Europe and its neighbours are reeling from the toughest year for decades – a green economic recovery promises new jobs and long-term sustainability, and the Green for Growth Fund (GGF) is at the heart of this opportunity.

It’s almost one year since the European Commission launched its ambitious Green Deal, a new economic growth strategy aimed at reducing environmental impact while creating jobs and ensuring a fair transition for all.  With a target of net-zero carbon by 2050 and a halving of emissions by 2030, the Green Deal represents the biggest overhaul of policy in the EU’s history. Yet, in December 2019, as EC President Ursula von der Leyen introduced the plans, a new coronavirus was emerging in China.

By March, with the global COVID-19 pandemic raging across Europe, countries were forced to concentrate spending priorities on the unprecedented health and economic crisis. The entire region is still very much in the storm of the pandemic.

Around the world, governments have imposed varying degrees of  “lockdown”, social-distancing measures limiting the activities of billions of people. Planes have been grounded, vehicles parked, industry and businesses shut for long periods. The lack of fossil fuel demand helped fuel a crash in oil prices so severe that the price of a barrel of oil dived below zero in April. 

We don’t know when this pandemic will be over, but with new, effective vaccines now gaining regulatory approval, there is a route out. Much depends on the effective rollout of mass immunisation to bring an end the pandemic, and revive economies. Globally, we are experiencing the deepest recession since World War II, with economies expected to shrink by between 4.4% to near-8% in 2020, according to IMF  and World Bank  estimates. Forecasters are predicting a slow recovery for 2021.

What kind of recovery we have, however, will leave a lasting impact on the planet in the decades to come. GGF believes investing in the shift to sustainability offers an essential solution to our interconnected economic, social and health crises, including by providing jobs, strengthening new markets and improving air quality at a time when it’s most needed. 

“If we’re going to be investing globally, far better to invest in a recovery that’s robust and also green,” says Lloyd Stevens, director at Finance in Motion, the investment advisor to GGF and based in Frankfurt am Main. GGF is a public-private impact investment fund working with local banks and other financial institutions, to channel dedicated green financing to businesses and households, as well as offering direct financing.

In the face of such a severe economic and humanitarian crisis, it has been argued that we can’t afford the “luxury” of environmental concerns, that our economies should be rebooted at any cost. There have been calls for the postponement of the European Green Deal measures, for instance. But, the Commission steadfastly defends its growth strategy, describing the COVID-19 crisis as an opportunity for a green restart of European economies – a message that is spreading throughout the region. It has broad public support, according to surveys, which found European attitudes towards the Green Deal not only remained generally positive, but actually improved throughout the coronavirus crisis. It seems that once people get a taste of dramatically cleaner air and the chance to appreciate a resurgence of nature owing to the reduction in human activities over lockdowns, they don’t want to return to the same, old polluted “normal”. 

At the end of May, the Commission adopted an economic recovery budget and fund – Next Generation EU – to accelerate Europe’s green and digital transition. By July, the European Council had agreed a recovery plan based on the Green Deal.  At the same time the EU agreed on a substantial investment in the GGF of EUR 85.5 million to support its regional neighbours through the crisis and with their green recovery post-pandemic. 

“GGF is a channel for the Green Deal – we offer a way to operate it on the ground in the EU’s neighborhood,” says Olaf Zymleka, Chairperson of the GGF. “Through the financing tools we offer, we contribute to bringing neighbouring countries in line with EU climate objectives, helping to deliver on commitments and targets that they have.”

GGF invests in renewable energy projects, and in measures that reduce energy consumption, resource-use and CO2 emissions. The fund has been operating for over a decade, providing more than EUR 1.1 billion in finance to over 40,000 beneficiaries in 19 markets across Southeast Europe, Turkey, the European Eastern Neighbourhood Region, and the Middle East and North Africa. This latest EU investment also effectively lowers the risks for other investors, and has already leveraged further private funds, including EUR 30 million from a major European insurance company.

The scale and severity of the COVID-19 crisis has forced governments to help the unemployed and impoverished, as well as supporting businesses and industry. This is the time for governments to forge a new relationship with the private sector, helping them transform themselves, to stay afloat, but also to become more sustainable so we can meet our carbon emissions targets and keep the world below dangerous warming. Using public money to incentivize private investment in low-carbon technologies has worked effectively in the past and is especially important now with pandemic-hit economies. Transitioning to a green economy creates new jobs at a time when they are sorely needed, such as in infrastructure – from renewable energy construction to upgrading existing properties to improve energy efficiency. 

For EU neighbors, the other benefits of a green transition are multiple: alignment with EU environmental standards improves trade prospects for manufacturing and industry; reducing energy and resource-use improves livelihoods and reduces poverty; and reducing pollution improves health and wellbeing. During this crisis, GGF is able to respond in a timely way, helping channel green finance through trusted local financial partners to the people and companies that can best use it. As well as financing the projects themselves, the fund also invests significantly in capacities within financial institutions and corporates to really undertake the green transformation and build awareness amongst borrowers. 

“At our first board meeting of the year, in early April, we were proactive, already proposing a green recovery plan in response to the shock,” Stevens says. “For example, we realized that there would be an increased need for short-term liquidity, so we decided to adapt the GGF to temporarily include working capital, for the next 12 months, to help businesses through the initial financial shock.”

“It’s not about shelving our green priorities,” Zymelka emphasizes, “but making sure that banks are able to provide clients with the liquidity they need to survive the next 6-12 months, so they can make green investments when they’re thriving.”

Meanwhile, GGF quickly developed and implemented its green recovery package to help overcome challenges caused by the pandemic, including eligibility adjustments that provide more flexibility for banks to lend for the purchase of new efficient equipment, and investments in essential sectors such as healthcare, food processing and agribusiness. 

The fund’s technical assistance facility is also supporting green entrepreneurs via its Early Stage Green Innovation Support initiative. Early stage businesses are some of the most impacted by the current crisis and this initiative directly helps these green enterprises maintain viability and adapt to new market demands. It is working with 11 companies across the GGF target region on diverse issues, including supporting an Egyptian startup that made biodiesel from food waste to shift to sustainable hand sanitizer production. 

“It’s important not to conflate environmental investment with unnecessary investment,” Zymelka stresses. “Environmental investments are really strong employment drivers in, say, household energy efficiency, such as insulation and building renovations. Green investments also are driving industry competitiveness, because modern production processes and equipment drive higher quality, cheaper, and lower-CO2-emissions products. 
“There’s a whole suite of reasons that justify supporting green investments as a part of a recovery strategy.” And GGF is at the forefront of this opportunity.