Mobilising bank financing for European cleantech

Context  

The European Commission, through its competitiveness objectives, expects the private finance sector to play a major role in financing the transition. Key strategic sectors such as cleantech manufacturing, bolstered by public funds, urgently await the crowding-in of traditional private finance actors. Private banks are the biggest players in the European financial ecosystem, yet remain hesitant to finance cleantech scale-up projects due to their perceived high risks. This further amplifies the financial gap synonymous with the “missing middle” of the cleantech race, where firms struggle to access private capital as they attempt to scale.  

In parallel, several derisking tools are available to make cleantech projects more attractive to investors. However, current policy debates lack a clear understanding of the most material financial risks that must be offset or derisked to make such projects bankable. Making the Clean Industrial Deal (CID) bankable through the most appropriate derisking tools, or incentivising prudential regulatory levers, is necessary to bridge the financing gap. 

Objectives 

I4CE’s research explores the banking perspective on cleantech project risk, profitability and bankability that are crucial for decision-making. The research delves into deciphering cleantech financial risk to identify the most effective mitigating levers- whether through specific derisking mechanisms (ex: through EIB guarantees) or prudential regulatory levers. Our research aims to:

• Identify obstacles to cleantech bankability and the relevant de-risking tools to crowd in bank finance  
  Providing an evidence-based analysis on the key demand and supply factors that impact banks’ risk perception for cleantech scale-up projects and identifying the appropriate derisking tools. 

• Inform policymakers on appropriate levers to mobilise banks 
  By understanding the challenges and constraints faced by banks, I4CE aims to bring clarity to the debate around the de-risking mechanisms that could help improve the bankability of the CID. 

Partners 

The outputs of this project will be solely produced by I4CE.   

The project is funded by the European Climate Foundation (ECF).