Covid made the EBRD less hierarchical and more local

This summer Impact Investor talks to investors and entrepreneurs about how the pandemic shifted priorities. This week: Alexander Plekhanov of the European Bank for Reconstruction and Development on stepping back from hierarchy.

"We expect to move towards 50% of business volume in green transactions by 2025,” says Alexander Plekhanov of the European Bank for Reconstruction and Development. EBRD

CV

  • Director Transition Impact and Global Economics at the European Bank for Reconstruction and Development (EBRD) in London, 2018-present.
  • Economist at the EBRD, 2007-2018.
  • Economist at the International Monetary Fund in Washington with a focus on fiscal consolidations, links between fiscal policy and the financial sector, 2005-2007.
  • PhD in Economics from the University of Cambridge with a dissertation on fiscal decentralisation.

‘Never let a good crisis go to waste’: these famous words by Winston Churchill have often been cited to look for some positive notes during the bleak reality of the pandemic. The European Bank for Reconstruction and Development (EBRD) seems to have taken the words to heart.

The bank is leveraging the pandemic crisis to rethink its structure and stimulate collective decisions, according to Alexander Plekhanov, Director in the Office of the Chief Economist. "Meetings and discussions will to a lesser extent reflect hierarchy, and the work will be more participatory," Plekhanov told Impact Investor. "One lesson from the crisis is for employees to trust each other more."

“Digital communications allowed a broader engagement of the bank’s employees during the crisis,” signals the economist. At the same time, the markets' hunger for liquidity forced the financial institution to speed up its internal operations.

Simplifying decision making

"Approval processes and decision making were streamlined to help the bank manage the urgency of our response to clients in need," Plekhanov explains.

Among other changes, the EBRD diminished its board's role in non-strategic decisions, triggering a delegation culture more in line with its strong regional presence. The bank’s network of sixty local offices proved vital for keeping business going during the lockdown periods.

Business trips from the London office to attend meetings with national governments weren't an option. Hence, in order to conduct negotiations with governments in the Balkans, the bank resorted to a mix of online debates and face-to-face meetings between government officials and EBRD's local representatives.

Post Berlin Wall support

The London-based multilateral development bank was founded in 1991 to help Central and Eastern European countries adapt to a market economy after the fall of the Berlin Wall. EBRD is now investing in 38 economies in Europe (the Balkans and Central Europe), North Africa, and Central Asia. Its investment projects typically last five years.

The EBRD is mostly focused on agribusiness, infrastructure and transport. Over the last months it financed several energy efficiency projects in the Balkans and backed green bonds issued by Turkish and Baltic companies.

Responding to the Covid crisis, the EBRD adjusted its approach to pricing and impact rating, increasing the length of its investments.

At the same time, the bank standardised investment products to simplify decisions, allowing for a more substantial role of its regional offices. "The bank maintains its delivery through its new, unique Covid-related products. For example, the Resilience Framework provides fast-tracked short-term finance to existing clients and the Vital Infrastructure Support Programme responds to the essential financing needs of infrastructure providers," Plekhanov says.

Broader scope

Hence, for existing clients, investment decisions were comparatively easy. The EBRD ran into more difficulties assessing potential new clients.

Historically, the bank resorted to physical meetings to evaluate projects. During the lockdown, the solution lay in broader eligibility for new clients and stronger ties between EBRD's regional offices and local institutions. "Even during the crisis, new clients represented around 10-20% of new transactions."

To counterbalance risks and better assess the strength and impact of a proposed project, the bank added some variables to its metrics and diversified its investments. "During the pandemic, we increased the number of projects with a gender component. We also increased our work in local currencies because of their key role."

The London-based bank also boosted its focus on sustainability. "We expect to move towards 50% of business volume in green transactions by 2025,” Plekhanov says.

Keeping supply chains working

Last but not least, the EBRD tried to avoid disruptions in supply chains. It intensified its Trade Facilitation programme, which offers a mix of cash advances and guarantees to keep trade flowing.

"We teamed up with partners to increase the availability of trade financing. The volume exceeded €3bn in 2020, roughly double the amount of previous years."

The EBRD took on some risks related to the disruption of supply chains as a result of the pandemic and in close collaboration with local banks managed to channel funds to SMEs.

Making a difference

"The bank's policy response matters more than ever – in a time of great policy uncertainty, governments are desperate for high quality, straightforward advice, and we have provided just that," Plekhanov says.

He felt inspired by “the speed with which we could innovate during the early days of the crisis – both at the EBRD and as a society more broadly.”

Thinking about those early months of the Covid crisis, Plekhanov remembers how he noticed the return of biodiversity around cities, from butterflies to hedgehogs to pine martens. “It is easy to forget how beautiful life around us is – we have to do more to protect this biodiversity.”