Blog entry

Successful renewables acceleration needs more public participation, not less

2022 was a record year in both the solar and wind sectors in the EU, with fifteen gigawatts of new wind capacity installed – a third more than 2021. Solar fared even better, with 41.4 gigawatts installed – no less than a 47 per cent increase compared to the previous year.

These successes show that the EU is capable of ramping up renewables installation, but continuous efforts are clearly needed to overcome its fossil fuel addiction and achieve sustainable decarbonisation.

In addition, the increases are patchy. In the not-overly-sunny Netherlands, solar generation grew by 51 per cent in 2022 alone, making up 14 per cent of electricity generation. Meanwhile in Croatia, it languished at 0.43 per cent.

There are many reasons why solar and wind deployment is not going fast enough in some countries. Obstructive spatial rules are still a problem for wind power in Poland and Hungary. Many countries lack enough administrative staff for permitting procedures, and support schemes have not always been consistent, resulting in stop-start development. Failure to adequately consult the public about project plans also results in resistance and lengthy court battles in some cases.

Using a sledgehammer to crack a nut

Pushed by Russia’s full-scale invasion of Ukraine to speed up renewables deployment, in May 2022 the European Commission put forward its REPowerEU package, which included controversial changes to the Renewable Energy Directive.

But Directives take time, so, using a fast-track procedure that bypasses the European Parliament, on 22 December, the Council adopted Council Regulation (EU) 2022/2577 to speed up renewables permitting.

The Regulation includes useful provisions to speed up small-scale solar and heat pump deployment, but these are seriously undermined by gratuitous clauses which breach EU environmental legislation and circumvent public consultation requirements.

For example, if Member States have defined specific renewable energy zones, individual renewable energy projects – even highly damaging ones such as hydropower and forest biomass plants – can move forward without undertaking project-level environmental impact assessments, as long as a more general ‘strategic environmental assessment’ has been undertaken.

This clashes with the EU’s existing rules on environmental impact assessment and means that the public won’t have to be consulted about individual projects in renewable energy zones, which is both illegal and counterproductive.

Not only EU law, but also the Aarhus Convention guarantees the right for the public to participate in decision-making on projects that may have significant environmental impacts. A strategic environmental assessment can in no way be a substitute for a project-level assessment, as it contains much less detail.

This won’t end well. EU law is already flexible enough to ensure that projects with low impacts do not undergo an environmental impact assessment. So this change will benefit projects with more serious impacts.

Our experience shows that there is nothing more guaranteed to irk people than the feeling that decisions are being taken behind their backs – a fact likely to increase legal challenges against renewable projects, rather than speeding them up.

Environmental safeguards and public participation must be improved, not bypassed

The Regulation leaves a lot of flexibility to Member States in how and whether to apply certain parts of it. The sections on small-scale solar and heat pumps are a must, but other sections are not necessarily. We have therefore produced a position paper providing our views on how the Regulation should be implemented.

Member States must not weaken their environmental standards. Even before the Regulation was adopted, environmental safeguards were not properly applied in many countries and need to be improved, not further eroded.

The Treaty on the Functioning of the EU specifically states that EU environmental law does not prevent Member States from maintaining or introducing more stringent protective measures, as long as they are compatible with the EU treaties. So governments surely cannot be penalised for merely upholding existing EU environmental law.

At the same time, unnecessary delays caused by political obstruction, lack of administrative capacity or having to submit documentation on paper, instead of electronically, urgently need to be tackled – issues which the Regulation does not address.

The biodiversity and climate crises must be tackled together

A balance must be struck between speeding up sustainable forms of renewable energy, applying EU environmental law and preventing legal uncertainty.

Increasing the share of renewable energy cannot come at the cost of action to protect our increasingly beleaguered nature, otherwise we have achieved nothing. Biodiversity is not an optional extra, we need it for everything: for clean water, food, oxygen and climate regulation, medicines and much more besides.

Using renewable energy can help us to protect nature, but only if done thoughtfully. We have to use low-impact technologies and locations, carry out appropriate environmental assessments and properly include the public in decision-making if we want to make a success of the sustainable energy transition.

