A conversation with European Investment Bank

RICHARD KELLY: Thank you, for joining us for the next edition of our 5 by 10 Issuer's Podcast Series. I'm excited to be joined today by Laura Quinn, Managing Director and Head of Primary Markets for TD Securities, Dublin. As well as Eila Kreivi, Director and Head of Capital Markets at the European Investment Bank or EIB. We continue to see a significant amount of volatility in the markets, and our own personal lives. But there are numerous signs that we're transitioning to the next stage of the global recovery. The key difference is and what that looks like though, depending on who you're speaking with or what we're looking at. So today, we wanted to take another opportunity for a fresh perspective on what that outlook may look like, as we take the next step towards successfully navigating that still ample uncertainty that's out there. Today, we're taking that deeper dive on how EIB is looking at their priorities and goals for the upcoming year, given that evolving outlook. And with that, I will hand things over to Laura Quinn to introduce our guest.

LAURA QUINN: Rich. Eila is the director and head of the capital Markets Department at the European Investment Bank. The EIB have over 430 billion billion euro of debt outstanding. Their typical funding program ranges between 50 billion to 75 billion euro per annum, and they are very active in pioneering force in the ESG space. Eila sits on many different committees to progress the ESG space within Europe. So on that note, Eila, I know you've worked at the EIB for over 20 years. And during that time, there have been many challenging periods in financial markets. During the European debt crisis for example, and most recently, during the pandemic. Certainly, no one could have predicted the impact that this would have had on the market. With that in mind, I'm curious to hear what you think could be the biggest risk facing capital markets on a 12-month view?

EILA KREIVI: Thank you, Laura, for that introduction and the question. Well, obviously, everybody would say that that's always difficult to see, but that is in a way true. We just never seem to be looking into the right direction when we think about what the risks are and where the next crisis might come from, and absolutely nobody could have predicted this pandemic. That is absolutely true, and that's maybe not in our finance people's best expertise area. But I think what we certainly did not expect this pandemic situation to create is a disruption of the global supply chains and the problems it has got in trades. And it is preventing companies from producing their goods. It's preventing them from selling when there is demand, et cetera, et cetera. This is really-- it's not only in semiconductors, it is coming up everywhere. There are workforce shortages in many areas. People have moved on from their earlier profession to do something else, and so on and so forth. So I think this was the situation that nobody did see coming, as a consequence. We were discussing whether we take off in a V-shape or L-shape, or whichever shape, but we did not see this problem coming, I think most of us anyways. And now, I'm just wondering if we are underestimating the consequences of that situation as well. And then, of course, I'm talking about the inflationary pressures because inflation is something that nobody has even mentioned the word for over 10 years. And maybe we don't even know what it looks like anymore, or what it looks like in the future. It might be a different one than we had last time around. I'm not saying that I'm losing my sleep over that one, yet, but I think this might create some situations that we just did not think of or did not think of them appearing in the shape or form that they might actually come. And now, having been in this world where central banks are pushing liquidity to the market, where rates are very low, even negative, and then in all of this-- And then when investors have thrown in the towel a long time ago to just buy long dated paper at these levels, and then if we get the steepening of the curve and we get higher rates, I'm just wondering that might do a lot of damage. So this is my main sort of concern, but if you ask me where to put it on a scale? How big it could be? I really don't know, but that's my main thought as a risk for the capital markets, for next 12 months.

RICHARD KELLY: And I mean, there certainly are a number of risks and that uncertainty. I wonder, do you also look at it in terms of an opportunity. Are there areas-- this has opened up ample scope in terms of you mentioned central bank liquidity, but they're also fiscal and infrastructure objectives that might not have been on the radar several years ago that are possible now. There's areas and scopes to get involved. So do you look at the next 12 months-- are there any areas that you see as significant opportunities? Or are there places, when you look at your 2022 funding outlook, that you have a particular focus on?

EILA KREIVI: Well, if we are talking about EIB funding for 2022, the one good thing in this scenario is that we are not having a very large funding program. We are now around that just below the 55 billion number, at the moment, and that's pretty much where we will stay. Next year, we haven't done the final numbers yet, but the risk is rather to the downside than to the upside from that number. So it's most likely going to be, maybe a little bit less than the 55 billion this year, which may be a good thing in the possible scenarios that I mentioned. The interesting areas are, of course, in for example, in sustainable finance will maybe mention that a little bit later, but there are lots of things happening in that space, and we are also adapting ourselves to that. We are as you may know, we are up to our ears in this discussion, and this product development, I think there are some very interesting things to come from there. Especially in the finance sector, which is taking up new commitments and new engagement as we speak. And then the other side is this technical development, which is blockchain and digitalization. Not my strongest area of expertise, to be admitted right away. But I think there are also-- we are going to see some developments, which I think will be very interesting, and these might shape our world in the longer term, quite a lot as well.

