What Is the European Investment Bank?
The European Investment Bank (EIB) is a nonprofit European Union institution based in Luxembourg. The EIB makes loans and guarantees and also provides technical assistance and venture capital for business projects that are expected to further EU policy objectives. While almost 90% of EIB lending occurs within the EU, most of the remaining lending occurs in outside markets such as Southeast Europe and Iceland. The organization is funded by each of its member states, whose contribution is based on their respective economies.
- The European Investment Bank is a Luxembourg-based nonprofit European Union organization.
- The EIB issues grants and loans on favorable terms to projects that further EU policy objectives, particularly in relation to infrastructure and climate action.
- The organization is funded by 27 member states whose contributions are based on their GDPs.
- The EIB signed loans for €65 billion euros, supporting 748 different projects in 2021.
- The bank approved a total of €200 billion to support COVID-19 recovery.
Understanding the European Investment Bank (EIB)
The European Investment Bank is owned by the EU member states and exists to fund projects that further the EU's policy objectives. All member states contribute to the bank in proportion to their respective gross domestic products (GDPs).
In order to fund loans, the EIB borrows money from capital markets and lends it out at favorable rates to qualifying projects. Many of these projects are aimed at mitigating climate change or fostering economic growth. As many as 90% of them are located within the EU.
EIB loans are also used to provide support for:
- Lesser-developed European countries
- Environmental improvement and sustainability
- Energy security
- Trans-European networks
- Knowledge economy projects
Borrowers often use EIB financing in conjunction with third-party financing. The commitment of the EIB often attracts additional financing from other parties.
Although 90% of bank-funded projects are located in the European Union, the EIB also provides funding to projects in Africa, Asia, and the Americas.
History of the European Investment Bank (EIB)
The European Investment Bank was founded in Brussels in 1958 when the Treaty of Rome was signed. At the time, the bank had just 66 employees. The organization relocated to Luxembourg in 1968.
The EIB Group was formed in 2000 and was composed of the EIB and the European Investment Fund (EIF), the EU's venture capital organization that provides financing and guarantees for SMEs. The EIB is the EIF's majority shareholder and holds 61.3% of the shares.
In 2012, the EIB Institute was created to promote European initiatives in EU member states.
Structure of the European Investment Bank (EIB)
The EIB is an EU entity and a bank. Therefore, it must adhere to both public and corporate governance principles. The institution has three decision-making bodies:
- The Board of Governors: This body sets the direction of the EIB.
- The Board of Directors: This body oversees the strategic direction.
- The Management Committee: This body supervises the daily operations of the EIB.
As of 2021, Dr. Werner Hoyer is the president and has held the position of director and chair since January 2012.
The bank has 27 shareholders who are the Member States of the EU. Germany, France, and Italy represent the three largest shareholders, as they provide the largest amount of capital at €4.167 billion each as of March 2020.
European Investment Bank (EIB) Services
The EIB Group is among the largest multilateral climate financiers in the world and has a AAA credit rating. In fact, it approved almost €95 billion in financing for various projects in 2021. This amount was split, with the EIB receiving about €65.4 and the EIF getting €30.5. The EIB provided support to 748 projects in 2021.
The group also takes economic cues from events that have a negative effect on its member states. For instance:
- In addition to the €50 billion annual lending, the EIB and its member states unanimously approved a €10 billion capital increase in 2012 for economically viable projects across Europe, particularly for the four priority sectors of innovation and skills, SMEs, clean energy, and infrastructure.
- The EIB made COVID-19 recovery a priority when the pandemic hit. Directors approved the Pan-European Guarantee Fund in 2020 with an immediate €28 billion. These funds provided support to viable companies that struggled to survive the economic downturn associated with the virus. The EIB planned to provide up to €200 in additional funding until Dec. 31, 2022.
In addition to providing medium- and long-term loans to other financial institutions, the EIB also invests in the equity and debt instruments of other institutions, including microfinance institutions or funds.
The bank also offers grants that are intended to help borrowers strengthen some of these weak points. These grants are largely intended to provide technical assistance to loan recipients, in order to improve their management or performance efficiency.
European Investment Bank (EIB) Projects
Projects supported by the EIB go through a seven-step process, where the bank first reviews and approves the successful proposal, and then monitors its progress until the loans are repaid. As noted above, these projects must conform to the EIB's standards for procurement and environmental impact.
The bank signed 748 projects in 2021, with a total monetary value of €65.4 billion. More than half of this amount went to projects in transportation and energy or via credit lines to smaller finance facilities. Smaller amounts went to industries like agriculture, health, and infrastructure. Altogether, the bank has lent out the equivalent of nearly €1.6 trillion since its founding in 1958.
European Investment Bank (EIB) and Climate Change
Climate change is another important aspect of the bank's work. In 2019, the bank's board of directors approved a new roadmap that would align all of its financing activities with the carbon reductions set out in the Paris Climate Agreement.
The bank expects to invest €1 trillion in projects related to climate action or environmental sustainability between 2021 and 2030 and expects that 50% of its financing activities will relate to climate by 2025.
Frequently Asked Questions
What Is the Role of the European Investment Bank?
The European Investment Bank provides financing and grants for projects that advance the policy goals of the European Union. Many of these projects relate to supporting energy infrastructure, transportation networks, or other investments that will improve employment and trade between European economies.
What Is EIB Funding?
Funding for the European Investment Bank comes from EU member states, or from previous loans that have been repaid. The EIB funds projects that advance EU policy objectives, such as climate action, environmental sustainability, and COVID-19-related recovery relief. The bank signed a total of 795 projects in 2021, with a combined value of €65 billion.
Is the EIB Regulated?
Like other banks, the European Investment Bank must comply with all EU regulations on protecting user data, preventing fraud and money laundering, and maintaining minimum reserves. It must also abide by the principles set out by the Basel Committee on Banking Supervision and the European Banking Authority.