Episode 11: The New European Bauhaus Model Territorial Development financial instrument

Jam sessions ep 11

Main topics: Experts from the European Commission and the EIB answer your questions from the 7 October 2022 ERDF event on the New European Bauhaus Model Territorial Development financial instrument.

A discussion with Oana Dordain, Deputy Head of Unit and Ieva Zālīte, Policy Officer of the European Commission’s DG REGIO (Directorate-General for Regional and Urban Policy), Desmond Gardner, Financial Instruments Advisor at the EIB, hosted by Chiara Continenza from the fi-compass team at the EIB.

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“The New European Bauhaus is guided by three core values, which are sustainability, aesthetics and inclusion. When we speak about sustainability, we speak about investing in energy efficiency measures or focusing of circularity or biodiversity. Aesthetics focuses on the quality of experience and style beyond functionality. Inclusion is all about promoting and supporting actions that make the most of diversity, equality and social inclusion.”

What you just heard was Ieva Zālīte from the European Commission's DG REGIO explaining what the New European Bauhaus is and what it aims to achieve. Today's Jam Sessions podcast episode focuses on the New European Bauhaus Model Territorial Development financial instrument, which is a document published in June 2022 by the European Commission to provide managing authorities, that are implementing cohesion policy programmes, with the building blocks that they can then use to set up and implement financial instruments supporting this new initiative in the current programming period. During an event that we held last October, we received many questions from our participants and we would like to address them today in this podcast episode. My name is Chiara Continenza from the fi-compass team at the EIB and I am joined today by Oana Dordain and Ieva Zālīte, from the European Commission's DG REGIO. Hello Oana, Ieva, welcome. 

Oana: Hello Chiara

Ieva: Hello Chiara

And my colleague, Desmond Gardner from the EIB. Hi Des.

Desmond: Hello Chiara, and hello to Oana and Ieva as well.

Together we will get through these questions and try to answer them. So, Ieva, let's get started, could you please give us a quick summary of what the New European Bauhaus is and how does this Model Territorial Development financial instrument fit into this initiative?

Ieva: Sure, as many of our listeners will know, the New European Bauhaus is an initiative that the President of the European Commission, Ursula von der Leyen, announced in 2020. The New European Bauhaus is guided by three core values which are sustainability, aesthetics and inclusion. When we speak about sustainability, we speak about green activities, green practices, be it working towards ambitious climate goals or investing in energy efficiency measures, or focusing on circularity or biodiversity. Aesthetics focuses on the quality of experience and style beyond functionality, and inclusion is all about promoting and supporting actions that make the most of diversity, equality and social inclusion. We want to create something sustainable and beautiful, that is also accessible and affordable for everyone. So in effect, what the New European Bauhaus aims to support is the development of beautiful and sustainable places and forms of living together. I would like to add as well is that the New European Bauhaus is also about participation, involving people, stakeholders, and practitioners, as well as bridging the gap between multiple disciplines, meaning that we want to work with sectors in innovation, in technology, design engineering, in culture and arts and social sciences. So it's about diversity in all its forms. If we speak about the financial model that we created, the model integrates all these principles. At the same time, we wanted the model to be understandable to managing authorities, financial intermediaries and project promoters. For this reason, we built the model based on the positive past examples of support to urban development through financial instruments during the programming period of 2007-2013, where financial instruments provided repayable support to various investments promoting territorial regeneration in an integrated way. So we supported projects promoting innovation, energy efficiency and social integration. With this model, we also aim to ensure that the funding is accessible, making the New European Bauhaus actions sustainable in the long term.

Oana, how does the Commission expect managing authorities and bodies implementing financial instruments to put into practice the initiative?

Oana: We try to help managing authorities to have at hand the tools necessary for the implementation. First, we have the legal basis which is open. We have the policy objective 5 called Europe Closer to Citizens, which simplifies programming and focuses on integrated, sustainable territorial development, including urban development. Of course, it is possible to support the New European Bauhaus through multiple or other policy and specific objectives. For example, the New European Bauhaus financial instrument may receive contribution from the policy objective focusing on green transition and policy objective supporting social and inclusive actions. Regarding the implementation of the financial instruments, the rules are the same as for all financial instruments, and in addition, the Member States already have the experience from previous programming periods which can be used to set up this instrument. We created this model to give the means to the managing authorities to choose the elements which are the most appropriate to their specific needs and environment. Also, the model can be used to inform other stakeholders about what the potential instrument may be and engage in the discussion about how the New European Bauhaus projects may be supported. The model is designed to combine the grant support together with the financial instrument. We think that this combination of support is very important to apply the New European Bauhaus core values ever mentioned before and to ensure the multidisciplinary approach. Secondly, this combination allows to reach a wider range of final recipients and the combination of support addresses issues such as energy poverty through possibility that some investments can be 100% grants or other instances when the investments are not fully financially viable or cost saving. The model promotes also a one-stop-shop approach, which is very important from the point of view of final recipients because of ease of access to support, and it allows to structure investments faster and for increased pooling of funds and the better coordination among stakeholders, the one-stop-shop is even more necessary.