Read more: Our position paper can be found here

Illiberalism alert: draft law to shut down civil society awaits vote in the Romanian senate

I’m writing this text as I return from a meeting of lawyers specialised in environmental law from across central and eastern Europe. The irony! While countries like Bulgaria are preparing a dedicated climate law, with vibrant participation from non-governmental organisations (NGOs), and in the Czech Republic civil society won a court case against their government for not having ambitious enough climate change mitigation targets, in Romania politicians can’t think of enough ways to restrict NGOs’ rights to justice and even free association.

The draft law submitted at the end of November 2022, ironically initiated by a group of members of parliament from of the liberal party, aims to amend the law on the functioning of associations and foundations and would add restrictive conditions to NGOs’ otherwise legal right to challenge an administrative act in court (for example, environmental or construction permits) by:

Introducing the financial liability of the members of the board of directors for any damage caused to third parties if the action is rejected by a final court decision. It is worth noting that there is no individual liability of a representative of the public administration, for example, in the case of a final decision that finds an administrative act illegal.
New conditions are introduced for an organisation to be ‘entitled’ to challenge an administrative act in court: the organisation must be at least two years old, it must prove that ‘the association has actively pursued the goals mentioned in the statute that are related to the contested administrative act’ and it must put forward a deposit (like a guarantee) of one per cent of the investment value (maximum RON 50 000 / EUR 10 000).
The draft law also suggests prohibiting a person from being a member of the board of directors of an organisation if in the last five years they were a member of the board of an association that was dissolved by court decision.
The draft law proposes that these measures have a retroactive effect, in the sense that they also apply to pending cases in court.

The proposed changes cover any court action that organisations take, including bringing authorities to court for breaches of the law, such as failing to comply with regulations on transparency and public participation.

The proposal raised serious concerns with the Economic and Social Committee and the Superior Council of Magistracy, neither of which gave a favourable recommendation for adoption.

However, this hasn’t stopped the members of the senate from introducing even further amendments that, if adopted, would mean nothing else than the dissolution of hundreds if not thousands of NGOs. Concretely, the project initiator perfected his assault on civil society by introducing an amendment (number 7 on the list) by which the organisations which receive funding through the ‘3.5 per cent income tax mechanism’ must disclose the names of the individual private donors, under the sanction of dissolution. This sponsorship mechanism allows any employee to choose where to direct 3.5 per cent of their 16 per cent tax on income every year. If they don’t choose, the state takes it anyway and distributes it totally non-transparently to the church, the army or some unknown NGOs of public utility. The problem is, the receiving beneficiary (i.e. the NGO who was chosen as recipient of the funds from this 3.5 per cent tax) has no control over the source of money, as the fiscal authorities transfer the funds from the state budget to the NGO’s account, providing only the town where the individual donor was based. So, in practice, meeting this requirement alone would be impossible and hence reason to dissolve an organisation.

The proposed changes are a clear attempt to weaken the ability of civil society to exercise its mission to protect the public interest and are closer in line with totalitarian regimes than with European democracy and the rule of law.

When the draft law was first submitted to the parliament, 160 organisations and groups of citizens wrote to the initiators of this law and requested that they withdraw their signatures from this document. To no avail.

Today the law was up for a vote in the plenary of the senate (the first chamber of the parliament), but they voted for the proposal to be sent back to the committee dealing with judicial matters for further analysis. It will feature on the plenary’s agenda again in a week. Once the law passes the Senate, it will go for further debate and a final vote in the second chamber. This can last as little as a month. During this time, the ombudsman, the president or any political party can (and should) bring this law to the Constitutional Court and challenge its flagrant breaches of constitutional principles.

Attempts to intimidate civil society are not new, neither in the region nor in Romania, although Romania’s parliament is displaying an energetic escalation in such efforts as of late. From the not-so-veiled accusations that environmental NGOs are to blame for the increased price of electricity and gas in late 2021, to blunt attempts to dissolve them altogether, many politicians appear determined to do whatever it takes to clamp down any form of public scrutiny. But this is only making us more united and more determined to fight any threat to a clean environment and a sustainable future.

EBRD: Everything is peachy, just trust us!

In January, Bankwatch published a blog post about the North Macedonia Regional Gasification Project, which involves building a major new fossil gas import pipeline from Greece. We also sent comments on the environmental studies for the project published by the EBRD, seeking a justification for the substantial expansion of fossil gas consumption for a country that has, fortunately, so far not been heavily dependent on large imports of gas – unlike many central European countries.

