Mainstreaming sustainable energy finance and integrating energy performance in EU sustainable finance criteria and standards

Topic description

Objective:

The topic aims to make sustainable energy investments more attractive to private investors and to align them with the EU’s sustainable finance policy.

Significant additional investment needs to be mobilised to achieve the ambition set by the European Green Deal [COM(2019) 640 final] and EU policy in the area of energy and climate. The magnitude of the investment requires mobilising both public and private sector, and sustaining the flow of investment over time.

While significant public sector expenditure leverages private finance for sustainable energy (e.g. through the InvestEU facility), many private investors still lack sufficient incentives and methods to overcome the perceived complexity and risks associated with this kind of projects. Sustainable energy investments, understood primarily as investments in energy efficiency and small-scale renewable energy sources, need further de-risking and mainstreaming into the operational and strategic approaches of market actors, in particular private finance institutions.

Growing evidence of multiple benefits triggered by sustainable energy projects (e.g. increased comfort, better health, higher value of real estate assets, resilience to extreme weather) impacts financial returns of private investors. This influence is not yet fully taken into account however and should be accelerated so that all costs and benefits of sustainable energy investment are duly reflected in private finance strategies at scale.

The EU’s sustainable finance strategy [https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/overview-sustainable-finance_en#action-plan] and the associated regulations, in particular the EU taxonomy regulation [Regulation (EU) 2020/852] aim to embed sustainability into the corporate governance frameworks, as many companies still focus too much on short-term financial performance compared to their long-term development and sustainability aspects. Changing this focus can significantly impact the scale and ambition of sustainable energy investments, especially in the buildings sector.

The uptake of the approaches enshrined in the EU taxonomy regulation by private and public actors, is key to accelerate and upscale sustainable energy investments. A proper implementation of the auxiliary policy and legislation, such as the proposal for a Corporate Sustainability Reporting Directive [COM(2021) 189 final], the EU green bond standard [https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/eu-green-bond-standard_en] and labels for retail investment products, are also important building blocks of this process.

All of the above challenges are risk management related and rely on the availability and adequate uses of high-quality, interoperable data, in line with the vision of the European data space [European strategy for data, COM(2020) 66 final]. Digital and financial technologies offer catalytic opportunities to harness data to accelerate sustainable investment and involve citizens by connecting retail and capital ends of the market.

In this context, adequate tools and methodologies are needed to attract private finance to sustainable energy investment, with a particular focus on the energy efficiency segment. Some of them exist already and need to be fine-tuned and expanded. There is also a need to encourage alignment with the regulatory requirements and policies both on the finance supply and demand side. Such alignment could in turn foster a massive upscale of retail investment in sustainable energy and securitisation of sustainable energy assets needed to close the investment gap and meet the EU policy targets in the area of climate action and sustainable development.

Proposals should address at least one of the 2 scopes detailed below.

Scope A:

Proposals should mainstream and de-risk sustainable energy investments with a particular focus on private finance stakeholders, through actions including but not limited to:

• support to securitisation of assets linked to sustainable energy with a particular focus on energy efficiency, e.g. through Green Bonds issuance
• integration of long-termism and sustainability risks, including transition risks, and multiple benefits of sustainable energy into decision-making tools (e.g. internal risk models) of private investors in line with the Paris Agreement and the Sustainable Development Goals
• exploring the impact of revised risk ratings and requirements for energy efficiency on financial regulations including the current banking and insurance prudential frameworks
• harmonisation, aggregation, and mainstreaming of existing market practices through de-risking private investments in sustainable energy as well as simplification of the investment process for investors
• activities focusing on data such as data collected through the Energy Performance Certificates, energy audits, smart meters, contracts with finance and/or energy service providers, as well as ex ante and ex post energy and financial performance data of investment, connected wherever possible to the De-risking Energy Efficiency Platform (DEEP) [https://deep.eefig.eu/]:
  • high quality data collection and/or analysis leading to refinement of investor risk models or access to specific financing schemes
  • improvement of quality and interoperability of data including through standardisation of measurement units
  • facilitation of high quality data collection and reporting for project developers
  • creation of data governance frameworks leading to improvement of availability of relevant data including open access solutions
• incorporation of energy related sustainability preferences and/or increasing access to financial markets by retail investors
• development and application of digital solutions including financial technology and algorithms facilitating energy-performance-based financing schemes

