Supporting financing of local adaptation actions with combination of public funding and private financing

Expected Outcome:

In support to the implementation of the EU Adaptation Strategy, the EU Mission on Adaptation to Climate change, and in particular having regard to the upcoming European Climate Adaptation Plan, project results should contribute to all of the following expected outcomes:

• Local climate adaptation actors, the financing sector, the public grant sector, and climate adaptation financing experience are brought to work together on making local adaptation actions financeable by combining public grant funding and private financing via bank loans and on overcoming the practical barriers on combining these and finding solutions, and specifically through demonstrating this with intermediated EIB adaptation lending.
• Local innovative adaptation actions (including nature-based solutions) have been implemented thanks to their financing by the combination of private financing via bank loans and public grant funding.
• National Promotional Banks (NPBs)/other banks are mobilised to actively finance local adaptation actions.

Scope:

Rationale

Financing of local adaptation actions, especially with other means than public grant funding, is currently still not taking place sufficiently. Adaptation actions are generally not generating sufficient revenues to become bankable, although they produce financial and economic benefits through avoiding or reducing losses or diversifying risk profiles. Local adaptation actions are typically smaller in size, resulting in high transaction costs and insufficient scale for bankability. These are barriers to financing. In principle, the financing of adaptation actions can be enhanced by combining public grants with private financing, such as bank loans. Demonstration and assessment in real-life conditions is still needed on the barriers and solutions to financing local adaptation actions, in particular on combining public grant funding and private financing via bank loans, and innovation work on the financing of local adaptation actions.

Financing is one of the key enabling conditions of the Adaptation Mission. The goal of this topic is, by involving the necessary stakeholders from the private and public sector, to work on how to, by providing public grants, attract private financing via bank loans, to finance local adaptation actions, with a view to replicating and/or scaling up. The role of NPBs and other banks for financing local adaptation is, for reasons of size of and closeness to the local action, crucial and should, in view of the enormous amounts of financing required for adaptation and climate resilience^[1], grow in importance as quickly as possible.

The European Investment Bank

The European Investment Bank (EIB) as the EU Climate Bank is working, jointly with the European Commission, on addressing the barriers to adaptation financing, through both its lending and advisory assistance, in line with the EIB Climate Adaptation Plan and the EIB Climate Bank Roadmap. The EIB supports the Adaptation Mission.

This Action is aligned with EIB support for adaptation through intermediated loans with a Climate Action and Environmental Sustainability window, whereby the EIB makes intermediated lending available to National Promotional Banks and other banks for local climate adaptation actions^[2].

To support this Action, the EIB will, from its existing available resources, make available technical assistance/adaptation advisory support on the local adaptation actions for the National Promotional/other banks (under the InvestEU Advisory Hub’s Green Gateway programme) and/or for the project promoters (under ADAPT platform, subject to eligibility and availability).

For the purpose of this Action, the EIB will furthermore offer the selected consortium guidance and share knowledge and experience to support the successful implementation of the project.

This Action with the EIB supports the follow-up to the July 2023 Communication on EU Missions assessment.

Activities of the project

Proposals should demonstrate local innovative adaptation actions (testing and demonstration in real-life conditions) and the financing thereof by combining public grants obtained via financial support to third parties (FSTP) with private financing via bank loans. They should also generate recommendations on combining these, on the barriers to such financing and practical solutions to overcome these barriers.

The proposals will be required to address all of the following:

1. Provide FSTP in the form of grants to project promoters, to demonstrate in real-life conditions local innovative adaptation actions and their financing by combining public grant funding and bank loan financing via intermediated EIB adaptation loans, with scale up and replication potential.

At least 70% of the total amount of the EU requested contribution should be for the financial support to third parties.

Local adaptation actions should have a size between EUR 500.000 and EUR 10 million. The grant to third parties cannot cover more than 70% of the total costs of the local adaptation action.

The (first) cascade call should be launched in the first 10 months of the project.

Proposals should describe how they intend to provide financial support to third parties, in accordance with the FSTP Annex provided with the application form, while clarifying the types of activity (taking into account the activities that qualify as EIB eligible adaptation), and the procedures for giving financial support, which should assure that the no double-funding rules where applicable will be complied with and should assure that the same rules as set out for the EU call conditions in relation to eligible costs will apply (i.e. cost eligibility rules). They should also specifically take account of provisions on ‘financial support to third parties’ set out in General Annex B and incorporate them into the proposal.

Proposals should specifically consider elements within the FSTP scheme to address geographical balance and inclusivity, aiming for an as wide as possible coverage of different countries.

