The European Investment Bank (EIB) will present its new Paris Alignment Counterparties framework at COP26, the so-called “PATH” framework. The framework, which is part of a set of action plans under its recently approved Climate Roadmap, is aimed at ensuring that the EIB’s clients, or counterparties, are taking steps towards decarbonisation. While the framework is a step in the right direction, several loopholes still remain.
Despite its commitment to align its operations with the goals of the Paris Agreement by the end of 2020, the EIB still lacked concrete restrictions to stop financing high-carbon companies and banks that lack solid decarbonisation plans to align with the Paris Agreement. Back in June, we published a joint civil society proposal on how that approach could look like in practice. Although some of our demands have been taken into consideration in the PATH framework, there is still massive room for improvement.
The framework is a clear enhancement on the EIB’s current practice, as the bank will now require high-emitting companies to have decarbonisation plans in place if they want to benefit from EIB funding. And if companies contacting the EIB for financing do not have such plans, they would have 12 months to develop them so that the EIB can approve a potential loan. This means that, in theory, the EIB should no longer finance projects of polluting companies if it continues activities that are not aligned with the objectives of the Paris agreement.
However, the framework contains significant loopholes. For instance, it still allows fossil fuel companies to receive funding for some specific projects. These include “carbon capture, utilisation and storage, renewable hydrogen, advanced biofuels, deep geothermal and floating offshore wind”. The rationale behind this is that these companies are in a strong position to invest in such projects, but it also means more money will keep flowing to oil and gas companies, even if they still plan to continue extracting fossil fuels. The PATH framework fails to request EIB clients to have clear exit plans for oil, gas and coal.
Another critical aspect relates to the credibility of the decarbonisation plans presented by companies to the EIB. Indeed, many of the “net-zero” pledges presented by carbon-heavy companies are unfortunately empty shells. What is concerning is that the new PATH framework does not foresee mechanisms to suspend EIB loans when a client does not respect the targets it has set in its decarbonisation plans.
Last but not least, the framework remains extremely weak when it comes to financial intermediaries. The use of intermediated operations is an integral part of the EIB’s business model and the amount of these operations keep increasing over time. This means that the bank does not lend directly to a project, but instead uses so-called “financial intermediaries” (often commercial banks and equity funds). These intermediaries represent a third of the EIB’s portfolio and the entirety of the European Investment Fund (EIF, a major branch of the EIB Group).
Instead of requiring these banks and funds to have decarbonisation plans in place, the EIB will simply request them to disclose their financial exposure to risks of climate change, following the standards set by the Task Force on Climate-Related Financial Disclosures. The actual content of this disclosure would however not matter for the EIB as it could still give funds to financial intermediaries that invest in fossil fuels and have no intention to become Paris Aligned. In that regard, a big chunk of the EIB’s operations still cannot be considered as Paris Aligned, since financial intermediaries are being left out.
Therefore, we call on the EIB to urgently reinforce its PATH Framework, as it is a step in the right direction, but not ambitious enough. A higher level of ambition is necessary for a bank that wants to transform into the “EU Climate Bank”.