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24/08/2016

EIB transparency a prerequisite for good governance

Euro & Finance

EIB transparency a prerequisite for good governance

The EIB's heavy support for the European car industry and marginal investment in energy efficiency projects calls into question its seriousness in being a climate leader.

[Youcar/YouTube]

President of the European Investment Bank (EIB) Werner Hoyer will present the results of the bank’s operations in 2015 today (14 January). 2016 will be a crucial year for the bank in fulfilling its EU objectives, writes Xavier Sol.

Xavier Sol is the Director of Counter Balance.

Since its creation in 1958, the EIB has operated in relative anonymity from its headquarters in Luxembourg – hundreds of kilometres away from the political arenas of Brussels and Strasbourg. This location contributed to the development of a “culture of secrecy” and a low political profile. But the EU’s financial arm is now gaining stronger public profile, and it reached its highest ever lending volume in 2015: €77 billion.

The Investment Plan for Europe, a turning point in EIB history?

After two capital increases in 2010 and 2012, which significantly increased the volume of its operations, the EIB is now about to be the cornerstone of the Investment Plan for Europe as the managing institution for the European Fund for Strategic Investments (EFSI).

The EFSI aims to leverage through the European Investment Bank a total of €315 billion in new projects by 2018. The guarantee fund should target projects with a higher risk profile than normal EIB investments and should increase lending for investments with so-called “European added-value” – projects which significantly contribute to achieving European common policy objectives.

But critics say that the regulation lacks clear provisions for oversight of the fund, transparency, and guidance for investments in green, sustainable and resource-efficient projects that are part of the fund’s mandate. It is yet to be seen how the EIB will address the obvious questions: Is the project selection going to be transparent and subject to genuine public scrutiny? And how will the bank ensure that the EFSI will be additional and not just “business as usual” compared to regular EIB operations?

The need for enhanced transparency and accountability

This new visibility and enhanced macroeconomic role of the EIB in Europe is contrasting with the limited accountability of the bank towards European citizens. In the wake of the Volkswagen emissions scandal, our partner NGO Bankwatch revealed that the car manufacturer enjoyed generous public financial support from the EIB.  Through loans labelled as alleged “climate action”, the bank’s lavish support of the car manufacturer for green purposes may not have been matched by sufficient control on the actual use of those funds.

The Volkswagen case demonstrates how crucial it is for the EIB to disclose more information about its operations and prove its ability to ensure sufficient control over billions of euros in public funds. The bank needs to learn lessons from this episode and dramatically improve the due diligence and oversight over its loans to multinational companies.

Another striking element which the EIB needs to address is the lack of transparency in its governing bodies. Unlike the European Central Bank, the EIB does not disclose the minutes of its board of directors meetings – the monthly meetings in which directors representing the 28 European member states approve loans worth billions of euros and decide upon the policies of the bank.

For the first time, Counter Balance accessed via a lengthy process of requests for information, a redacted version of the minutes of a directors’ meeting. However, the EIB needs to proactively disclose such information of public interest on its website and to make it a standard practice. Transparency is a prerequisite for good governance, and the EIB is currently lagging behind in this regard.

Coherence on climate objectives

While the bank attempted to present itself as a climate leader on the prestigious stage of the COP21, evidence indicates that this public relations show actually clashes with its latest operations. In practice, the bank only invests marginally in energy efficiency projects – especially in central and eastern Europe, it provides massive for European car industry and it funds expressways together with fossil fuels projects in Europe and its neighbouring countries.

If the EIB is serious about being a leader on climate issues, it needs to phase out its support of fossil fuels projects and ensure coherence with the 2050 low carbon roadmap of the European Union. Delivering on climate objectives should start with not financing the Trans-Adriatic Pipeline (TAP) – as the EIB is soon to discuss its funding through €2 billion credit, the biggest loan ever granted by the EU bank in its 58 years of activity. Financing such project would not only foster Europe‘s increased dependence on gas, take Europe further away from its 2030 climate targets and decarbonisation objectives, but it would also hinder the achievement of the 1.5 degree goal agreed in Paris.     

In addition, Europe simply does not need extra gas. After a drop in European gas demand over the last decade, the Commission’s own projections foresee a decline in gas imports over the next 35 years. The EU’s Energy Roadmap 2050 shows that long term decarbonisation would alleviate Europe’s dependence on energy imports. But if gas demand indeed continues to fall, this would also mean that the Southern Gas would not be used to full capacity. In turn, this project risks becoming uneconomic and eventually turning into a liability. A stranded asset which will ultimately be paid for by taxpayers, gas consumers and those living along the route of the pipeline.

*After this opinion piece was published, the EIB announced that it would freeze any new loans to the Volkswagen group.