Indeed, that's actually very clear and interesting. That leads us nicely to our first question, which is about the form of the financial instruments. More specifically, one participant asked, can this new financial instrument be combined with current Urban Development Fund (UDF)?

Ieva: Yes, definitely. The model offers flexible implementation options. It is possible to set up a brand new financial instrument, dedicated 100% to support New European Bauhaus projects and investments. Or, in response to the question from the participant, it is possible to create a dedicated New European Bauhaus window in the existing Urban Development Fund, or the model offers an even more flexible option, which can be achieved by supporting New European Bauhaus projects as part of the existing Urban Development Fund. So, this means that the New European Bauhaus projects will be part of the overall portfolio of investments supported by the Urban Development Financial Instrument. In such situations, the supported individual projects may consist of several sub-projects or sub-contracts that together address multiple disciplines and the New European Bauhaus core values. Also in the model, we say that investments should be aligned with two or more themes or categories, meaning that projects may be in the category speaking about reconnecting with nature, for example, projects about integration of living nature in construction, showing how biodiversity or water and soil conservation can be respected and promoted through building and planning or a project could be in a category regarding sense of belonging. For example, we can speak about investment in the physical and economic regeneration of urban and rural neighbourhoods, including affordable housing. We can also include projects that are prioritising the places and people that need it the most, where the projects are concerned with removing accessibility barriers to build and virtual environments, and the goods and services for people with disabilities, as well as addressing, for example, ageing factors. And of course our economies cannot exist without enterprises creating goods and services. Another category for this reason is the need for long term lifecycle thinking in the industrial ecosystem. So, here we can speak about investments in sustainable solutions for businesses and households, implementing circular economy principles.

Desmond, would you like to add something?

Desmond: I think as Ieva has just described, the model is flexible, and I think provides a good explanation about how these different concepts can be combined in an investment strategy to support projects. I think the important message is that it doesn't in any way constrain or restrict the existing UDF model that has been successfully implemented in many Member States over the last programming periods. The New European Bauhaus just enhances that model and provides an additional dimension, and I think the European Commission deserves to be congratulated for listening to the feedback they received from fi-compass practitioners and my colleagues at EIB who manage financial instruments whilst they were preparing the model. I think the model really does reflect lessons learned from previous financial instruments and as a result it is practical and therefore easy to implement. Ieva explained the different options there are, whether that's a dedicated instrument or a window or indeed on a project by project basis. This should allow managing authorities to adapt it to their own needs, whatever the needs are in their regions.

Let's look at the questions that came during the event. We had several questions about aesthetics,  which is one of the core values of the New European Bauhaus as Ieva was mentioning a moment ago. So one participant asked, as the aesthetics element of the New European Bauhaus seems rather subjective to assess how would this assessment work in practice? And another participant followed up asking, how can you measure aesthetics? Maybe, Oana, do you want to answer this?

Oana: So aesthetics or beauty is a very subjective notion. Therefore, there is no defined prospective receipt of how to address the aesthetics elements of the New European Bauhaus. We included in our model some guiding questions to help those that are planning to implement New European Bauhaus projects through financial instruments, including how the aesthetics dimension can be assessed. Please have a look at a model. For example, in the Valletta Design Cluster project, which was supported by ERDF in the 2014-2020 programming period, the aesthetics of the building was mainly driven by the history of the building and was the catalyst for the design, the adaptations made within the building or all consciously carried out to give the idea of a semi industrial building through the use of modern materials. The design was also respectful of all the stages throughout the history of the building, whilst the building is functional for the modern needs of the artists and designers making use of it.