The EBRD was quite swift in its response (see document). They are very confident, stating that ‘expectations are that gasification will lead to significant reductions in air pollution, and GHG emissions, by enabling the switch to cleaner fuels in populated industrial areas of the country‘ and ‘[c]arbon lock-in risks have also been assessed from technical, economic and institutional perspectives. Overall, our conclusion is that these gas investments are unlikely to displace low carbon alternatives or to prevent or delay the introduction of renewable energy or low carbon solutions.’

However, none of these claims were substantiated by any figures or verifiable data.

Following this letter, this week we had a meeting with EBRD representatives, in which they reassured us that a more detailed justification would be disclosed in the Board Report that is available for the project after its approval by the Bank (however, only for public sector projects like this one).

Those familiar with the Aarhus Convention (which the EBRD refers to in its Access to Information Policy) know that environmental information should be disclosed before a decision is made, not after it, so the public has a chance to engage in meaningful dialogue.

But is the EBRD disclosing such information? We have looked at how the Bank handled the disclosure in a previous similar case.

In 2020, the EBRD approved an EUR 80 million loan for a liquefied natural gas (LNG) Floating Storage and Regasification Unit (FSRU) in Cyprus. Still, in the Board Report they redacted nearly all environmental information. The only such information that remains is the project’s direct CO2 emissions, which are expected to be 15 to 20 kilotonnes of CO2. This emissions estimate does not include emissions produced by actually burning the gas, just those created by running the plant as well as by gas leakages. The rest consists of general statements about the climate and other benefits of the project. But for the public, there is no way to verify this, as they have not disclosed their baseline data, targets or deadlines.

Extract from the EBRD’s Cyprus LNG FSRU Board Report

This is a ‘smart’ way for the EBRD to avoid accountability and make sure that it can continue to promote its Paris ‘alignment’ while actually financing fossil fuels, without anyone outside the bank being able to verify or monitor the actual implications of its investments.

Bankwatch has already approached the EBRD to request data and information that would substantiate its bold claims. If it comes up with something, we will be happy to share it – most importantly with the public in North Macedonia, as they will be the ones paying for this project in the end.

Conditionality mechanisms and the green transition: the case of EU funding for Poland

The current EU budget for 2021 to 2027 is unique not only because it has been boosted by the NextGenerationEU facility, which aims to speed up the post-pandemic recovery of EU economies in a sustainable and just way. For the first time, this funding structure also includes conditionality mechanisms designed to ensure compliance with the rule of law as applied by the European Commission.

For years, experts and media have claimed that this could lead to the suspension or even removal of EU funds for countries such as Poland and Hungary, a prophecy that has indeed been fulfilled in both cases. Let us look at the Polish example – has Poland definitively lost hundreds of billions of euros from the cohesion policy? And if so, can programmes aimed at scaling up the green transition still be implemented in spite of this?

Stories about EU funds have flooded Polish media in recent months. The public is slowly getting used to headlines like ‘There will be no recovery money!’ and ‘EU funds will not come to Poland!’, although decision makers in Warsaw and Brussels aren’t happy about this messaging.

This is a topic of conversation not only for politicians, journalists and local government officials, but also for many concerned citizens who either want to apply for EU co-financing for their planned activities or want to see investments implemented in their neighbourhood. The conflict between the Polish government and EU institutions over the country’s violation of the rule of law is escalating, hence the emergence of theories about how this will affect EU payments to Poland.

The most important question remains: will the flagship FEnIKS (European Funds for Infrastructure, Climate, Environment) programme rise from the ashes like its mythical namesake and make sure investments go where they should?

Suspension of funds

In the eyes of the European Commission and the EU courts, Poland has violated EU treaties by undermining the judiciary’s independence in several reforms adopted since 2015.1 This has significant consequences, and not only in terms of fines that the Polish government has to pay for not respecting the European Court of Justice’s rulings, although these fines already amount to nearly EUR 400 million. This amount could fund 100 new windmills or 35,000 heat pumps to replace old coal boilers.2 But this is still a tiny percentage of the money Poland could lose if it does not comply with the rulings.

