EIB Impact Report 2020

*Including guarantees and portfolio equity operations.

In January 2021, the EIB introduced a new Additionality and Impact Measurement (AIM) framework. It integrates 3PA and ReM into a single framework for operations in the European Union and beyond while taking into account the particularities of operations outside the European Union. The AIM framework retains a three-pillar structure and provides a refined and streamlined model which ensures that EIB financial support results in additionality by:

•addressing suboptimal investment situations resulting from market failures. In other words, whythe EIB intervenes in a specific project;

•influencing the investment activity undertaken (in terms of scale, scope, structure, quality and/or time) to avoid suboptimal investment — how the project adequately addresses suboptimal investment, and whatdifference EIB support can make;

•providing support that complements what is available from other sources of financing — howEIB financing and advice can strengthen projects.

As a public bank, a key feature of EIB operations is that they must always constitute a response to suboptimal investment arising from some market failure. Market failures compromise the efficiency of the markets in delivering optimal results for society. They are classified as follows:

• Public goodsfor which it is impossible or undesirable to levy a charge because anybody can consume those goods and because individual consumption does not reduce the availability of the goods to others (for example flood prevention schemes).

• Externalities, for example costs (industrial pollution) or benefits (planting new forests, which absorbs carbon) that are created without asking consumers to pay for the benefit. Carbon and environmental externalities are the most relevant market failures for climate-related investments.

• Imperfect competition, for example firms or other parties that may be able to change the supply and prices in a market, notably where there are few — or perhaps only a single — producer or buyer. Transport and energy networks are examples of natural monopoly markets.

• Incomplete or missing markets, which arise when certain goods or services are not produced, despite the desirable impact they may have. Active coordination between partners is important, and that cooperation does not happen automatically through the pricing mechanism of normal markets. Cross-border projects, for example, often warrant coordination by the public sector.

• Imperfect/asymmetric information, which means that information must be complete and equally shared among all producers and consumers for markets to work efficiently. However, consumers know more about their own preferences than producers. Similarly, producers usually know more about their product than consumers. Financial markets have particularly high information requirements, and the market may fail to provide the credible information needed to supply socially beneficial financial products. One key example is markets’ failure to supply credit or other financial products to small and medium-sized companies, especially innovative or fast-growing ones. These companies typically lack collateral and credible information about their future prospects, and they are not followed by professional rating agencies. Another example concerns irreversible long-term investments. The market often fails to supply credit with very long tenors to match assets’ economic life or a project’s ability to pay back funds because the financial benefits are generated over a long period.

EIB financial interventions address these market failures. The Bank’s AIM framework has been designed to ensure that each project effectively addresses one or more of these situations.

This report aims to highlight the Bank’s role in generating additionality, particularly in helping to address the investment challenges facing projects for climate action and environmental sustainability and research, development and innovation for decarbonising energy-intensive industries. It presents an overview of barriers to climate-related and environmental investment in the European Union during the five years from 2015 to 2019, drawing on the EIB’s substantial experience of financial operations in these domains. The EIB’s intention is to illustrate the issues that must be overcome for the market for green investments to function efficiently.

This report also illustrates the impact of the EIB’s financing, which is assessed using project-level output and outcome indicators. Collecting data about every project the Bank finances enables it to ensure projects make a real difference to the lives of people throughout the world. In this context, as the EU bank, the EIB has sought to align its reporting with the United Nations’ Sustainable Development Goals (SDGs).

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