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Covid recovery and the green transition: What can promotional banks do?

What is the role of promotional banks in financing the green transition?


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Governments responded to the severity of the COVID19 pandemic and the ensuing economic crisis with rapid blanket support to firms and households. As European economies start to reopen, the opportunity arises to steer the recovery along a sustainable and inclusive path. In line with the goal of achieving carbon neutrality by 2050, the European Commission, in its ‘Fit for 55’ proposal, has set ambitious medium-term targets accompanied by a comprehensive package of policies. Implementing these policies and effectively reducing CO2 emissions by 55% by 2030 will require mobilising significant investment, from both public and private sources. The European Commission estimates that an additional €360 billion of annual investments will be needed until 2030, going mostly towards renewable electricity production, investments in energy efficiency and electrifying transport.

Promotional banks have a pivotal role to play in financing this transition. Decarbonisation is characterised by important uncertainty, surrounding both technological opportunities and policy commitments. By providing patient long-term financing, promotional banks can bring much needed financial stability. The key question facing promotional banks concerns the design of financial instruments and risk-sharing mechanisms that will crowd in private investments. In particular, how can promotional banks leverage their expertise to establish credible standards for green bonds? Furthermore, given the current context of post-pandemic fiscal consolidation, what is their role in protecting public investment into decarbonisation from spending cuts? Finally, the scale at which climate change needs to be tackled requires the coordinated action of national and multilateral public investment banks, including beyond Europe.