Lithuania‘s potential to become Northern Europe’s centre of green sustainable finance ever stronger

While containing the impact of the COVID-19 pandemic and revitalising economy remain top priorities for Europe, managing the challenges of climate change is still firmly on the continent’s agenda. A green and sustainable investment incentive project was launched in Lithuania in October 2019, paving the way for the country to become the Baltic centre for green and sustainable finance in the near future.

The idea was presented by attorney Tomas Kontautas, Country Managing Partner at Sorainen Lithuania, during What Is Green? conference, organised by the British embassy in Vilnius to discuss the green economy. Kontautas believes that having established itself as Europe’s leader in the fintech sector, Lithuania has every chance to repeat this success in sustainable financing, leading the way in a sustainable economy across the Old Continent.

Lingering questions

In order to manage the ever-increasing environmental challenges, the EU introduced an action plan in 2020, committing to reduce causes of climate change by 2030. One of the outlined actions is a sustainable finance model, which will allow identification of investment that is not harmful to the environment and contributes to sustainable economy.

As a member of the EU, Lithuania also presented their National Energy and Climate Action Plan. The country has plans to allocate 14 billion euro to achieve the outlined goals, of which 10 billion euro will come from public investment and the remaining funds will be raised from private sector. Lithuania’s Ministry of Finance is currently drafting the National Plan for Green and Sustainable Finance Strategy and Action. The project is being supported by the European Bank for Reconstruction and Development (EBRD), with Sorainen also contributing to the strategy alongside foreign partners.

“Our goal is to examine the Lithuanian ecosystem. We are analysing what it looks like and what it may be lacking. Looking from the supply side, it is important to understand the accessibility of green financing products and opportunities for offering finance subjects. In terms of demand, we must find out which projects will require sustainable financing. These are not easy questions which is why it is important to use public funding wisely at this stage. Most of the 10 billion euro from the Lithuanian government and EU sources is earmarked as subsidies for the National Energy and Climate Action Plan’s measures. But we seek to evaluate the extent to which these funds would be appropriately directed not into subsidies but into financing, simultaneously attracting private investors as well,” T. Kontautas says.

It is, therefore, crucial to connect public and private financing wisely at this stage and eliminate the flaws of a sustainable financing platform. Kontautas stresses that doing it is very important as the system is currently unable to determine how sustainable the projects seeking finance really are due to a lack of certification tools.

Vast potential

On the subject of deficiencies in Lithuania’s sustainable financing, Kontautas adds that in order to fully prepare this system, a government policy on sustainability is also required. The attorney points out that there is currently no dedicated institution dealing with this important issue in Lithuania.

“One of the ecosystem’s components is the Sustainable Finance Institute. For example, the UK has already established its Green Finance Institute. However, Lithuania faces challenges in setting up a similar institution here. The Sustainable Finance Institute would act as the leader and executor of green finance ideas in the country, helping to coordinate public and private sector financing. One advantage Lithuania has is that it started building the ecosystem earlier than Latvia or Estonia, showing the country’s great potential to become the regional leader in sustainable financing,” stresses T. Kontautas.

The attorney adds that Lithuania’s success story in fintech only highlights the country’s ability to establish itself as the centre of sustainable and green finance in the Baltic and Northern European regions. According to Kontautas, during the last 3-4 years Lithuania has become the European leader in fintech, with the largest number of company licenses issued – second only to the United Kingdom. So the growing number of financial players and the many tools available to them (such as crowdfunding) would make it possible for Lithuania to lead the way in sustainable financing too.

“The new European crowdfunding regulations offer much hope that when the Lithuanian fintech ecosystem comes together, the county could become the centre from which various crowdfunding platforms could expand into other European countries. This is an obvious competitive advantage. Furthermore, the Lithuanian capital market is dominated by the trend that both the state and companies are increasingly likely to choose green obligations. So the future of the green investment incentive project also depends on both government policy and public awareness. If the government were to encourage only the subjects which meet sustainability criteria to participate in public tenders, it would revitalise the undeservedly forgotten public and private sector partnership projects, pointing them towards a more sustainable direction and turning Lithuania into a sustainable and green finance centre for the Baltic region,” T. Kontautas summarises.