Check against delivery
Ladies and gentlemen,
We speak a lot about climate change and climate action, but we probably don’t spend enough time discussing nature risks and nature loss. Our lands, forests, oceans, rivers and streams provide many vital services to society and business. We use freshwater for drinking and farming, plants for pollination of crops, soil to grow vegetables, wood for building.
The science is clear that we are damaging these ecosystems. Nature and biodiversity have been deteriorating at an alarming rate in recent years. We generally do not understand all the risks involved in these losses and we usually aren’t preparing adequately when making investments in nature.
The European Investment Bank (EIB) is the European Union’s financial arm. With a balance sheet of €600 billion we are probably the largest multilateral development bank in the world.
It is important that we recognize the growing intersection between financial stability and environmental sustainability. Together with our partners, we are working to understand how we are exposed to nature loss and how we can better integrate nature-related risk data into our lending processes.
Nature-related risk scores
At the European Investment Bank, we are aiming to use biodiversity risk scores to help our public and private sector clients move towards a more nature-positive pathway. And we are developing new financial products to help scale up and mobilise nature investments.
Our goal is to make it clear that there are opportunities that come with investing in nature. For example, protecting water resources and pollinators help improve the critical supply chains related to the food and agribusiness sectors. Preventing the degradation of forests can protect the supply of valuable commodities and natural resources on which some sectors rely, such as medicines, timber products, and commodities such as cocoa and coffee. Studies have also shown that nature-positive investment strategies could create millions of jobs around the world.
At the European Investment Bank, we are working hard to understand the nature, climate and social nexus, and how to overcome barriers and scale up future investments:
Beyond this, the EIB’s Environmental and Social Sustainability Framework is the cornerstone of its risk management approach. However, we cannot limit ourselves to managing risks at project level but need to look at managing risks at counterparty level too, just like we already do for climate.
Through the development of a biodiversity risk screening tool:
- We have identified high-impact nature sectors within our loan portfolio, which will help us create targeted strategies for better management and investment results.
- We have identified geographic hotspots around the world that are rich in nature assets or biodiversity, that we can take into account.
- We have outlined areas of our work where we need to better align our risk-assessment processes with guidance being developed by other international institutions, such as the global Network for Greening the Financial System and the European Central Bank
Assessing the climate and biodiversity risk and impacts of our counterparties will allow the EIB to shape its strategic, financing and portfolio monitoring decisions and help us work towards meeting the Global Biodiversity Framework targets.
Lower interest rates for nature
Though we are not yet looking at lower interest rates for nature-positive projects, we are exploring the use of performance-based instruments such as sustainability linked loans or sovereign policy-based guarantees like the one we have done together with the European Commission and Inter-American Development Bank in Barbados.
We do, however, think there might be potential for some nature-related premium in loan pricing which could lead to an increase in the number and size of projects focused on ecosystem restoration, biodiversity conservation, and sustainable resource management.
To make progress on this, as with performance-based instruments, scientifically sound metrics that quantify the environmental and social benefits of projects are critical.
Transparent reporting and accountability mechanisms are also essential to prevent greenwashing in these types of instruments and ensure that projects are delivering genuine environmental and social benefits. The market won’t invest in nature projects if we don’t have reliable and comparable data.
How to support nature-related transition planning
The obstacles for the EIB are the same obstacles other institutions are facing.
To address some of these challenges, the International Platform on Sustainable Finance Nature Working Group, which the EIB is co-chairing with the European Commission, is developing nature transition principles.
They will tackle, for example, inadequate policy frameworks to help more countries adopt clear policies for biodiversity and nature-based solutions, that will attract more investment from development banks and the private sector.
And then, together with our fellow multilateral development banks, we are working to address:
- Lack of financial incentives for nature solutions: Nature-based solutions like reforestation and wetland restoration often lack direct financial returns or have long payback periods. Governments should offer more financial incentives, like tax breaks or subsidies, to attract private investment.
- Lack of good data and measurement tools: Accurate information on biodiversity loss and ecosystems distress is hard to obtain. We need more innovation in good data collection and management.
- Fragmented funding streams: Funding for nature-related projects is often small and fragmented. We should try to group smaller projects together into bigger financial packages through green finance instruments that can reduce costs and make investments more attractive.
Ladies and gentlemen, multilateral development banks like the European Investment Bank play a key role in scaling up green investments. Together with our partners we will continue to work hard to make nature and society more resilient, equitable and sustainable.