Desmond: Maybe I can add to that, just to say that I understand why there's a nervousness about the meaning of aesthetics, because as Oana said, it feels subjective. I really like the expression that Ieva used earlier about quality of experience and style beyond functionality, because I think that sums up what that means. It doesn't mean does something look nice or not? I don't think New European Bauhaus is trying to dictate that. I think it's much more about emphasising the importance of thoughtful design creativity in in urban development and of course that is nothing new. We have a really nice fi-compass example on our website, a video case study of a development in Portugal, northern Portugal, where they refurbished an old factory building. And there the owners really took care to make sure that an industrial building emphasised the strengths of its own character. They also included some public art as a way of contributing to the community and the physical environment. I think that's something we see across the EU, design has always been part of good urban development, and I think it will continue to do so. I think it's good that the New European Bauhaus initiative emphasises the importance of that. As Oana said, the model financial instrument in the final section has some really good guiding questions, which I think provide an excellent starting point for managing authorities and bodies implementing these instruments when assessing aesthetics in the future. Just finally, on the practicalities, we're starting to hear examples from Member States who are now looking at exactly how they might assess aesthetics. I'm sure there will be lots of different creative approaches brought to that using experts in different kinds of governance structures.

Now moving on to another set of questions on an interesting subject, which actually affects urban development generally. We were asked, could the New European Bauhaus model inclusion criteria protect against unintended social harm? For example, the displacement of vulnerable populations or exclusion from affordable housing? And then again, how exactly would affordability be assessed? These are both questions about the investment strategy and whether this could be assessed in a financial instrument based on the New European Bauhaus Territorial Development Model. Desmond, would you like to take this?

Desmond: In principle, I guess the answer to that must be yes, but it will depend on whether the local managing authority considers that to be a priority for the area. Absolutely there is the scope to build those sorts of considerations into an investment strategy if that is the right case. The New European Bauhaus promotes an inclusive approach, it encourages co-design in consultation with community groups and things like that and it's true to say that sometimes in urban development there need to be some tough decisions taken which balance different interests which may be competing. I think the inclusive approach which emphasises wider benefits to the community, of diversity, including affordability, can absolutely be reflected in the scheme. So, the flexibility of the model allows managing authorities to define their own investment strategies. These are the kinds of things that will be considered during an ex-ante assessment. And so yes, where appropriate, these things can be included.

Oana, do you want to add something from the Commission's perspective, perhaps on affordability?

Ohana: Yes, more about the definition of affordable housing. I think the Commission's affordable housing initiative will provide the answer to this question. This is a parallel initiative under the EU Green Deal that has a strong synergy with the New European Bauhaus, we will include a link to this on the fi-compass website for practitioners interested in this topic.

I hope that this gives extra material to reflect on and to think about. Another participant wondered if the New European Bauhaus model financial instrument could finance projects in small cities. Ieva?

Ieva: Yes indeed, the financial instruments can support New European Bauhaus projects in small cities. We made the implementation modalities of the financial instrument as broad and flexible as possible. So irrespective of the size of the territory, the New European Bauhaus projects can be supported and address the needs of territorial development, be it small cities, large cities, or projects that promote urban rural linkages. It also came as a need or wish from the discussion with the stakeholders, as Desmond referred to, that this kind of flexibility is very important to take into account. What I wanted to add in this respect is that, when we speak about the implementation of the territorial development and the New European Bauhaus financial instrument, it's important to recall that it must be based on local or territorial integrated development strategy. If the programme provides support under the cross-cutting policy objectives that Oana mentioned, that speaks about the regions closer to citizens and focuses on the sustainable and integrated development of all types and territories and local initiatives.

Oana, we had a few questions about the ex-ante assessment. For example, one participant asked, what are the steps to apply for an ex-ante assessment? And another asked if ex-ante assessments could be a disincentive for financial instruments, as on the other hand, the grant only approach does not require an ex-ante assessment. How would you address these questions?

Oana: As you know, in the programming period 2021-2027, we simplified the rules to carry out the ex-ante assessment. Ex-ante assessment is the responsibility of the managing authority, and it can be carried out by the managing authority itself or with external expertise. It means national promotional banks or other actors which know the market. It is even possible to use the existing ex-ante assessment from the programming period 2014-2020 or just to update this ex-ante assessment. We created this ex-ante assessment for financial instruments to help the managing authorities. So the ex-ante assessment should be seen as a tool to help the managing authority to decide about how much of a contribution from the programme to the financial instrument is necessary, who are the final recipients, and what specific objectives of the programme will the financial instrument help to achieve. This kind of reflection and elements are more or less the same as the managing authority uses to consider when assessing the grant application from the beneficiary and before providing the right grant support. On the contrary, we can say that the ex-ante assessment is a help to the managing authorities to make an informed decision and to implement the programme resources in a sound financial manner, at the same time, achieving the objectives of the programme and should not be seen as an administrative burden.