Independent courts are crucial for protecting investments and competitiveness. It’s especially important for them to remain independent to ensure that EU funds are spent properly. The national recovery and resilience plan and structural funds from the Cohesion Policy amount to almost EUR 112 billion (an additional EUR 22.7 billion can still be requested from the loan part of the recovery plan, with the chance of an extra EUR 2.76 billion in grants under the REPowerEU programme).

Conflict around the judiciary structure was one of the reasons why the European Commission delayed approving the recovery plan. Once it was finally greenlighted, the president of the European Commission, Ursula von der Leyen, assured the concerned European Parliament that no funds from the recovery fund would flow to Poland until the rule of law milestones were fulfilled.

Soon after the approval of the recovery plan, the European Commission and Poland agreed on the country’s Partnership Agreement – a roadmap for spending over EUR 76 billion in funding under the cohesion policy. However, in early October, Marc Lemaitre, director general for regional policy at the European Commission, announced that Poland would not yet receive these funds either. This is because Poland failed to meet the horizontal enabling condition regarding the efficient application and implementation of the Charter of Fundamental Rights. Enabling conditions are critical features of the legal and policy environment in each Member State that must be fulfilled before any disbursement can be made.3 Among them are those concerning fundamental rights, as well as the adoption of sectoral strategies, such as building renovation. The withholding of all cohesion policy funding (except for a small pre-financing figure of around one per cent) is unprecedented in Poland’s time as a member of the EU.

Is the alarm pure exaggeration?

The current situation, however, does not necessarily imply that funds allocated to Poland have been irreversibly lost, nor that the planned investments must be thrown away. Both recovery and cohesion funding rely on refinancing expenditures that investors must make first. The beneficiaries receive funding from the Polish administration, then the government requests refinancing from the European Commission, which is conditional upon fulfilment of the previously agreed-upon criteria (milestones and targets for recovery funding, enabling conditions for the cohesion policy). To date, Poland has received only a pre-payment for administration and technical assistance purposes.

Considering the rules of settling expenses from EU funds and the government’s declarations that ‘work on meeting the enabling conditions is ongoing, and the matter will be settled quickly’, alarmist critiques saying that these funds have already disappeared are exaggerations. The EU programmes for Poland have been approved; the money is ready to flow, but will only do so once the government meets the required conditions.

All formal steps related to implementing the programmes should now be carried out. First and foremost, monitoring committees should be appointed in line with the partnership principle. They should include representatives of independent non-governmental organisations, which will prepare the first calls for proposals alongside the authorities and other stakeholders. This partnership framework is one of the safeguards in place to ensure the funds are not misused.

The appointing procedure of the monitoring committees guarantees the representation of at least one environmental organisation on each committee. To date, most of the committees of national programmes have been appointed in a transparent and inclusive process, with only minor violations reported. However, significant violations of the partnership principle have been observed at the regional level, where as of January 2023, the selection procedure remains ongoing. Work on calls for proposals must begin shortly so that the implementation of investments financed from the EU budget for 2021 to 2027 can start in full in 2023.

‘All quiet on the Western Front’?

While the problem is by no means unsolvable, there are multiple reasons why the messages from the European Commission about withholding EU funds for Poland shouldn’t be underestimated.

First, the trajectory of reforms in the Polish judiciary suggests a significant risk that the enabling conditions won’t be met in the next few years. Although the government’s recent actions offer some hope that violations of the rule of law will be at least partially remedied, Poland’s failure to apply the Charter of Fundamental Rights is broader and goes beyond the judiciary (it also concerns the discrimination against minorities). Tensions within the ruling right-wing coalition raise concerns about whether the issue can be resolved. If the government fails to meet the conditions, expenditures have already been incurred from cohesion policy programmes and the recovery plan may not be reimbursed. And if the EU doesn’t pay, then those funds will come from the state budget, which is funded by Polish taxpayers.

Second, there are concerns of a ‘chilling effect’ among potential beneficiaries. Confidence in the stability and predictability of EU funding has been undermined. Some potential beneficiaries who would like to implement projects with EU funding may withdraw from these plans for fear that they will not be reimbursed. Another issue is that banks that offer cheap bridge loans for EU funding beneficiaries (which allow beneficiaries to cover expenditures until they’re eligible for reimbursement) may become stricter due to the increased risks. Therefore, some investors may be unable to gather sufficient funding for their investments.

