Recent news from Lithuania and Europe reveal that we are ready to overcome the challenges posed by COVID-19 and start a new era of green and sustainable finance.
On 27 May 2020 the European Commission (EC) updated its seven-year EUR 1 trillion budget proposal and announced the biggest recovery plan in EU history – Next Generation EU – bringing to bear an additional EUR 750 billion of financial firepower. All funds will be filtered by reserving 25 % of spending for climate change expenditure, ensuring implementation of the European Green Deal initiative.
On 26 May 2020, the EC approved Lithuanian plans to set up a fund with a target size of up to EUR 1 billion, making it the first State Aid scheme for debt and equity instruments in the EU allowing private investments to be blended with State funds. One of the objectives of the fund is to focus on green and sustainable investments.
In addition to public initiatives, private financial market participants have also been active in the green and sustainable financing sector. However the full potential of financial instruments was limited by lack of regulation allowing an indication of what makes a financial product sustainable and green. For this reason the EC is preparing the Taxonomy Regulation; its final report was recently presented to the public.
Finally, we believe that all the above initiatives will greatly help Lithuania to become a regional hub for green and sustainable finance, however, opportunities for private financial market participants are already within hand reach.
Booming European public funding for climate change initiatives
As EC President Ursula von der Leyen said in her statement, the updated budget provides not only an opportunity to support the recovery of the EU economy from COVID-19 caused stagnation, but also to invest in our future – the European Green Deal and digitalisation. To ensure an effective response the investment will be channelled under three pillars:
- Supporting recovery of Member States. This pillar includes three key instruments:
- European Recovery and Resilience Facility – EUR 310 billion for grants and EUR 250 billion in loans by implementing Member States’ national recovery and resilience plans, including in relation to green and digital transitions and the resilience of national economies.
- REACT-EU – Recovery assistance for cohesion and the territories of Europe – EUR 55 billion between 2020-2022 for grants for municipalities, hospitals, and companies via Member States’ managing authorities.
- Next Generation EU support – EUR 40 billion for the Just Transition Fund to assist Member States in accelerating transition towards climate neutrality and EUR 15 billion for the European Agricultural Fund for Rural Development to support rural areas in making the structural changes necessary in line with the European Green Deal.
- Kick-starting the economy and helping private investment, which includes a EUR 30.3 billion InvestEU Programme and Strategic Investment Facility, which will provide an EU budget guarantee for financing of investment projects via the European Investment Bank (EIB) and national promotional banks and a EUR 31 billion New Solvency Support Instrument providing an EU budget guarantee to the EIB in order to mobilise private capital.
- Learning lessons from the crisis – a EUR 9.4 billion new Health Programme to equip Europe against future health threats and EUR 3.1 billion reinforcing the EU’s Civil Protection Mechanism to respond to large-scale emergencies.
In order to raise funds needed for these investments, the EC will issue bonds on the financial markets and channel them via Next Generation EU. It is believed that EU efforts will create conditions for a recovery led by private investment in key sectors and t