Indeed, there is more information about how to carry out ex-ante assessments on our website. Then more questions came in about how to convince managing authorities to deploy financial instruments. So we were asked, how do we persuade managing authorities to deploy financial instruments, considering that they are usually not too much in favour for the long term of cohesion policy? More specifically, one participant asked if the European Commission would set any recommended targets for financial instruments for the current programming period policy objective by locations in Member States, for example, under the Smart Europe policy objective. Ieva, would you like to answer that?

Ieva: These are very good questions, but also not easy to reply to. I would like to say that it is easy to convince those who are implementing financial instruments about their benefits, as well as managing authorities and financial intermediaries who consistently continue implementation from one programming period to the next. In terms of actions that we take, we are constantly engaged in promoting financial instruments with the Member States through different fora, and the Commission and the Member States have finalised negotiations of the programmes for the programming period 2021-2027 at the end of last year. So, during the negotiations we saw to increase allocations from the cohesion policy funds to the financial instruments based on the assessment of market failures, investment needs that Member States already analysed in their programmes as well as based on their planned activities in the programmes. For example, where their analysis demonstrated that there is potential for financial instruments, for example, in energy efficiency, we tried to insist to include and to increase allocations for financial instruments. We don't want to stop there only because the programming is finished. Together with colleagues from the EIB, from the fi-compass team, we speak to the wider financial instrument community, which include not only the managing authorities but also financial intermediaries, other stakeholders, and for this purpose we have created the three financial instrument models. These are energy efficiency ones, quasi equity ones, and of course New European Bauhaus, that we discussed earlier. We are trying to increase the interest and demand for financial instruments among managing authorities and financial intermediaries. By offering them ready made solutions that would show that in fact to implement financial instruments is not difficult and they can bring many advantages.

Also, the fi-compass website is constantly providing very interesting and inspiring case studies and good practice examples of how financial instruments are already implemented. We also organise workshops with Member States to discuss the implementation issues and explain the rules of the implementation to reassure the programme authorities that financial instruments are not difficult to implement and there are advantages of using programme resources through financial instruments. Of course we have simplified the rules in the Common Provisions Regulation for financial instruments to facilitate their take up. Maybe I can add another point, I would like to mention that what previously was a comprehensive ex-ante assessment in the 2021-2027 programming period, a significant part of the work assessing the market failures and investment needs was already done during the programming, which means that the time period between the programming when it's done and the actual implementation has become much shorter. So, this is another incentive as to why financial instruments are good to implement programme resources. A last point, for those who are not sure yet that financial instruments are right to make use of programme resources, there are ample advantages that financial instruments can bring to the implementation of the programmes and also after the programmes are closed. Financial instruments are an efficient implementation tool because resources are recycled and therefore more activity can be supported in the economy, and especially now in a time when resources are scarce and expensive, such support from the public resources is very important. It is equally important that our financial instruments have a capacity to attract private sector interest and also bring in their resources along with the public resources.

We hope that the models, the support provided by fi-compass also through this podcast series, encourages more use of financial instruments and highlights the benefits of these financing tools. So we also received a couple of questions about the JESSICA initiatives. There are parallels between the JESSICA Initiative and the New European Bauhaus. Questioners asked, why was JESSICA terminated? It was such a popular instrument and what was the interest rate for JESSICA’s fund interventions? What difference are there compared to normal market price? Oana, you want to take this?