Third, focusing on the public debate around European funds by asking whether there will be EU funding shifts attention away from an equally important question: what will be financed? What will Poland spend over EUR 110 billion on?

What is at stake?

Cohesion policy funds, with their required climate allocation of no less than 30 or 37 per cent (depending on the source) are vital for Poland’s green transition. Billions of euros have been earmarked for increasing energy efficiency, deploying renewables and adapting to climate change.

From the beginning, Polish Green Network has been involved in preparing the EU’s largest operational programme, FEnIKS, in which the EUR 24.2 billion budget focuses on the green transition. The first drafts of the programme raised many objections: transformative ambition was low, and the business-as-usual approach prevailed (spend a lot and quickly, preferably on large infrastructural projects). Huge sums were earmarked for highways and fossil gas investments, with very little dedicated to biodiversity protection.

However, the programme was significantly improved thanks to the involvement of civil society partners in the programming process. Polish Green Network and Fridays for Future Poland jointly submitted nearly 50 comments to FEnIKS as part of official public consultation process, with dozens more submitted within the working group and sent directly to the Ministry of Funds and the European Commission. As a result, the allocation for biodiversity protection and restoration was doubled and support for energy communities and climate educational measures was included in the programme.

In the latest version of FEnIKS approved by the European Commission, over EUR 2 billion has been allocated to increasing energy efficiency, mainly through the flagship Clean Air programme. Alongside this, almost EUR 540 million has been earmarked for renewable energy sources and EUR 310 million for the protection of biodiversity. Further billions for the green transition have been reserved in 16 regional programmes prepared by provincial governments.

What needs to be improved?

However, improvements to FEnIKS and other cohesion policy programmes are still needed. Support for any investments harmful to the climate and the environment should be dropped entirely. These include river regulation (up to EUR 200 million earmarked) and gasification of the energy and heating sector (district and individual heating), with over EUR 900 million planned for gas investments.

Even if this is improved, assessing the impact of Poland’s main programme for EU funds on its contribution to meeting EU climate objectives would be difficult due to poor indicators. There is, for example, no indicator for the overall reduction of greenhouse gas emissions as a result of the programme’s implementation. More specific output and result indicators also need to show improvements in energy efficiency, adaptation to climate change and biodiversity protection. Those currently included in the programme4 do not allow for a thorough assessment of the quality of climate-related spending.

The 2021 to 2027 budget – fortified with the recovery funding – is likely to be the last that of its size, especially if EU economies do not improve their sustainability and resilience. As such, it should be spent responsibly and efficiently. The challenges posed by the worsening climate and energy crises require a change in how public investment priorities are considered.

Poland desperately needs EU funding. Without reducing the demand for energy in the building sector, installing new renewable energy sources and climate education activities included in FEnIKS projects, the distance between Poland and western Europe will increase. Vast emissions of greenhouse gases will also deepen the impacts of the climate crisis on human health and biodiversity, as well as negatively impacting several economic sectors, making Poland a pariah among developed countries and forcing citizens to pay horrendous energy bills.

This is why the flow of EU funds to Poland and ambitious climate spending must be ensured. It is a challenging but not impossible task.

Withholding EU funds for Poland serves as a lesson for the entire EU. We already know that conditionality mechanisms work and that the European Commission is determined to apply them when deemed necessary. But we still need to learn how they will affect the green transition in one of the largest and most delayed EU Member States.

For more information on the EU funds for Poland, see our previous publications: ‘European Funds for Climate. Partnership in the programming of European funds for 2021-2027’ (in Polish), ‘Assessment of Poland’s operational programmes’ and ‘On the (long) road to recovery: Poland’s plan greenlit’.

An earlier version of this opinion piece was originally published on the Gazeta.pl portal in December 2022.

1 The Commission took action against Poland for a number of violations of the EU principles on the judiciary. This concerned, among others, the Constitutional Tribunal reforms and the independence of judges.

2 With the approximated price of a three-megawatt (MW) onshore windmill of EUR 4 million and the cost of a new heat pump of EUR 11.5 thousand

3 As explained in art. 2 of the Common Provisions Regulation: ‘’enabling condition’ means a prerequisite condition for the effective and efficient implementation of the specific objectives’; Annex III to this regulation contains a list of horizontal enabling conditions for cohesion policy funds.

