Europaudvalget 2018
KOM (2018) 0439
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EUROPEAN
COMMISSION
Brussels, 6.6.2018
SWD(2018) 314 final
COMMISSION STAFF WORKING DOCUMENT
IMPACT ASSESSMENT
Accompanying the document
Proposal for a
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
establishing the InvestEU Programme
{COM(2018) 439 final} - {SEC(2018) 293 final} - {SWD(2018) 316 final}
EN
EN
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Table of Contents
1
INTRODUCTION: POLITICAL AND LEGAL CONTEXT ............................................................... 1
1.1
1.2
1.3
1.4
2
2.1
2.2
2.3
2.4
3
3.1
3.2
3.3
3.4
3.5
3.6
4
4.2
4.3
5
5.1
5.2
5.3
5.4
6
Scope and context...................................................................................................................... 1
Investment in a post-crisis economic environment ................................................................... 3
Lessons learned from previous programmes ........................................................................... 12
The way forward: a single investment support instrument ...................................................... 16
General objectives of InvestEU Programme ........................................................................... 16
Specific objectives................................................................................................................... 17
Simplification .......................................................................................................................... 21
Enhanced flexibility ................................................................................................................ 22
InvestEU Fund structure.......................................................................................................... 27
Member State compartments ................................................................................................... 28
EU added value ....................................................................................................................... 30
Governance ............................................................................................................................. 30
Avoiding overlaps among policy windows ............................................................................. 34
Geographical distribution ........................................................................................................ 35
Related programmes under preparation................................................................................... 41
Blending and combinations ..................................................................................................... 42
Single fund .............................................................................................................................. 43
Single budgetary guarantee ..................................................................................................... 43
Implementing partners............................................................................................................. 44
Technical assistance (InvestEU Advisory) .............................................................................. 46
THE OBJECTIVES ............................................................................................................................ 16
PROGRAMME STRUCTURE AND PRIORITIES ........................................................................... 23
TARGET ACTIONS, FINANCING PRODUCTS AND BENEFICIARIES ..................................... 36
DELIVERY MECHANISMS OF THE INTENDED FUNDING ...................................................... 43
HOW WILL PERFORMANCE BE MONITORED AND EVALUATED?....................................... 48
ANNEX 1: PROCEDURAL INFORMATION ............................................................................................ 50
ANNEX 2: STAKEHOLDER CONSULTATION....................................................................................... 57
ANNEX 3: EVALUATION RESULTS ....................................................................................................... 64
ANNEX 4: SCOPING PAPERS................................................................................................................... 80
ANNEX 5: LIST OF FINANCIAL INSTRUMENTS AND EFSI UNDER THE CURRENT MFF ......... 121
ANNEX 6: TECHNICAL ASSISTANCE.................................................................................................. 123
ANNEX 7: LIST OF POTENTIAL INDICATORS FOR THE INVESTEU FUND ................................. 128
ANNEX 8: EXAMPLES OF INDICATORS FOR THE SME WINDOW ................................................ 129
ANNEX 9: EXAMPLES OF INDICATORS FOR SOCIAL INVESTMENT AND SKILLS
WINDOW ......................................................................................................................................... 133
ANNEX 10: DEFINING AND ASSESSING ADDITIONALITY ............................................................ 138
ANNEX 11: ACCESS OF NON-EU MEMBER STATES TO EU FINANCIAL INSTRUMENTS ........ 144
ANNEX 12: ASSESSMENT OF DUPLICATION, SYNERGIES AND OVERLAPS ............................. 146
I
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ANNEX 13: INVESTEU FUND
–
GOVERNANCE................................................................................. 150
List of Figures
Figure 1 - GDP per capita at current prices, 2006 and 2016 (EU-28 = 100)................................... 3
Figure 2 - Investment (% GDP) in EU28 ........................................................................................ 4
Figure 3 - Infrastructure investment by sector and by source, 2005-2016 (in % of GDP) .............. 5
Figure 4 - Annual Investment needs (current levels and gaps) for sustainable infrastructure ........ 5
Figure 5 - Total annual venture capital funding by continent (USD billion) .................................. 9
Figure 6 - 448 emerging, current & exited tech companies valued at more than $500m .............. 10
Figure 7 - Correspondence between existing instruments & proposed InvestEU Windows ......... 24
Figure 8 - Current governance for EFSI and FIs vs the proposed governance under InvestEU ... 32
Figure 9 - TA component (InvestEU Advisory) under InvestEU ................................................. 47
List of Tables
Table 1 - Minimum estimate of the gap in social infrastructure investments ............................... 11
Table 2 - Overview of budget allocations and estimated investments to be mobilised in the
current MFF and under the InvestEU Fund................................................................................... 23
Table 3 - From the EFSI and financial instruments (2014-2020) to the InvestEU Fund .............. 26
II
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Glossary
Term
Blending facilities
Definition
A cooperation framework established between the Commission and
development or other public finance institutions with a view to
combining non-repayable forms of support and/or financial instruments
from the EU budget and financial instruments from development or
other public finance institutions as well as from commercial finance
institutions and investors.
