2.3. GREENING INVESTMENTS

2.3.1. Background to greening investments

The Global Gateway is a key European strategy to boost smart, clean and secure links in digital, energy and transport sectors and to strengthen health, education and research systems across the world. It has become a cornerstone of EU cooperation that is largely implemented through support to investments in the form of blended finance and budgetary guarantees. The Global Gateway aims to invest in developing infrastructures that are clean, climate resilient and aligned with pathways towards net zero emissions; it also promotes the implementation of the G20 Principles for Quality Infrastructure Investments .

Under the NDICI-Global Europe, the European Fund for Sustainable Development Plus (EFSD+) provides an umbrella for both blended finance and budgetary guarantee operations in EU external actions, and thus the framework to implement the Global Gateway. Environmental sustainability, climate resilience and low carbon development are key elements of the EFSD+ (as per Art. 31.2 of the NDICI-Global Europe Regulation). Investments need to align to the DNH principle of the NDICI-Global Europe Regulation as well as to the Global Gateway’s ‘green and clean’ principle.

The EU contribution to an investment should result in an additionality, which can be environmental, and which is expected to go beyond regulatory obligations[33]. The preparation of Environmental Impact Assessments cannot be considered an additionality as it is a legal requirement in most cases.  

In the case of blending operations and budgetary guarantees it is the environmental and social standards and safeguards of the lead financial institution (LFI)[34] that are applicable. However, ensuring the integration of environment and climate change remains an obligation for the Commission, and inadequate attention to these elements can also pose a significant reputational risk for the organisation.

Although FIs that act as Lead FIs are pillar-assessed, for the time being the pillar assessment does not assess their environmental and social systems, standards and safeguards.

Recent European policies and legislation on sustainable finance[35] translate international commitments[36] into a framework for European FIs to integrate the sustainability objectives and upgrade their environmental policies and systems. Most of them have pledged for net zero strategies, and the CBD COP15 Decision on Resource Mobilisation calls for alignment of their portfolios with goals and targets of the Global Biodiversity Framework. Nevertheless, integrating recent pledges and regulation in investment processes and cascading implementation of sustainability strategies down to the projects on the ground is complex. Additionally, not all EU partner FIs fall under the European regulations.

Click here for ideas on how the use of blending and guarantees can be geared to support environmental and climate objectives.

The entry points for the EU to integrate environment and climate change in blended finance and guarantees are very similar, although the processes are different. In all cases it is essential that environment and climate change concerns are addressed upstream in the process, as early as possible, and that these remain a constant element throughout the whole cycle.

2.3.2. Main entry points in greening blended finance

✅ Engage in a green dialogue with the financial institutions. The dialogue with financial institutions held by DGs INTPA and NEAR, and EU Delegations must convey the importance that the Commission places on maximising opportunities to contribute to the green transition and ensuring compliance with the DNH and ‘green and clean’ principles. This dialogue can touch on any issues of concern, such as prioritisation of investments based on green criteria, the use of robust environmental safeguards/standards, and ensuring adequate environmental and climate risk monitoring and reporting provisions.

✅ Understand the applicable environmental standards and safeguards of the Lead Financial Institution (LFI). In the case of environment and climate risk screening and assessment, verify that the requirements are aligned to those under the EU EIA Directive^[37]. If not aligned, the application of stricter standards can be requested from the LFI. If intermediary financial institutions will be involved, enquire about the standards and safeguards that will be applied and how the LFI is ensuring their quality, possibly by supporting the intermediary institutions to build their capacities and upgrade their standards.

✅ Understand the environment and climate risks of the project[38]. Make sure the LFI clearly indicates the environment and climate risk category of the project, and whether an Environmental Impact Assessment (EIA), and/or a Climate Risk Assessment (CRA)^[39] are required.

Request the LFI to provide a summary of the findings of any EIA or CRA that was prepared, including the key risks identified and how they are addressed in the project design and monitoring framework. In the case of EIB, this information should be contained in the Environmental & Social Data Sheet.

If considered necessary, request the full assessment reports for their review, which should be shared by the LFI as early as possible. It is pertinent to recall that EIA-related documents (especially the EIA report) must be publicly available. In case of doubts, check the quality of these documents; INTPA and NEAR thematic units in HQ can provide support.

