Bold or Bond: Understanding the European Investment Bank’s Pivot into a Climate Bank

Synchronised and in concordance with the European Union’s Green Deal, the European Investment Bank (EIB) proclaimed its turn into a ‘Climate Bank’ in November 2019. As the first international climate bank and the world’s largest multilateral bank, the bank will be a front runner in implementing the climate measures currently topping political agendas. Financial means are decisive for delivering on climate-related policy objectives. EIB’s firepower is required, as climate action needs exceed the possibilities of the European budget. At the time of the proclamation of its pivot, the EIB also announced the launch of a new climate strategy and energy lending policy suspending all fossil fuel related financing by the end of 2021. This has been operationalised in the form of a roadmap publicised in November 2020. The EIB set itself the target of doubling its climate lending from 25% to 50% by 2025. As for its borrowing, the bank has not committed to any target, despite its prominent position in capital markets, as green issuer. Further to a pioneering issuance of green bonds in 2007, the EIB has evolved to be the largest issuer in outstanding green bonds currently exceeding EUR 3 billion. The proceeds of green bonds are ring-fenced for being exclusively channelled into climate-related investments, while their use is closely monitored in full transparency. As part of its strengthened climate orientation the EIB could easily and ‘silently’ increase further its green borrowing, for on-lending the funds to climate-related projects, under capital markets scrutiny and oversight. Instead the EIB privileged a bold public announcement of its climate turn, associated exclusively with lending milestones. The question that naturally arises is why did the EIB opt for the bold over the ‘silent’ metamorphosis. Why did it focus on the lending instead of the borrowing side of its activity. For researching these questions, the paper draws on the resource dependence theory, and posits that industrial policy related to climate can be instrumentalised through capital markets’ activity. EIB’s green issuance would have been a lower key, notwithstanding efficient and effective alternative to its boldly announced metamorphosis. This option has been however not chosen because of EIB’s: ingrained credit rating sensitivity, coupled with basilar capital market features such as volatility and unpredictability; strong transparency requirements allowing for limited ability to manoeuvre its lending practices; interest in raising its political profile within the EU governance set-up.