4 See European Funds for Infrastructure, Climate, Environment for 2021-2027, pages 32-33, 40 and 55.

Open letter to the European Commission: environmental reforms and civil society engagement are key for Ukraine’s reconstruction and European accession

Read the open letter to the European Commission, signed by Ukrainian and international civil society organisations.

Ukraine has the potential to become a prosperous European state provided that environmental issues are integrated and prioritised in Ukraine’s post-war reconstruction. In order to ensure that recovery at the national and local levels is inclusive, the drafting of Ukraine’s Recovery Plan as the country’s long-term roadmap must be more systematic, transparent and participatory. The Multi-agency Donor Coordination Platform, launched by the European Commission in late January 2023 to support Ukraine’s reconstruction, needs to ensure proper civic engagement in its steering committee.

Key environmental reforms on hold

Since the war started, the implementation of key environmental reforms has mostly been put on hold. The recent adoption of the law on waste management and the law on the national register of emissions and pollutant release are steps in the right direction. However, other reforms in line with the European Green Deal, which are crucial for the green reconstruction of Ukraine (for example, the law on Emerald sites, pollution prevention and control, etc.), have been suspended.

At the same time, threats to the quality of the environment and nature in Ukraine are becoming more and more serious.

Martial law has significantly limited access to information and participatory tools key to the quality work of civil society organisations and civic engagement in environmental impact assessment and strategic environmental assessment. If this continues, Ukraine’s progress on environmental reforms will lack its main driver, eventually hampering the European integration of the country.

In response to electricity shortages, the Ukrainian government and its international partners have focused their efforts on finding emergency solutions. Although generators that use fossil fuels have become a suitable quick fix, they are not sustainable from a long-term perspective. Supplying renewable energy equipment and financial support to scale up renewable energy production in Ukrainian communities and cities would provide a resilient source of energy for years to come.

Civil society should have a say in Ukraine’s reconstruction planning

The draft of Ukraine’s Recovery Plan presented by Ukraine’s authorities in July 2022 at the Lugano conference included controversial projects such as the construction of mobile nuclear reactors; the promotion of the use of peat and wood as ‘green’ fuel at new power plants; and forestry, agriculture and hydropower projects that may lead to the destruction of natural ecosystems.

One important deficiency of the plan is its perception of environmental protection as a sector on its own, where projects are anticipated to be implemented in isolation by a responsible ministry. However, environmental priorities should be integrated into projects in all sectors. Despite their attempts to reach out to the responsible governmental bodies and continue work on the national plan,

civil society organisations were not included in the discussions about further improvement of the plan.

It is important to ensure that the international Multi-agency Donor Coordination Platform not only brings donors together, but also sets common rules and standards for transparency and accountability. Civil society is best placed to provide the checks and balances for programming, financing and implementing the reconstruction in Ukraine, and thus,civil society representatives should be included in the steering committee for the platform.

During the EU-Ukraine Summit, which takes place on 3 February 2023 in Kyiv, civil society organisations asked the European Commission to:

Enforce an environmental agenda for Ukraine in line with the country’s Association Agreement and the EU accession process.
Better engage Ukrainian and international civil society organisations, as well as other socioeconomic partners, in the overall decision-making processes for Ukraine’s reconstruction and in the development of the key documents (such as Ukraine’s Recovery Plan).
Adjust the EU’s emergency support provided to Ukraine to ensure it has long-term ‘green’ reconstruction and sustainable development as priorities (for example, in the energy sector by supplying decentralised renewable energy solutions).
Ensure that representatives from civil society and local hromadas (basic administrative units) are involved in the steering committee for the Multi-agency Donor Coordination Platform.

EBRD investments in Ukrainian agro-giant MHP under investigation

The article was originally published in Euractiv.sk.

Dominated by large-scale monoculture production and centralised logistics and processing facilities, Ukraine’s agricultural production has become an easy target for the Russian aggressor. It has become clear to both national and international communities that the current methods of food production and distribution within the country and around the world must change to make food supplies more reliable and sustainable.