The consortium should establish coordination, and is encouraged to consult / involve the NPBs and other banks as stakeholders, and the consortium should work closely with the EIB, in particular on the criteria for the local innovative adaptation actions. Proposals should propose a structure / activities for this involvement and cooperation.

The project retained for granting is expected to hold dedicated exchanges with CINEA and the Mission Secretariat during the preparation of the cascade funding call(s).

2. Assessing and drawing lessons and recommendations from the financing of the above local adaptation actions from the different sources of financing, and from combinations of loans and grants that have been used in the past for financing adaptation, whether at national, regional or EU level (e.g. LIFE integrated projects, National Capital Finance Facility, etc). This covers at least the following:

• Capture and analyse the barriers encountered in the financing of the above local adaptation actions, covering all sources of financing that are being combined to finance the local adaptation actions, including the combining of public funding and bank loans, and propose practical ways to overcome these.
• Analyse how the EU taxonomy is being applied.
• Collect lessons learnt.
• Raise awareness and disseminate knowledge by providing examples of good practices, including through short case studies of successful combining of public grants and bank loans.
• Provide recommendations, at least on successfully combining public grants and bank loans, and on the appropriate proportion and conditions of public grant funding, and appropriate combination of grant/bank loan. Produce recommendations on how to, by providing public grants, attract private financing via bank loans, to finance specifically local adaptation actions, with a view to replicating and/or scaling up.
• Disseminate the outcomes, via targeted channels and materials, for the benefit of regional and local authorities within the Mission and beyond.

Proposals should demonstrate the experience in finance in the consortium.

The subgrantees (Third Parties receiving Financial Support)

The subgrant call should be open to any public or private entities, including SMEs. As such, regional or local administrations could also be recipients.

The subgrantees should demonstrate innovative local adaptation actions and their financing by combining public grants and private financing via bank loans. To achieve the demonstrating at small scale of adaptation financing under this Action as a pilot, for the loan element, EIB intermediated adaptation lending will be used. Therefore, eligible third parties are project promoters that before applying for the subgrant should have already received a written offer subject to contract from a NPB/other bank of a loan (conditional upon securing the subgrant) to finance the local adaptation action that is in line with the EIB Climate Action and Environmental Sustainability criteria under an EIB intermediated finance contract.

In this manner, the NPBs/other banks will have assessed that all the local adaptation actions meet the same EIB requirements for adaptation. As the EIB eligibility criteria include that the local adaptation actions should address specific climate risks identified as relevant by the regional or local authority and be in line with the relevant adaptation strategy or plan, this will imply that the adaptation actions supported under this topic will be contributing to implementing the regional / local adaption plan where approved and in place. The local adaptation actions will, before applying for the subgrant, have been appraised by the National Promotional Bank/other bank and assessed as viable if securing the subgrant.

The National Promotional Banks and other banks will be able to facilitate access for project promoters to the combination of financing, and activate the origination and financing of local adaptation actions.

In line with the Mission Implementation Plan, for the local adaptation actions, Nature-based Solutions should be explored as preferred options where feasible.

Links to the Mission and to other projects

Proposals are strongly encouraged to build on existing knowledge developed by previous projects and when relevant explore synergies with ongoing projects from EU and national programmes^[3]. Proposals should make use of the work done for the Adaptation Mission by the Climate City Capital Hub on the financing of adaptation projects of Adaptation Mission Signatories. Proposals should include a mechanism to establish operational links and collaboration with the Mission Implementation Platform (including on monitoring). The project funded under this topic will be expected to participate in the Mission Community of Practice and to share relevant knowledge for regional and local authorities through the Mission. Applicants should acknowledge these requests and already account for them in their proposal, making adequate provisions in terms of resources and budget to engage and collaborate with the Mission.

[1] Estimated annual adaptation costs range from EUR 15bn to EUR 500bn for the EU. (0.1-0.4 percent of EU GDP) to 2030, with a median estimate around EUR 21 bn, World Bank Group, 2024. Climate Adaptation Costing in a Changing World. Economics for Disaster Prevention and Preparedness; and EIB, 2021. The EIB Climate Adaptation Plan. Supporting the EU Adaptation Strategy to build resilience to climate change

[2] The eligible sectors and projects are described in the European Investment Bank Climate Action and Environmental Sustainability - List of eligible sectors and eligibility criteria, as updated, pp 14-16, publ. 2024 https://www.eib.org/en/publications/20240166-climate-action-and-environmental-sustainability-eligibility-list

[3] In particular, the projects selected under HORIZON-MISS-2024-CLIMA-01-06, and HORIZON-MISS-2025-01-CLIMA-05.