Today, the 27 Finance Ministers of the EU member states are gathering in Brussels as Governors of the European Investment Bank (EIB) to discuss the future priorities of the bank. A key objective for this meeting must be to ensure that the role of the EIB in the EU recovery package is compatible with the bank’s ambition to become the 'EU Climate Bank'.
A fundamental reform of the institution is becoming urgent, as the EIB is being tasked with extra responsibilities and an ever-growing firepower under the EU economic recovery package following the Covid-19 crisis and its economic consequences.
For instance, governments decided to create a new Guarantee Fund of €25 billion to back EIB operations worth €200 billion in support to European Small and Medium Enterprises (SMEs). This Guarantee Fund comes on top of the recent proposal of the European Commission to beef up the budget of the EU and create a new recovery plan, which awards a pivotal role to the EIB in financing the European economic recovery.
European Finance Ministers now need to make sure that this central role for the EIB comes with strings attached. In this regard, the annual meeting of EIB shareholders is the right time to push the EIB to raise the social impact, transparency and sustainability of its operations and ensure that it avoids business as usual.
A key area where progress is needed relates to climate ambitions. The EIB is currently developing a Climate Roadmap to align its operations with the objectives of the Paris Agreement by the end of 2020 and step up its climate and environmental sustainability lending to become the 'EU Climate Bank'. But for the EIB to truly support a green and just transition and be a key financier of a transformative European Green Deal, European governments need to weigh in and testify their ambition for the bank.
In practice, loans to large polluters and industries that stand at odds with any climate agenda, like the aviation sector, should be ruled out. Then, strong environmental and social standards should effectively underpin all operations of the EIB. The bank must condition its financing so that the companies it supports protect their employees and follow credible decarbonisation plans, aligned with the objectives of the Paris Agreement. This includes financial intermediaries, which will be at the heart of the bank’s action to support SMEs and the economic fabric of Member States. There is a genuine risk that credit lines to commercial banks and the financial sector end up financing unsustainable projects.
It is also high time for the EIB to raise the bar on transparency, so that it can ensure that intermediated loans are subject to the same transparency requirements as other types of loans. Recent revelations by the Luxembourg Times confirm our assessment that there is a real problem with the transparency and control over the EIB operations. The bank’s shareholders need to address this sensitive issue upfront, and influence the internal policies of the EIB – like its anti-fraud policy currently under review – and its governance setting so that it can appropriately fight against fraud and corruption. How is it possible that the financial arm of the EU, the ‘EU Bank’, ends up being less controlled and supervised than a commercial bank?
Finally, past mistakes that contributed to the vulnerability of our societies facing the Covid-19 crisis, such as financing the privatisations of public services, should not be repeated. The EIB recovery plans should focus on tackling social inequalities and protect the most vulnerable people rather than those responsible for the fragility of our societies.
There is still room to make the EIB a more sustainable, transparent and accountable institution. We call on the EU Finance Ministers to take concrete actions and make European public finance a key driver towards a greener and more just future.