The investigation into the potential harms caused by MHP’s operations should not pass unnoticed, as it can provide valuable lessons for future post-war reconstruction. It highlights the importance of compliance with environmental standards and the proper involvement of civil society, while also demonstrating the need for adaptive, sustainable and decentralised agri-food systems.

The role of international finance in undermining local communities and global food security

Since the Euromaidan Revolution in 2014, European and multilateral development banks have invested generously in agro-holdings owned by some of Ukraine’s wealthiest businesspeople. Among their clients are Ukraine’s agri-giants, led by MHP, one of the major industrial poultry producers in the country and Europe.

Although the banks’ investments were hailed as supporting global food security, they have caused an imbalance in the agri-sector and injustice among local communities. Accumulating large financial, land and natural resources, these large-scale producers have become not only powerful players on the market, but have also gained significant political influence. While MHP has enjoyed state subsidies, tax avoidance and trade with the EU within the Free Trade Agreement, weak regulation in Ukraine has often translated into unchecked environmental and social problems for rural communities.

Moreover, the massive destruction caused by the Russian invasion has revealed that, despite being ostensibly powerful, centralised, large-scale agriculture structures with long supply chains can easily fail those dependent on them. It is obvious that new governance models are needed to ensure that rural communities and the environment remain safe and benefit from developments in the sector.

In its post-war reconstruction, Ukraine and other stakeholders should prioritise the development and maintenance of more adaptive, sustainable and decentralised agri-food systems. The green principles for Ukraine’s reconstruction developed by civil society organisations emphasise the diversification of small and medium-sized farms, sustainable solutions for agricultural production, the circular economy and a transparent and fair land market. Furthermore, agricultural development should move in sync with a new strategy for the rural development of Ukraine that aims to turn rural areas into attractive places for people to live.

MHP’s mishaps back in the spotlight

Since the launch of an MHP construction project in 2010, villagers from the Vinnytsia region have been complaining about the company’s rapid expansion, which has resulted in a high concentration of industrial poultry facilities in their vicinity. The locals have linked MHP’s expanding operations to existing and potential problems, including a decrease in water levels in the village’s wells and deterioration of groundwater quality, pollution of water bodies, contamination of soil and air, and damage to infrastructure due to intensive traffic from heavy vehicles on village roads.

In 2018, after years of unresolved grievances, complainants from three villages submitted requests for dispute resolution with MHP to the accountability mechanisms of the European Bank for Reconstruction and Development (EBRD) and the International Financial Corporation (IFC). Three years later, the dialogue had produced no agreement since MHP decided to withdraw from the process.

In October 2022, the EBRD’s independent project accountability mechanism opened an investigation to check whether the Bank had complied with its own social and environmental standards when investing in MHP’s expansion. The decision to open an investigation has put the case back in the spotlight and given the residents of Olyanytsya, Zaozerne and Kleban new hope that their voices will be heard.

Soil, air and water pollution funded by international public finance

Reflecting on the grievances, the assessment report that launched the investigation acknowledged the risks of pollution caused by MHP’s operations, as well as impacts on soil, air and water, and thus impacts on residents’ health. The report also took note of the increasing traffic through villages, which locals consider a major disturbance and the cause of cracks appearing on houses.

Over the years, the communities and NGOs have had to conduct their own studies to evaluate MHP’s potential impacts on the environment, something that should have been done by the company through a proper environmental and social impact assessment before the project started. As part of these efforts, a community science initiative on water monitoring in Ukraine’s rural areas revealed in 2021 that water in wells in the three villages often exceeded safety standards for nitrates and other ammonia compounds by two to three times. Such pollution typically occurs in agricultural regions with poor management of fertilisers, manure and farming waste.

The report also noted the lack of follow-through on mitigation measures to lower risks for the environment and local communities. For instance, the company’s initial promise to develop protective barriers made of trees around chicken facilities in Kleban has never been fulfilled.

Lessons for banks to craft a more sustainable agri-sector

The EBRD’s accountability mechanism will now investigate the situation and decide whether MHP projects have violated the EBRD’s environmental and social policies. If non-compliance is found, the investigators will make recommendations and the EBRD will have to propose a plan to mitigate the damage.

Whatever the result of the investigation, the MHP case is a reminder of why international investors need to think about crafting a more sustainable future for Ukraine’s agriculture sector.

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