RICHARD KELLY: And maybe, I mean, you mentioned sustainability, and that's probably been one of those areas that has been accelerated in terms of a focus, both from an issuer and an investor perspective, being brought under the spotlight. And I know this was an area you've been significantly involved in yourself for quite some time. As you're looking at what is a much bigger focus and opportunities on that, where do you see the biggest risks in terms of the development for green and social markets for 2022, for yourself, and the SSA issuer base in general? EILA KREIVI: That's a very good question, especially now, when we are following-- monitoring what's going on in Glasgow. And I don't think I'm the only one who says that, I'm not terribly impressed of what's going on. And I think the financial sector is really doing quite well. I mean, especially when we talk about the investors, banks as well, who are trying to improve, who are becoming more transparent. But I'm not terribly impressed by actually, what the governments are doing. And they seem to be pedaling back in some cases, they are not advancing. They want to find excuses for continuing with fossil fuels, and so on and so forth. So I think, to me, the biggest risk in this area is coming from the very big picture from the background. Not from the financial sector, who is I think, who has taken this idea really close to its heart and is going forward. But if the governments don't step up and support this, then I think that may be losing bigger steam. And I'm talking about all corners of the world, where US is now obviously more in this discussion very clearly than before. But China seems to be maybe going a bit back. EU, we have these discussions about what should or should not be included in the taxonomy, which is a bit beside the point, and so on and so forth. So this is sort of my concern. I hope that we are still sticking to science-based approach. You have to have the science-based information clearly in the background. Then you may decide what is necessary to do in practice, but the target and how to get there, and what the pathway should be. That should be science-based and not based on political discussions.

RICHARD KELLY: Thanks, and it's interesting you mention that the government sector, and I think this is one we get numerous questions, and you can really take this back over decades, as the sort of the evolving responses to crises across Europe. And it's the number of organizations that I think investors and everyone has to face, whether it's EIB, whether it's the EU, whether it's the ESM. A number of different initiatives all trying to come together to focus on different crises, different areas to move the economy forward and move markets forward. The one question that always comes up is, should there be a consolidation in terms of these institutions, in terms of the funding capabilities, in terms of the initiatives, to make it more effective? And I wonder what your perspective would be on this idea, about whether there would be a benefit in terms of consolidating and merging a lot of these areas in the future?

EILA KREIVI: Yes. I can understand that sometimes this question pops up. But if you look at the situation more closely, you can see that there is no need for consolidation. We all have our own areas where we work on well. The European Commission, obviously, it's a quasi sovereign. It's borrowing on behalf of sovereigns. It has got a very different role. And it's-- whether member states borrow directly, or the EU is borrowing on their behalf is just one question. ESM is a crisis response institution. ESM is also only the Euro zone governments are the owners of that institution. Whereas EC, and us of course, we count all the other members of the European Union amongst our members or shareholders. And both of the ESM and the European Commission, they lend to governments. EIB is the one who is financing real economy investments. We don't really much lend to governments. We can, but they are really a minority amongst our clients. We lend to the private sector, to corporates, to banks, to project finance, and then to some sovereigns like regions and municipalities, but for investments, we don't finance their budgets or programs of for example, social support. We finance their investments, and we have a very, very large expertise in all these fields. If you want to look for the best environmental experts or the experts in terms of building roads or building hospitals, wherever. You can look into EIB's direction. So we have very different job descriptions, the three of us. We have very different volumes nowadays, as well. But funding efficiency, I don't think this is really a problem in today's world. So from that point of view, I certainly don't see any need either. So, to me, this is-- we all have our jobs to do, and we all have our roles to play. I don't really see a need for consolidation. We all, of course, talk to each other very, very frequently, and follow each other's activities, and try to-- for example, we do investor work together. We now, it seems to become already an established event, we do an investor event, once a year together, the three of us, which is very popular. And do it more on an ad hoc basis as well. So but further than that, I don't really see a need to go over these circumstances.

RICHARD KELLY: Thanks. And maybe, the other question and area that comes up on the evolution and markets as well as where EIB fits in, is in the technology space, and the disruptor that is blockchain. You know, and this is an area where EIB has been a market leader. And I wonder-- do you expect to see big growth in this area for EIB in the coming years?

EILA KREIVI: Well, I do certainly expect that we will play a role. I mean, this is a very new area. There's a lot of infrastructure there that needs to happen and to be built before it really takes scale. And this bond that we did earlier this year, it took almost two years of work, and actually, we thought that the most work would be on the technical side. Actually, it was on the legal side, because the legal side doesn't really-- most of the things that we needed to define did not exist, and that needed to be done, both internally at EIB, but also externally. So there's much more work to be done before this really becomes an exercise on scale, but we are committed to doing more work in that. We are working on more projects. And if you think about the green bonds, we started it in 2007, but it took six, seven years before it really took off on an institutional scale. So I think this will also take some time. I don't know if it's the same, or maybe it's less. But it's not going to be yet the mainstream thing in 2022, that I'm pretty confident about.

LAURA QUINN: OK. Eila, thanks very much for taking the time to speak with us today. It was really fascinating to get your views on the opportunities and challenges that may lay ahead for the next year. Certainly at TD, we look forward to working with you on your new funding program. Thanks, again for taking the time.

EILA KREIVI: Thank you, I'm looking forward to that too.

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