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How the EIB measures its impact

This report is aimed primarily at readers who already have a certain familiarity with the Bank. It highlights the additionality of the Bank’s involvement in the projects it finances.

As the European Union’s bank, the EIB is charged with implementing public policy. In that role, the Bank ensures that all operations meet its requirements of additionality and impact, and are eligible for its support.

What is additionality? Additionality refers to how the Bank’s intervention can enable or strengthen a project — typically a project that could also benefit public welfare — in a way that the market alone would not achieve. When markets fail to function efficiently, they often do not generate socially desirable outcomes. Market failures can inhibit private sector investors from delivering the optimal level, scope and/or quality of investment for societies, providing room for public banks, such as the European Investment Bank (EIB), to make a difference. If the market failure did not exist, the private sector would likely have made the needed investment.

The Bank’s eligibility rules ensure that activities are in line with the EIB statutes and EU policy objectives. All projects financed by the Bank must contribute to the EIB’s goals in its main spheres of activity: sustainable cities and regions; sustainable energy and natural resources; innovation, digital and human capital; small and medium-sized enterprises (SMEs) and mid-cap finance; climate action and environmental sustainability; and economic and social cohesion.

An EIB loan will help ArcelorMittal meet its decarbonisation objectives.

Until the end of 2020, the EIB used its Three Pillar Assessment (3PA) to measure additionality and impact for its EU projects, while projects outside the European Union were assessed using the Results Measurement framework (ReM). Both methodologies rated projects according to criteria that fell under three main pillars: the furthering of EU policy objectives; project quality and soundness; and the EIB’s contribution to the project. The charts below illustrate the 2020 performance of the EIB’s different products under each pillar.

* 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, why the 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 what difference EIB support can make;

•providing support that complements what is available from other sources of financing — how EIB 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 goods for 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.

Addressing additionality

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.

Delivering impact

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).