Background

Public resources are limited, especially during the period of austerity measures across many of the EaP countries (Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine). Therefore, reliance on public-sector investment must be minimised, and more attention paid to attracting private finance, which is at the core of the green growth transition.

Recognising this, international financial institutions (IFIs) such as the European Bank for Reconstruction and Development (EBRD), the European Investment Bank, the World Bank and the Asian Development Bank, have established credit lines earmarked for environmental purposes in commercial banks. In addition to supporting immediate investment priorities, IFIs have established such credit lines in order to support the capacity of local banks to conduct due diligence assessments and to demonstrate the viability of green financing as an attractive business model. However, this will only happen if local banks see sufficient opportunities to make the necessary investments in staff and capacity compared to other business opportunities. This in turn requires sufficient demand from borrowers and a supportive public policy framework.

Objectives and activities

1. Assess the lessons learnt from the operation of environmental credit-lines in three pilot countries. An assessment will be made of lessons learnt from the implementation of specific IFI-supported credit lines disbursed through local commercial banks, as an example of a source of private sector finance in green investments. This will provide a basis for analysing the incentive framework for the domestic banking sector to continue provide credits for such investments after the credit line is exhausted.
2. Develop recommendations for improved disbursement of environmental credit lines in commercial banks. Based on the results of the analysis and interaction with the main stakeholders, recommendations for the government and the banking sector will be developed.
3. Organise international discussion of lessons learnt and outlook for long-term action. Following the development of the methodological framework for the analysis, communication with new partners, such as domestic commercial banks, and in-depth work at the country level, an international conference focusing on the EaP countries will be organised to discuss lessons learned.
4. Extend awareness and capacity raising activities to all EaP countries. Such activities will be organised in the EaP countries in which pilot projects were not implemented. Drawing on the experience gained through the regional and pilot country studies, the OECD will present the main lessons learned and will examine, in cooperation with the government authorities and other stakeholders, how this experience could be applied in the host country.

DID YOU KNOW? ...that evidence from climate-specific investment, including IFI-supported credit lines, illustrates that the targeted use of public finance can scale up private financial flows into green investment. While leverage ratios are difficult to compare across projects, countries and instruments, ratios of 1:5 and above are not uncommon, and there are some cases of instruments, such as grants, delivering much higher ratios.