a guarantee for the investments and €10 million for a support facility to help develop the projects. The €60 million budget will be shared equally between the LIFE environment and climate action sub-programmes.

The Commission's support is vital, according to Mr Canu: "The EIB could not do this without its support because of the risk profile of the projects. These will be projects whose business model has not been tested so they will be quite innovative from a financial point of view."

Target project areas

The instrument's beneficiaries may include both public and private entities, such as public authorities, land owners and businesses. Project sizes are generally expected to be between €5 and €15 million, with 9 to 12 operations set to be financed during the pilot stage.

The target areas for projects are as follows:

  • green infrastructure (e.g. green roofs, green walls, ecosystem-based rainwater collection/water reuse systems, flood protection and erosion control);
  • payment for ecosystem services (such as programs to protect and enhance forestry, biodiversity, to reduce water or soil pollution);
  • best practices in biodiversity offsets/compensation beyond legal requirements (for instance, compensation pools for on-site and off-site compensation projects); and
  • pro-biodiversity and adaptation businesses (e.g. sustainable forestry, agriculture, aquaculture, eco-tourism).

Projects that could be funded through NCFF include local green business investments that improve working environments and the delivery of ecosystem services, such as clean air and protection against flooding (e.g. by installing green roofs and harvesting rainwater). Another example might involve private forest owners taking on loans or equity investments to improve forest management, thus preserving natural capital and biodiversity. Interested parties can contact the EIB at the following email address: NCF_Instrument@eib.org 

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