how to finance circular economy?...jun 07, 2016 · 27/06/2016 european investment bank group 1 how...

27/06/2016

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27/06/2016 European Investment Bank Group 1

How to finance circular economy?

SMART BENELUX BUSINESS FORUM

7 June 2016

Jonas Byström, EIB


Linear economy – drivers for change

Linear risks

The population and consumption grows - most resources are finite!

Today we take–make–use–dispose

Resource scarcity ► increasing costs/externalities in extraction/transport!

Increasing fossil fuel use ► disturbed environment and stressed climate!

Time is of essence!

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Circular economy - delivery


• maximise the value and utility of assets, materials and products

• minimise wastage throughout the value chains

• consider waste as an asset not a liability

In short:

Reduce

Circular drivers and opportunities

jobs

Raw materialresilience

competitiveness

growth


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Circular opportunities

Large amounts of wasted resources - loops to close!

Challenge: increase the resource efficiency, close the loops!

Municipal waste 246.1 16.2%

Bulky waste 12.3 0.8%

Electric/electronic waste 9.0 0.6%

Construction waste 820.5 54.0%

Commercial/industrial waste 424.6 28.0%

End of life vehicles 6.1 0.4%

Total 1,518.6 100.0%

Source: Eurostat

Waste stream

Generation

EU 2012

mt/yr

Share (%)

Key circular characteristics

EUROPEAN INVESTMENT BANK 6

A circular economy project is characterised by:

� reduced input of virgin materials, water, energy

� increased input of renewable/secondary resources,

reused water and renewable energy

� increased material recovery/reduced material losses

� extended life/value/use of assets, products, components

and materials

2nd March

2016

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Circular Economy in different stages


Design and manufacturing stage:• Product design for long life and/or for easy maintenance, refurbishment,

repair, re-manufacturing or recycling

• Process/equipment design with reduced wastage of materials and resources,

increased recyclability of by-products

• Circular sourcing with increased use of secondary raw materials and

renewable resources

Use stage: • Leasing and sharing services

• Maintenance, refurbishment and repair services to extend the life of products

• Services to facilitate the tracing, marketing and trade of secondary raw

materials

After-use stage:• Take-back services for products and packaging after use

• Expanded/improved separate collection of recyclable materials and bio-waste

• Sorting/refinement/pre-processing of recyclable materials and bio-waste

• Energy recovery from bio-waste

2nd March

2016

Circular economy project risks


• Small sub-investment grade promoters with limited collateral or

few physical assets

• Innovative and not yet fully commercially proven technologies

with associated construction and operating risks

• Transitions to new/unproven business models with associated

commercial and market risks

• Supply chain uncertainty, e.g. secondary raw material/by-

product feedstock supply, and competition from virgin materials

• Poorly developed markets and limited demand for remanu-

factured, renewable or waste/by-product based products

2nd March

2016

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Financing a Circular Economy

General circular economy challenges:

New concept > need for new mind-set for business and

bankers

Consumerism and wasteful use of resources are engrained

in society > need for awareness building and incentives

New risks > need for new risk assessment approaches

Commodity price volatility > short term circular business

case uncertain, need to consider long term risks

Linear economy risks and impacts are not only financial but

also economical/social > consider externalities

Self-financing by larger companies > Financing needs uncertain


Financing a Circular Economy

Particular circular economy challenges:

New business models > new financing needs

Pay per use, lease models: Longer financial relations,

balance sheet extension and increased capital demand

New dimensions of residual value – and challenges with

asset evaluation/tracking

Contracts and credit worthiness important in regard

to e.g. asset security and ownership

Increased need for pre-commerce/start-up financing

Focus on supply chain and working capital financing

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EIB - The EU bank


Investing in Europe’s growth

• EU’s financing partner since 1958

• Shareholders: 28 EU Member States

• Largest multilateral lender and borrower in

the world

• Raise our funds on the international capital

markets and pass on favourable borrowing

conditions to clients

• Some 450 projects each year in over 160

countries

• Headquartered in Luxembourg, 33 local

offices, and around 2 900 staff

EIB group Lending in 2015


ENVIRONMENT

23%

INFRASTRUCTURE

22%

INNOVATION

22%

SME

34%

EIB in 2015:

EUR

77.5bn(EU: 90%)

EIF in 2015:

EUR

7bn

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Our products

We offer:

• Competitive funding, diversification and sector expertise

• Loan size min. EUR 7.5 – 12.5m (less for framework/global loans)

• EIB generally finances up to 50% of project cost


LENDING BLENDING ADVISING

Loans, and:

- Guarantees

(trade financing)

- Equity participation

Combining EIB finance

with EU budget

(Project Bond Initiative)

Higher risk projects for

innovation (InnovFin)

Prepare, evaluate and

support the implementation

of projects (JASPERS)

Support for public/ private

partnerships (EPEC)

Attracting FUNDING for long-term growth

Investment Plan for Europe

5

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7

Targeted products

Continuously adapting to market needs

Key areas

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Targeting strategic public and private investment

• Infrastructure: including transport, energy and digital

• Innovation: Education and training, health, research,

development and innovation

• Renewable energy: Expansion of renewable energy generation

and support of energy and resource efficiency

• Environment: Projects in the environmental, urban development

and social fields

• SMEs and midcaps: Financing support through local partner

banks and institutions

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What kind of operations?

