European Investment Bank divests from fossil fuels – What it really means

The European Investment Bank (EIB) will phase out financing for oil, gas, and coal projects after 2021. EIB is the largest public bank in the world and the announcement is a clear signal in favour of the renewable energy transition. But how will the fossil fuel divestment really impact the energy industry?

The EIB board seeks to become the world’s first “climate bank” and align financing with the targets of the Paris Accord.

Andrew McDowell, EIB Vice-President in charge of energy said…

“Carbon emissions from the global energy industry reached a new record high in 2018. We must act urgently to counter this trend. The EIB’s ambitious energy lending policy adopted today is a crucial milestone in the fight against global warming. Following a long discussion we have reached a compromise to end the financing by the EU Bank of unabated fossil fuel projects, including gas, from the end of 2021. I am grateful for all those who have contributed to the largest ever public consultation on EIB lending in recent months and energy expert colleagues who have outlined how the EU bank can drive global efforts to decarbonise energy.”

The bank’s president, Werner Hoyer called it…

“… the most ambitious climate investment strategy of any public financial institution anywhere.”

The Guardian reports…

Colin Roche, of Friends of the Earth Europe, called the decision “a significant victory” for the climate movement. “Finally, the world’s largest public bank has bowed to public pressure and recognised that funding for all fossil fuels must end – and now all other banks, public and private, must follow their lead,” he said.

Nick Mabey, of the environmental thinktank E3G, said: “Europe is sending a clear signal that it intends to move away from fossil fuel investments toward the climate-neutral future its citizens want. The EIB is sending a message to other financial institutions that investment in fossil fuels is drawing to an end.”

Naturally, at Taylor Hopkinson, we welcome the decision just as much as the environmental groups. It’s important to recognise that the EIB is making impactful financial decisions that align with climate targets. And that we’re going through an economic shift towards renewables that are becoming increasingly more cost-effective.

But it will take more than one financial institution to starve the fossil fuel industry of oxygen. There is still significant funding from private markets. Hopefully, the EIB announcement causes a ripple effect and other financial institutions – both public and private – follow suit.

Scott Carpenter reported in Forbes…

Between 2013 and 2017, the European Investment Bank (EIB) lent €11.8 billion to fossil fuel projects, according to the non-governmental organization (NGO) Bankwatch. That seems like a lot. But more than a dozen banks lent a larger amount last year alone, according to another NGO, BankTrack. JP Morgan Chase extended $62.7 billion in fossil fuel financing in 2018 alone. The second-biggest lender, Wells Fargo, lent $61.4 billion.

Next to these private sector behemoths, the EIB is a bit player.

Sources and Further reading

EU Bank launches ambitious new climate strategy and Energy Lending Policy (EIB)
The cost of capital and how it affects climate change mitigation investment (PDF)
European Investment Bank to phase out fossil fuel financing (The Guardian)
The European Investment Bank Has Quit Fossil Fuels – But Borrowers Still Have Their Pick Of Lenders (Forbes)
Photo by Simone Hutsch on Unsplash

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