A historic event, the European Investment Bank opens its doors (a bit)

Next week will witness a historic event: the first meeting exclusively between the European Investment Bank's Board of Directors [1] and civil society organisations.

The meeting is a sign of how the notoriously inscrutable EIB is very slowly opening up and discussing its activities with civil society. It is also a result of the ongoing efforts of Bankwatch and other organisations to make the EIB accept that it is a European public institution and as such accountable to the public.

Three big topics will be discussed, the EIB's activities under the climate action programme, the EIB's development impacts in the Global South, and the bank's lending through financial intermediaries. Let me shortly outline these topics and Bankwatch's position on them:

Climate action at the European Investment Bank

The EIB likes to point out that in 2010 it used 21 billion euros (or 20% of its overall lending) for climate action, namely investments to support "innovative clean and climate-resilient technologies" for both mitigation and adaptation measures - mainly inside the EU.

21 billion is an impressive figure indeed, but the EIB's lofty self portrayal as a financial leader in climate action comes crashing down when we have a look at the actual investments:

• Shockingly, two thirds of the EIB's research and development component of climate action have gone to the European car industry. Certainly, the automotive sector should quickly develop less carbon intensive engines, but is this really the best use of a public finance institution's money?
• Even more absurd is the fact that even lending to coal power plants (yes, coal power plants!) is considered climate action by the EIB.
• While the EIB's support for energy efficiency measures and renewable energy has indeed increased in 2010 , its lending for fossil fuels has increased as well reaching a number of EUR 5 billion.

One can't say the EIB exhibits "climate inaction", but in fact a lot of its action is fueling climate change instead of mitigating it.

The EIB's role in supporting development objectives

When financing projects outside the EU – including the Southern Mediterranean, where EIB activity is planned to be increased following the revolutions there - the bank is instructed by EU policy and by its mandate to achieve social and environmental goals beyond the financial bottom line.

Much can be and has been said about the EIB's worrying track record in the Global South. Here only a few aspects:

• Human rights and inclusive development at best play a secondary role for EIB investments in countries with a lack of democracy. EIB investments have time and again benefited Western companies and/or prioritised EU energy security concerns.
• At the same time, local communities are usually not informed properly, let alone involved in decisions on planned infrastructure projects.
• When investing outside the EU, the bank's Environmental and Social Principles and Standards are not seldom secondary to a focus on economic growth, resulting in unsustainable development.
• Too often, EIB investments in the Global South pursue private sector development and economic growth too naively, trusting in the shallow promise of “trickle down effects”. The EIB lacks a clear strategy, well-defined indicators and the staff to measure them in order to systematically foster inclusive and sustainable development, and benefits for local people.

As it looks so far, the EIB is not fit for development.

EIB lending through financial intermediaries

Lending through financial intermediaries or 'global loans' are a form of funding which, unlike the EIB's standard project financing, is provided to third party intermediaries (predominantly commercial banks), who then lend out the funds along with their own contribution to borrowers.

The EIB's 'global loan' lending (representing more than 20% of its overall lending) has the aim to help support the small- and medium-sized enterprise (SME) sector. However,

• At least in central and eastern Europe, intermediary banks were very hesitant to pass on the EIB's money to enterprises and apparently preferred to consolidate their balance sheets, while SMEs were struggling to find credits.
• A more fundamental problem is the lack of transparency of the global loans lending. Information about benefits transferred to SMEs, details on financed projects, their impacts and financial data are usually hidden under a veil of commercial confidentiality. It is basically impossible for the public to verify that EIB money did not support for example weapons production.
• In fact, by extending global loans also to banks that have no ethical standards whatsoever and provide financing in questionable sectors (Erste Hungary for instance), EIB money could indirectly contribute to these.
• The EIB has to impose stronger conditions on the financial intermediaries to make sure its money is supporting the right things and that benefits are passed on to SMEs – specifically also in the under-financed energy efficiency and renewable energy sectors.

These are some of the points we will raise on Monday. I'm looking forward to it and I appreciate the opportunity to discuss with the EIB's directors.

We'll write another blog post after the meeting, so do stay tuned if you want to know how it went.

UPDATE: Read the blog post after the meeting here.

Notes

1. The Board of Directors is the EIB's decision-making body deciding about EIB involvement in projects.