If the EIA has not yet been prepared, and if the EIA ToR are open for comments, think of promoting ambition beyond the minimum requirements, for example asking for the potential for nature-based solutions to be explored as part of the project’s design. Other relevant document that should be shared (if available) include biodiversity management plans and Environmental Management Plans to avoid, minimise, restore or offset negative impacts.

The INTPA-NEAR tool for the screening of investment project pipelines (Annex 13) can be used to get an initial appreciation of the potential environmental and climate-related risks.

✅ Pre-TAM (Technical Assistance Meeting) review of applications. The TAM meeting should be used mainly to clarify any outstanding concerns to ensure the maximisation of opportunities and compliance with the ‘do no harm’ principle. If there are grounds to believe that the project does not comply with the DNH/DNSH and the ‘green and clean’ principles, or if the project is not compliant with Art. 29 (of the NDICI-Global Europe Regulation), the project should not be supported.

It may be the case that the first knowledge of a project comes with the blending application submitted ahead of the TAM meeting. In this case the considerations highlighted above (ascertaining the quality of the applicable environmental safeguards and standards, and understanding the environmental and climate risks of the project) should be addressed. Approval may be given conditioned to the satisfactory response to any environment or climate-related concerns identified.

In addition to the points already highlighted, the feedback provided at the TAM meeting must be based on a review of the blending application that should pay particular attention to the following elements:

• Ensure that the OECD DAC Rio markers and the policy markers for aid to environment and DRR are correctly scored. Please refer to Annex 2 for guidance on the use of the Rio markers.
• If climate change mitigation, climate change adaptation, biodiversity, environment or combating desertification are indicated as ‘significant’ or ‘principal’ objectives:
  • The issues in relation to the relevant themes should be described in the context. This is particularly important when claiming contributions to climate change adaptation, as the climate vulnerability context that will be addressed should be clearly indicated.
  • The description of the intervention, the results framework and the activities must clearly show that the themes concerned are addressed to a significant extent.
• If climate change mitigation is a principal objective, check the qualification and quantification of the expected CO₂eq emissions reductions.
• The context must indicate the alignment to environmental and climate policies - such as the European Green Deal -, and consistency with the DNSH principle.
• If relevant, environmental and climate risks should be indicated in the risk assessment.
• If the EU support has an environmental additionality, this must be indicated. Remember that completion of mandatory requirements, such as an Environmental Impact Assessment, does not constitute an additionality.
• The monitoring, reporting and evaluation must ensure the implementation of any environmental and/or climate risk management plans.
• Review and identify possible missed opportunities to enhance positive contributions to environment and climate, such as synergies for biodiversity and climate co-benefits, and alternatives.

Considerations related to contracting, monitoring and evaluations, including due diligence provisions, are common to both blended finance and budgetary guarantees, and are described in section 2.3.4.

2.3.3. Main entry points in greening budgetary guarantees

Although most elements are common, the entry points for the greening of budgetary guarantees are slightly different for the cases of EIB and open architecture guarantees. The differences are highlighted below.

✅ Include environment and climate change in the dialogue with the financial institutions. Please refer to the point on green dialogue with financial institutions in the section 2.3.2 on blended finance above.

✅ Contribute to the investment pipelines. In dialogue with finance institutions and national partners, proactively identify investment opportunities that contribute to the green transition.

✅ Review of Proposed Investment Programmes (PIP) (relevant for open architecture guarantees). The applications for PIPs must be reviewed from an environment and climate change integration perspective, both to maximise positive contributions and to ensure compliance with the DNH principle. Although not strictly corresponding, the orientations to review an application for blended finance can also be used to review a PIP application.

✅ Screen investment pipelines from an environment and climate change integration perspective.

The screening of investment pipelines tool allows to assess investments based on their expected contributions to the green transition and their environmental and climate risks; it provides guidance on aspects that can be addressed in the dialogue with finance partners – including the regular pipeline review meetings - and in the review of more detailed applications.

✅ Understand the applicable environmental standards and safeguards of the LFI. Please refer to the section 2.3.2 on blending operations. The EIB environmental and social standards can be consulted here.

✅ Understand the environment and climate risks of the project. Please refer to the section 2.3.2 on blending operations. In the case of EIB guarantees, the review of the pipelines will already provide an initial orientation of priorities and concerns that can be further examined when more information on the project is made available.