Oana: I think good things never die in reality. The problem in the 2014-2020 programming period was that there was no dedicated policy objective supporting urban development, so that is why we couldn't use the JESSICA brand anymore. Because of this, we are not able to identify precisely how many urban development financial instruments were implemented in 2014-2020. We saw from the titles of the financial instruments from our reporting that the JESSICA brand was often used. I would like to remind everybody what JESSICA stands for; Joint European Support for Sustainable Investment in City Areas. So it was a technical assistance initiative launched by the Commission and the EIB Group, and now we launched the fi-compass initiative, which is also a technical initiative between the Commission and the EIB Group for the Member States and we can still cover this part of the urban development. We have excellent experts and one of them is here with us, Desmond, who implemented himself urban development funds, so please do not hesitate to come to us to help you on this. We have the chance in 2021-2027 to have a cross-cutting policy objective about urban development and urban development financial instruments will be more visible among the pool of other thematic financial instruments. If you want, you can call this New European Bauhaus financial instrument an improved JESSICA 3.0 instrument, which ensures a cross-cutting approach. I would like to send a message to the Member States not to be afraid of the New European Bauhaus financial instrument because you have the necessary experience in the Member States based on the JESSICA old instrument. And if you don't have it, do not hesitate to come back to fi-compass to get some help.

Desmond, would you like to add anything to this?

Desmond: Yes, JESSICA was my first introduction into financial instruments and all of that. I think it was a really important factor in promoting urban development funds. I shared his enjoyment of seeing the fact that we saw many JESSICA 2 funds implemented in the 2014-2020 period, even if the initiative had formally moved on. I really hope that the New European Bauhaus can pick up this work and really advance the development of UDF and financial instruments to support this kind of work in the next programming period. Certainly, with the EU Green Deal, the renovation wave and Repower EU, all of these initiatives are bound to have a huge impact on the urban environment, small and large cities. I think what New European Bauhaus does is bring that extra creativity, a bit of flair and emphasises the need for this kind of approach in this important work. Can I just maybe pick up also the second question about interest rates and what was the interest rate for JESSICA fund interventions? I think in many, many cases the ERDF resource goes in at zero cost and benefit is passed on to the final recipient. So as a result, the final recipient will benefit from lower interest rates as the ERDF will be combined with the other co-investment. It's also true that the combination with grant does allow for interest rate subsidies that could even further reduce the interest rate payable by the final recipient and that is a very important feature of many financial instruments. However, it's not always the case. Certainly in some places it's not necessarily the cost of the finance that is the market failure as much as the availability of that. So we do have examples where the public resources have gone in pari passu with private resources and fund recipients are paying a market rate for all the finance. So again, I've used flexibility a lot, but it just shows how you can tailor the structure of the financing to meet whatever the local needs are.

Thanks again Oana and Desmond for the very clear explanation. Now a final question that I would like to ask you. Someone asked at last Autumn's event, can the New European Bauhaus model fund community involvement?

Ieva: Indeed, one of the core values of the New European Bauhaus is inclusion. Inclusion can be articulated in many different ways, for example, by bringing positive, measurable change to the communities and their involvement in shaping the investment strategy of the New European Bauhaus financial instrument, as well as bringing forward project ideas. So, the projects involving community or supporting projects that are a result of the community creation and engagement can be supported through the New European Bauhaus territorial development model financial instrument. The model is designed to benefit from the combined support of financial instruments and grants, as Oana mentioned earlier, as a big benefit of addressing the core values of the New European Bauhaus. Therefore, it means that it becomes even more feasible to support projects which are concerned with community engagement and supporting community ideas through the financial instrument.

This brings today's episode to a close. I would like to thank you Oana, Ieva and Desmond, for your participation and for taking the time to answer all these questions that we received during the event on the topic of the New European Bauhaus. I would also like to thank all the participants at the event for asking these questions that we consider today, and I'm sure this podcast will be very helpful for many practitioners. However, if anyone has any further questions, we would like to encourage you to get in touch with us through our mailbox info@fi-compass.eu, as we plan to do a further podcast in a couple of weeks where we can address further questions you may have on this topic should we receive them. We very much look forward to hearing from you and thanks again to our speakers for joining us today.

Ieva: Thank you, Chiara. We look forward to inspiring creative New European Bauhaus projects and new financial instruments. Thank you for listening.

Desmond: Thanks, Chiara, and thank you also to the audience for the very interesting questions. We look forward to discussing this topic further during a dedicated session at our FI Campus event, which is taking place in March.

The FI Campus is just around the corner. The event will take place on 13, 14 and 15th March 2023 in Brussels. For more information and to register, we invite you to check our website and you will find also the link in the transcription of this podcast. So again, a big thank you also to our listeners for tuning in today to this episode of the fi-compass Jam Sessions podcast. Don't forget to follow us on social media and to register for our newsletter to be notified of future episodes of our fi-compass Jam Sessions podcast and I wish you all a lovely day ahead.