The sustainable (green) investment promotion project launched in Lithuania back in 2019 is successfully heading towards the finishing line. Commissioned by the Ministry of Finance in cooperation with the European Bank for Reconstruction and Development (EBRD), our team, lead by partner Tomas Kontautas and senior associate Dalia Augaite, together with partners Richard Kemmish Consulting Limited and Linklaters LLP, has carried out a study and drawn up proposals for the implementation of this project.
Private investors to be encouraged to finance sustainable projects
To implement the National Energy and Climate Action Plan of Lithuania by 2030, at least EUR 4 billion will have to be attracted from private investors in addition to EUR 10 billion of public funds.
The proposals will help encourage private investors (banks, insurance companies and companies managing pensions and other funds) to participate in funding sustainable projects together with public investors or through direct loans of various forms.
Proposals drawn up for Lithuania’s sustainable (green) finance action plan
- Green finance institute. We recommend establishing a green finance institute designed to provide advice to the public and private sectors on the development of sustainable finance products, function as a research and education centre and contribute to the dissemination of Lithuania as a sustainable finance hub.
- Not subsidies, but economically more effective form of loans. Public financing should be provided by employing loans that are economically more effective than grants or subsidies, with the state taking on part of the risk and in this way creating conditions to attract funds from private investors. The Green Finance Institute should act as an intermediary between private investors and the public sector, assisting the latter in developing financial instruments with the participation of private investors.
- Reform of national promotional institutions. To attract capital from big foreign institutional investors, a solution should be implemented that is modelled on the company “Valstybės investicinis kapitalas” (VIK), enabling a large-scale bond issue (for example, from EUR 0.5 to 1 billion), while the revenue would be on-lent to smaller local sustainable projects. For financing these projects, the state should establish a Baltic Sustainable Investment Fund (modelled on the State Aid Fund for Business managed by UAB “Valstybės investicijų valdymo agentūra” (VIVA)) that would invest in debt instruments, and extend the activities of the KŪB “Koinvesticinis fondas” (Coinvest Capital), managed by UAB “Investicijų ir verslo garantijos” (INVEGA), in particular investments in shares of innovative sustainable undertakings. The existing national development agencies (INVEGA, VIVA, UAB “Viešųjų investicijų plėtros agentūra” (VIPA) and the Agricultural Credit Guarantee Fund) should maintain and improve sustainability criteria for their financial instruments The future merger of these institutions into a single agency should result in a strong entity similar to the German state-owned Investment and Development Bank (KfW). State financing should also be provided through this structure to attract private capital, using the infrastructure of private investors for this purpose (for example, engaging them for lending).
- Promoting public and private sector partnership projects. Public and private sector partnership projects should not be viewed with negative preconceptions; they should rather be promoted. Under the coordination of the Green Finance Institute and with the participation of public and private sector representatives, a list of potential infrastructure projects should be prepared for financing financed through public and private sector partnerships (i.e. private entities using their own funds to create infrastructure objects and subsequently recovering the funds through periodic payments by the state or municipalities) and to include a clear element of sustainability.
- Sustainable government bonds. When borrowing on foreign and domestic markets, the state should increase the share of sustainable bonds issued annually, while the ministries should enlarge the share of funds assigned to sustainable projects, detailing the need for budget funds to the Ministry of Finance.
- Sustainable borrowing plan for state owned enterprises. A sustainable borrowing plan for state-owned enterprises should be prepared, setting the extent of annually growing sustainable borrowing to ensure that by 2030 at least half of financing attracted is assigned to sustainable projects.
- Sustainability aspects in financial accounts. Financial accounts of legal entities should have special annexes for the entities to report on compliance with sustainability criteria in their activities.
- Regulation of covered green bonds. The law on covered bonds that applies to credit institutions should regulate a special type of bond –green covered bonds – thereby promoting their issuance.
- Sustainability database. Part of the costs incurred by small and medium-sized enterprises in obtaining sustainable finance should be compensated by the fund, in this way encouraging such enterprises to seek sustainable finance. In cooperation with the VĮ “Registrų centras” and State Enterprise “Regitra”, a sustainability database should be developed that would include data provided by legal entities and entrepreneurs and accessible to private investors (when taking decisions on whether the activities of a company receiving financing meet the sustainability criteria), government entities and other persons.
- Green labelling methodology. The Green Finance Institute will commission the development of a methodology for green labelling (following the example of standards used in the West) and grant licenses for its use to private market operators (certification agencies) that will assess and certify enterprises’ projects, approving projects that are compliant with sustainability criteria, in this way enabling access to sustainable financing.
- Public education. The Green Finance Institute will organise public education measures, presenting information about sustainability and sustainable financial products, thus improving public knowledge of the subject and contributing to demand for these products.
- Solutions implemented across the Baltic scale. The Ministry of Finance will cooperate with the relevant Latvian and Estonian authorities to achieve the implementation of certain proposed solutions across the Baltic States. The green labelling methodology and a common instrument that allows funds to be attracted from big international institutional investors could serve as examples of cooperation between the Baltic States.
Based on the proposals drawn up, the Ministry of Finance, in collaboration with other state authorities, will prepare an action plan for implementing the proposals, and the actions will have to be carried out by the end of 2023.
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