Closing the green investment gap

The Malta Development Bank wants to become a key driver of economic prosperity by advancing “sustainable and inclusive development”, its CEO says.

Paul V. Azzopardi has no doubts on the bank’s direction in the years ahead: “We must transform the way business looks at sustainable development.”

Citing the bank’s track record to “swiftly and effectively” address the extraordinary challenges posed by the pandemic, Azzopardi says the bank is committed to leverage these experiences to push for development that is sustainable and inclusive.

“We are embarking on an effort to make the Malta Development Bank the gateway to finance for businesses in Malta,” he says, adding that the bank will have an increasingly important role in facilitating sustainable investments.

Azzopardi sits down with MaltaToday to speak about the MDB’s drive to stand by businesses in their current needs, encourage them to adopt green initiatives and finance the green transition.

What importance does the MDB attribute to sustainability?

Right now, it is very important for the MDB. In a short time, we believe it will be important for all businesses in Malta. A recent EIB survey placed the Maltese at the very top of populations in Europe who want action on climate change and a fair transition. I hope that in the future we will be able to show the impact of our efforts on these matters.

So, is there a refocus on green initiatives?

We are weaving the theme of green investment significantly into MDB’s strategic planning. The idea is to place the bank at the centre of these matters. Sustainable development is already in our mission, and in this context, the MDB reaffirms its commitment to promote it. But we will not chase a green transition if it means ignoring today’s needs: Defending employment levels in Malta in the face of shocks and supporting long-term prospects for SMEs remain at the heart of what we do at the bank, along with our intermediary banking partners.

We are the gateway to finance for many businesses, and we pledge to continue being there for businesses. In our short six-year existence, we have facilitated over 800 facilities to businesses providing loans and guarantees exceeding €600 million. Looking ahead, however, the green transition cannot wait any longer. When we analyse the impact of MDB’s schemes, the number of jobs safeguarded and investment generated on the ground are important indicators; but I would also like to start seeing data about carbon emissions avoided, and how green these businesses are.

The financial results for last year, currently being finalised, demonstrate how the MDB manages to combine its public mission with prudent management, leading to good financial performance. But in the longer term, we do not believe this is enough. We will focus more on green initiatives in 2024, because that is where our efforts really need to be.

How different will your green initiatives be from all the others out there?

The MDB has the experience and knowledge to develop and implement financial instruments effectively. It is adept at mobilising resources efficiently through leverage, achieving more with less. This is accomplished through strategic partnerships with other entities, blending their grant-based resources with MDB’s guarantees, thereby expanding the reach and impact of resources through intermediation via commercial banks. We’ve achieved this with the popular Further Studies Made Affordable scheme and the COVID-19 Guarantee Scheme. We firmly believe that this approach is the correct path forward to bolster the green transition and unlocking private investment in the process.

The green investment gap – how much the world needs to invest in green technology to start to fight adverse climate change – is massive. To do Malta’s part in closing that gap is no small endeavour either.  And to make matters worse, studies across the world have shown that public investment alone cannot succeed – the private sector must be crowded in. This is why the MDB has a critical role. We are well positioned and equipped to create the leverage, crowd-in commercial banks, provide the guarantees, and design the financial instruments the country needs to fund the green transition.

What green initiatives is the MDB working on?

We are holding talks with Malta Enterprise on a blended instrument which will target green mobility and on other initiatives targeting investments in the blue economy. We are also in close discussions with the Managing Authority – the entity responsible to manage EU Funds in Malta – to facilitate a new financial instrument to support energy efficient initiatives.

The MDB is also an Implementing Partner (IP) under Connecting Europe Facility’s Alternative Fuels Infrastructure Facility (AFIF) which is a blended EU Financial Instrument. As an IP, the MDB will be supporting investments in charging infrastructure for public buses.

We also see a huge potential to involve the MDB in large-scale investments, especially those with a long gestation period. The bank would step in here, to make these projects bankable. The potential, particularly in renewable investments, is huge. The government commissioned studies to identify the ideal zones for the development of offshore renewable energy in Malta with the objective to achieve a better mix of energy sources. We would be facilitating financing conditions, without competing directly with commercial banks, and make such projects more bankable. The idea is to assure financial viability for large-scale green projects.

On the funding side, in November last year we obtained €30 million in financing as an EIB Climate Loan and following the European Investment Fund’s on-site visit as part of the due diligence process, the MDB was allocated €15 million under the Sustainability Invest EU Guarantee which will be mobilised mainly through the SME Guarantee Scheme and Guaranteed Co-Lending Scheme.

What does the transformation you hinted at consist of?

Businesses look at sustainable development as a challenge. It is perceived as something that is costly, or that involves bureaucracy. We believe that if used strategically sustainability is an opportunity for business, and not a barrier. We ourselves are beginning to change the way we operate. We must start to make our financing and investment decisions differently. We want to include in our credit analysis not only financial and economic data, but also the impact on environmental, social, and governance issues that our loans and guarantees lead to. This is already part of our newly designed ESG policy.

To transform our business model to include these principles, it is also necessary to develop new methodologies and internal procedures. The bank is very strong in the social and governance areas, and we are now further developing our environmental engagement.

In this respect, we are obtaining a wealth of know-how from advisory support provided to us by the European Investment Bank through the Green Gateway project. For us to undertake a transformative journey we must integrate and co-ordinate diverse elements to become a more proactive participant in the green transition.