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Operations must be:

• Commercially sound, economically and technically viable

• Underpin EFSI objectives

• Support growth and jobs

• Mature enough and structured to be bankable

• Priced in a manner commensurate with the risk taken

• Covering EU28 countries or cross-border operations

Opportunities for promoters/investors

13

EU Member States, National Promotional Banks, Investment

Platforms and private sector can participate in different ways

Projects

• Co-financing/ Risk-sharing with EIB/EIF

Investment Platforms

• Pooling of projects with thematic or geographic focus

• Agreement or Fund

• Can benefit from EU guarantee via EIB

• Cooperation with EU National Promotional Banks

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EFSI Status

19

SME financing under EFSI

16

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SME financing in Luxembourg

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EIB intermediaries:

BGL BNP Paribas

www.bgl.lu, Tel. +352 4242 2000, E-mail: [email protected]

ING Luxembourg

www.ing.lu, Tel. +352 44 99 1273, E-mail: [email protected]

EIF: http://www.eif.org/what_we_do/where/index.htm.

Luxembourg Future Fund: a EUR 150m fund by EIF/SNCI

Invests in innovative SMEs and VC funds to stimulate diversification

and sustainable development of the Luxembourgish economy

The Advisory Hub (EIAH)

A tool to strengthen Europe's investment and business

environment

A single access point to a 360 degree offer of advisory

and technical assistance services

A joint initiative by the European Commission and the

European Investment Bank

A cooperation platform to leverage, exchange and

disseminate expertise

An instrument to assess and address unmet needs for

advisory support

www.eib.org/eiah [email protected]

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European Investment Bank Group 23

InnovFin – EU Finance for Innovators

• Products tailored to support research & innovation: loans to

enterprises, guarantees to intermediaries, advisory services to

improve bankability

• Targets growth-enhancing companies and activities in line

with the Horizon 2020 Research Programme 2014-2020

• Demand driven instrument – no prior allocation between

sectors, countries, regions

• Total budget of € 3bn supporting investments of € 20bn

• Risk shared between EIB and the EU (first-loss-piece)

• Innovation Finance Advisory support to improve the bankability

and the investment readiness of companies/projects

InnovFin Product Overview

24European Investment Bank Group14/10/2015

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Innovation Finance Advisory

Project Advisory

• Improve the bankability and the investment readiness of

companies/projects needing funding to make significant

R&I investments

• Clients include R&I driven companies (midcaps or larger),

public-private consortia, Joint Technology Initiatives, PPPs,

R&D clusters, EC and EU Member States

Horizontal Activities

• Prepare studies on increasing effectiveness of financial

instruments to address specific sectors/R&I projects’ needs

• Develop “business case” for new financing mechanisms to

support specific R&I policy objectives

• Studies on access to finance for circular economy projects

for the Commission and for the Government of Luxembourg

• Business model

• Debt capacity analysis

• Capital structure

• Funding strategy

• Classic or innovative (public)

financial instruments

• Funding sources and their

eligibility criteria

• Governance

• Stakeholder engagement

25FP7 Resource Efficiency Cluster - Final Joint Event18/9/2015

EIB in the Circular Economy


2nd March

2016

As the EU Bank supporting EU

policy implementation circular

economy is high on the EIB agenda

During the last 10 years EIB lent to

CE projects worth ca EUR 15 bn

EIB can and will do more for

supporting the transition to a circular

economy in EU

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Project appraisal - eligibility

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Eligibility Assessment to check conformity with:

• EIB public policy goals (Innovation, SMEs, Infrastructure, Environment)

• General eligibility criteria: Investment must be long-term, create

economic value/welfare, be economically productive, and in prioritized

sectors1/locations2

• EIB instrument specific eligibility criteria

• Eligibility of investment costs. Non eligible: land acquisition, acquisition

of old buildings/equipment, VAT/taxes/duties, IDC, purchase of

licences/trademarks, works completed > 1yr ago.

• EIB environmental, social and procurement safeguards

1 Strategic/sustainable transport, competitive/secure energy and RE/EE, integrated urban

development, environmental protection and resource efficiency

2 EU, cohesion priority regions, outside EU under mandates

European Investment Bank Group

14/10/2015

Project appraisal – viability and risk

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• Project maturity

� Project drivers and rationale

� Project team and organisation

� Regulatory certainty and enabling framework

� Financing plan and sponsor commitment

� Project documentation (site, studies, permits etc.)

• Technical soundness

� Technology robustness, maturity and track record

� Scalability/replicability of pilot scale/demonstration projects

• Business plan credibility

� Cost/revenue predictions

� Supply chain certainty

� Market assessment (demand, competition, outlooks etc.)

� Marketing plan, distribution channels etc.


14/10/2015

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Thank you!

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Jonas Byström

Urban Development Division

Projects Directorate

Phone: (+352) 4379 87659

email: [email protected]

14/10/2015

www.eib.org

how to finance circular economy?...jun 07, 2016 · 27/06/2016 european investment bank group 1 how...

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