✅ Review of applications and Art. 19 consultations. Please refer to the section 2.3.2 on blending operations. In the case of EIB the Article 19 consultations offer an additional entry point, where the Commission can give a positive opinion, a positive opinion with comments (to which EIB must respond) or a negative opinion. If a project is non-compliant with Art. 29 of the NDICI-Global Europe Regulation, or significant and unacceptable adverse impacts on the environment are expected, a negative opinion should be given. A positive opinion with comments should be given if there are significant environment or climate-related concerns that need to be clarified.

2.3.4. Greening the contracting and monitoring of investments

Contracting and monitoring are under the responsibility of the lead financial institution. Nevertheless, the Commission and EU Delegations must ensure that the greening opportunities and environmental risk mitigation and management measures are effectively implemented and monitored.

✅ Ensure that the guarantee and blending agreements address key environmental and climate change concerns. The environmental standards and safeguards applicable to the project should be stipulated. 

The guarantee and blending agreements with the different lead FIs should include a clause to ensure environmental objectives will be implemented by the different financial partners along the investment chain.

The use of green procurement should be promoted, in which case the applicable green procurement procedures and criteria should be referred to in the guarantee/blending agreement.

✅ Ensure adequate environment and climate impact mitigation and risk management measures. Make sure that recommendations from the EIA and/or CRA are integrated in the project design, and that the Environmental Management Plan (EMP) (or Environmental and Social Management Plan – ESMP) are reflected in the project’s monitoring framework.

Guarantee and blending agreements should indicate the key findings of any EIA or CRA that were prepared, and the environmental and climate risk management measures that must be implemented. These may be specified in a separate document annexed to the agreement (e.g. the Environmental and Social Data Sheet in the case of EIB).

✅ Monitoring. Depending on the environmental and climate risks of the project, the Commission/EU Delegation may decide to follow-up more closely on the implementation of the project and its EMP. This can take place by accompanying monitoring missions organised by the Lead FI or a ROM (for blending). In any case, it is recommended that delegations check the monitoring reports prepared by the LFI.

If financial intermediaries are involved, it is recommended that technical assistance is provided by the lead FI to enhance their environmental and social systems and standards. It would be in the interest of the Commission to be kept informed of its implementation by the LFI.

2.3.5. Greening evaluations: learning from greening of blending and guarantees

✅ Use the opportunities offered by evaluations to measure the effectiveness and efficiency of environment and climate change integration into investments. Some questions that can be addressed in mid-term and final evaluations include, inter alia:

• Were the environmental and climate risk mitigation measures identified at the start effective at preventing adverse impacts on the environment and managing climate risks?
• Did the investment effectively contribute to the environment and/or climate objectives it claimed? Which were the main environmental impacts? Key success factors?

✅ Consider the organisation of an audit- in coordination with the LFI - in particular if there are high environmental and climate risks, to check the correct implementation of the applicable environmental and social safeguards and standards.

2.3.6. Seeking more effective greening of investments at national level: promoting upstream opportunities

✅ Promote the integration of environment and climate change in sector planning. Outside of the investments pipeline per se, it is encouraged to promote the integration of environment and climate change in government sector planning processes, so that future projects which are identified are aligned to environmentally-integrated sector plans and strategies. To this effect, Strategic Environmental Assessments (SEA) can be promoted jointly with other development partners.

✅ Promote the greening of investments through upstream green finance frameworks. The EU is engaged in promoting upstream financial frameworks and instruments to green financial systems in partner countries and financial institutions. Current initiatives include, inter alia, the promotion of green bonds, sustainable finance taxonomies and integrated national financial frameworks (INFF). Refer to Annex 16 on greening investments through upstream green finance frameworks for guidance on such opportunities.

References

[1] The Blending Guidelines provides clarifications on additionality of EU support in blending operations. 

[1] The lead financial institution is the pillar-assessed IFI which carries the project and gets into contractual arrangements with the EU. Other IFIs may be involved as co-investors.

[1] The European Sustainable Finance Strategy (ESFS), including the EU Taxonomy for sustainable activities, the Sustainable Finance Disclosures Regulation (SFDR), and the upcoming Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD).

[1] Including the 2030 Agenda for Sustainable Development (2015), Agenda 2063, the Addis Ababa Action Agenda (2015), the Paris Agreement on Climate Change (2015), the Sendai Framework for Disaster Risk Reduction (2015-2030), and the UN Security Council Resolution 2282 (2016) on sustaining peace and the Global Biodiversity Framework (2021).