Scope B:

The proposed actions should focus on alignment or overachievement of the EU sustainable finance requirements in the field of sustainable energy investment through actions including but not limited to:

• development and support to implementation of labelling and certification schemes including methodologies and tools for any one or more of the following: benchmarking, tagging, monitoring of investment performance, and disclosure of investment data set out in the EU sustainable finance legislation
• measures accelerating compliance or overachievement of the EU sustainable finance requirements by private investors and/or companies including support to sustainable energy project developers’ response to private investors’ needs and practices with a focus on technical and regulatory considerations (e.g. development of closer connections between technical standards and accounting and disclosure reporting)
• enhancement of transparent and regular integration of sustainable energy-related metrics in the market for sustainability assessment tools in view of the variety of ratings, research, scenario-analysis and environmental, social, and governance (ESG) benchmarks that are offered by specialized agencies
• targeted support to sustainable energy finance related activities by regulatory bodies and the supervisory authorities
• support to sustainable investment portfolio analysis based on granular and reliable data in order to increase transparency of sustainable energy investment strategies and markets

For both scopes A and B:

The proposed actions should:

• involve private finance stakeholders, with a focus on institutional investors with a clear benefit to retail investors
• have strong potential for being taken up by market actors and avoid risks of unnecessary multiplication of already existing tools and practices
• contribute to the already existing practices or fill potential identified gaps with new approaches, e.g. in line with the EEFIG recommendations and findings
• be embedded in the most up-to-date contexts relevant to private finance investment. Notably, the proposed actions should demonstrate how they contribute to the implementation of the EU sustainable finance policy and legislation
• ensure that all sustainable energy investment triggered by the project is aligned or goes beyond the latest technical screening criteria developed in the frames of the EU Taxonomy regulation
• for actions focusing on data and digital solutions, demonstrate how they build on the existing relevant initiatives such De-risking Energy Efficiency Platform (DEEP) [https://deep.eefig.eu/]

Proposals are expected to demonstrate, depending on the scope addressed, the impacts listed below.

For scope A:

• Investments in sustainable energy triggered by the project (cumulative, in million Euro)
• Evolution of investment practices of private financial institutions leading to improved financing of energy efficiency and renewable energy investments
• Improved access to data supporting increased investments in energy efficiency
• Number of institutional investors reflecting multiple-benefits of energy efficiency investment in their market strategies
• Number of companies or financial institutions who embedded the minimum technical criteria for sustainable investment set out in EU taxonomy or went beyond them in their activities
• Number of stakeholders using new or harmonised schemes, methods or data leading to increased flows of private finance to sustainable energy
• Number of market actors, in particular financial institutions, who integrated energy efficiency and sustainable energy specificities into their usual practices
• Primary energy savings/renewable energy generation triggered by the project (in GWh/year), particularly in the building sector

For scope B:

• Improved integration of the specificities of energy efficiency and small-scale renewables within the sustainable finance strategies and investment practices of financial institutions
• Number of entities who embedded the minimum technical criteria for sustainable energy investment set out in EU taxonomy or went beyond them in their activities
• Number of stakeholders using new or harmonised schemes or methods leading to increased flows of private finance to sustainable energy
• Number of market actors, in particular financial institutions, who integrated sustainable energy specificities into their usual practices
• Number of retail investors benefiting from new market practices
• Support to financial regulatory bodies and the supervisory authorities on energy efficiency and renewable energy specific policies
• Investments in sustainable energy triggered by the project (cumulative, in million Euro)
• Primary energy savings/Renewable energy generation triggered by the project (in GWh/year), particularly in the building sector