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Green transformation of the Indian economy gains momentum with EIB's investments

IBEF, Knowledge Centre

Jul 07, 2021 15:17

Role of the EIB in Climate and Environmental Sustainability
The European Investment Bank (EIB) is one of the largest global investors in climate action. It currently operates in over 150 countries with a mandate to set up shop in any developing country. Its main objective is to provide funding and expertise for robust and sustainable private and public-sector investment projects in developing countries. Under its Climate Bank Roadmap 2021-25, the EIB is committed to increase lending to climate action and green activities to >50% of its total financing activities by 2025. The bank will cease financing fossil fuels and airport expansions by 2022, but will continue to support major road construction projects. Since 2012, the EIB has financed projects (worth US$ 235 billion) aimed at protecting the environment, reducing emissions and helping countries adapt to the effects of climate change. In 2020, the EIB contributed US$ 31 billion (representing 40% of the total financing) to finance investment projects focusing on climate action and environmental protection.

India and the EIB
In India, the EIB has been operating since 1993 and provides financing and expertise for sound and sustainable investment projects. It supports projects focused on climate action, sustainable economic development, COVID-19 recovery, digitisation of the economy, development of key infrastructure as well as small and midsized enterprises (SMEs). The EIB works with India to support its ambitious renewable energy goals for solar and wind power and roll-out of climate-friendly urban transport systems in Kanpur, Bangalore, Pune, Lucknow and Bhopal. The EIB is also working with local partners to extend sustainable financing opportunities to attract quality investments in the country.

As of May 2021, the EIB financed 20 projects (valued at US$ 4.55 billion) in India.

Support for Climate Action

The EIB supports India's commitments under the Paris Climate Agreement by establishing a partnership on climate action for the benefit of India, the EU and the world.

The EIB also supports the country's international initiatives, particularly those of the International Solar Alliance. The alliance promotes efficient exploitation of the solar energy and works to reduce dependence on fossil fuels for its 121 members countries, which lie either completely or partly between the Tropic of Cancer and the Tropic of Capricorn.

To date, the EIB has invested US$ 786 million for climate action-related projects in India in cooperation with local promoters such as Exim Bank, SREI Infrastructure Finance Ltd. and the Investment Company Institute (ICI).

The EIB Supports COVID-19 Recovery, Climate Action and Urban Transport Modernisation with US$ 388 Million in New Sustainable Investments in India    

On May 7, 2021, EIB President Mr. Werner Hoyer inaugurated the signing ceremony of three new EIB-financed sustainable investment projects in India. The EIB and its Indian partners—the State Bank of India (SBI) and the Ministry of Finance—signed US$ 358 million investments in urban metro systems in Kanpur and Pune and a US$ 30 million investment in ‘Neev II’, an equity fund that will unlock US$ 120 million of sustainable commercial investments by SMEs across India. The EIB also announced a US$ 298,625 emergency grant to help India recover from COVID-19.

Mr. Werner Hoyer, President of the EIB, said, “The EIB stands with India in these challenging times and our donation is a sign of solidarity and support. The EU Bank is ready to strengthen cooperation with Indian partners to tackle the pandemic and recover as quickly as possible. Five years ago, Prime Minister Mr. Narendra Modi requested the EIB to accelerate support for high-impact, sustainable transport and climate investments across India. Today’s new agreements will further support the transformation of urban mobility for millions of commuters through construction of new world-class metro networks in Kanpur and Pune. Our new cooperation with the SBI, through the innovative ‘Neev Fund II’, will unlock US$ 120 million of sustainable business investments by companies across India. As outlined by the new EIB-International Solar Alliance study on off-grid solar, visionary and ambitious long-term public and private investments and sharing best practices are key to strengthening India’s green recovery from COVID-19.”

Mr. Ugo Astuto, the EU Ambassador to India, said, “Climate change and the green transition will also be key priorities of the upcoming EU–India leaders' meeting. The EIB has been investing in sustainable infrastructure in India for over 25 years. This latest funding will further strengthen our cooperation with India and help the private sector to develop innovative solutions to tackle climate change.”

Green Growth Opportunities to SMEs via EIB and SBI Partnership for US$ 120 Million ‘Neev Fund’
This is one of EIB’s first private equity investments in India and results from the EU Bank’s commitment to step up its support for climate action projects worldwide and support implementation of the Paris Agreement. This investment is being provided under the EIB’s Climate Action and Environment Facility (CAEF), established to support companies and projects aiming to reduce greenhouse gas emissions and enhance environmental sustainability.

The SBI is already investing in an instrument called ‘Neev Fund’—generates commercially attractive returns while contributing positively to the society—for its impact investment goals and the two entities have created ‘Neev Fund II’ to get ahead of this partnership. Under the management of SBI Cap Ventures, an SBI Group company, ‘Neev Fund II’ will invest up to US$ 100 million in Indian businesses that focus on solutions for clean energy, electric vehicles, efficient use of raw materials, water and waste management technologies, etc. It will provide equity and quasi-equity to SMEs, targeting sectors that support achievement of the UN Sustainable Development Goals (SDGs).

Mr. Dinesh Khara, SBI Chairman, said, “SBI’s core ethos of financial inclusion and social development underpins its commercial activities and this is reflected in its decision to invest in ‘Neev Fund’. It will provide equity to SMEs focusing on mitigating climate risks, promoting social development, creating jobs, and gender equality at scale. I believe a cooperation of the two institutions—the EIB, which is one of the world’s largest providers of climate finance, and SBI, which is India’s largest financial institution—will further strengthen and deepen the bond between India and the EU.”

Mr. Christian Kettel Thomsen, EIB's Vice President & Head of Operations in India, said, “Climate change claims thousands of lives and causes damages amounting to hundreds of billions of euros every year. It does not have to be like this, as there is still time to act. Innovative solutions often require innovative forms of financing such as private equity funds. Our partnership with the State Bank of India will create a much-needed source of equity financing for climate action and environmental sustainability solutions offered by innovative SMEs. Saving our planet from climate change requires an all-hands-on-deck approach and the EIB is proud to have found an ally in the State Bank of India for deploying innovative financing solutions for global climate action. This is a true sign of the global impact of the EU-India partnership.”

Climate change is likely to have an increasingly negative impact in developing countries in the future. According to the Global Climate Risk 2020 report published by think-tank Germanwatch, India’s economic losses due to climate change were the second-highest in the world at Rs 2.7 lakh crore (US$ 36 billion) in 2018. A crucial enabler for India's fight against climate change is access to 'green finance'—investments that seek to support the accomplishment of environmental objectives. India and the EU are natural partners in the quest for environmental sustainability, climate change mitigation, and green development. The EIB’s investments in India reinforce climate action and environmental sustainability, and strengthen the country’s innovative SMEs, create jobs and contribute towards green, long-term and sustainable economic development.