A potential financial obligation that may be incurred depending on the
outcome of a future event.
Provision of capital to a firm, invested directly or indirectly in return for
total or partial ownership of that firm and where the equity investor may
assume some management control of the firm and may share the firm's
profits.
Guarantee provided by the Union budget, pursuant to a legal
commitment to support a programme of actions, representing a financial
obligation that can be called upon if a specified event materialises during
the programme implementation, and that remains valid for the duration
of the programme.
Union measures of financial support provided from the EU budget to
address one or more specific policy objectives of the Union. Such
instruments may take the form of equity or quasi-equity investments,
loans or guarantees, or other risk-sharing instruments, and may, where
appropriate, be combined with other forms of financial support or with
funds under shared management or funds of the European Development
Fund.
Financial mechanism or arrangement agreed between the Commission
and the implementing partner under the terms of which the
implementing partner provides direct or intermediated financing to final
recipients mainly in the forms of debt or equity.
Operations to provide finance directly or indirectly to final recipients,
carried out by an implementing partner in its own name, provided by it
in accordance with its internal rules and accounted for in its own
financial statements.
Legal instrument whereby the Commission and an implementing partner
specify the conditions for proposing financing or investment operations
to be granted the benefit of the EU guarantee, for providing the
budgetary guarantee for those operations and for implementing them.
Eligible counterpart such as a financial institution or other intermediary
with whom the Commission signs an agreement to implement the Union
funds.
Type of financing that ranks between equity and debt, having a higher
risk than senior debt and a lower risk than common equity and that can
be structured as debt, typically unsecured and subordinated and in some
Contingent liability
Equity investment
Budgetary
guarantee
Financial
instruments
Financial product
Financing and/or
investment
operations
Guarantee
agreement
Implementing
partner
Quasi-equity
investment
III
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cases convertible into equity, or into preferred equity.
Mid cap companies
Multiplier effect
Entities having up to 3 000 employees that are not SMEs or small
mid-cap companies.
Investment by eligible final recipients divided by the amount of the
Union contribution.
Legal entities carrying out financial activities on a professional basis
National
promotional banks
which are given mandate by a Member State or a Member State's entity
at central, regional or local level, to carry out development or
or institutions
promotional activities.
Risk-sharing
instrument
Small and
medium-sized
enterprises (SMEs)
Small mid-cap
companies
Technical Assistance
Financial instrument which allows for the sharing of a defined risk
between two or more entities, where appropriate in exchange for an
agreed remuneration.
Micro, small and medium-sized enterprises as defined in Article 2 of the
Annex to Commission Recommendation 2003/361/EC
1
.
Entities having up to 499 employees that are not SMEs.
Advisory support for the identification, preparation, development,
structuring, procuring and implementation of investment projects, or
enhance the capacity of promoters and financial intermediaries to
implement financing and investment operations. Its support may cover
any stage of the life-cycle of a project or financing of a supported entity,
as appropriate.
Country that is not member of the European Union.
Third country
1
Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-
sized enterprises (OJ L 124, 20.5.2003, p. 36)
IV
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Acronyms
Acronym
BG
CCS
CEF
CEO
CMU
COSME
COSME +
CRD IV
CRR
EaSI
EC
ECB
EDP
EFSI
EIAH
EIB
EIF
EIPP
ERC
ESI Funds/ ESIF
FI
FR
IFI
INEA
IPE
IPO
MDB
MFF
MS
NCFF
Meaning
Budgetary Guarantee
Cultural and Creative Sectors
Connecting Europe Facility
Chief executive officer
Capital Markets Union
Competitiveness of Enterprises and Small and Medium-sized
Enterprises
Europe’s programme for small and medium-sized
enterprises
Capital Requirements Directive IV
Capital Requirements Regulation
Employment and Social Innovation
European Commission
European Central Bank
InnovFin Thematic Products - Energy Demo Projects
European Fund for Strategic Investments
European Investment Advisory Hub
European Investment Bank
European Investment Fund
European Investment Project Portal
European Research Council
European Structural and Investment Funds
Financial Instrument
Financial Regulation
International Financial Institution
The Innovation and Networks Executive Agency
Investment Plan for Europe
Initial Public Offering
Multilateral Development Bank
Multiannual Financial Framework
Member State
Natural Capital Financing Facility
V
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NPB
OPC
PBI
PbR
PF4EE
PPP
R&D
R&I
RSB
SPV
TA
TEN
TEN-E
TEN-T
TFEU
VC
National Promotional Bank
Open Public Consultation
Project Bond Initiative
Payment-by-Results
Private Finance for Energy Efficiency
Public–private partnership
Research and Development
Research and Innovation
Regulatory Scrutiny Board
Special Purpose Vehicle
Technical Assistance
Trans-European Networks
Trans-European Energy Networks
Trans-European Transport Network
Treaty on the Functioning of the European Union
Venture Capital
VI
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1
1.1
I
NTRODUCTION
:
POLITICAL AND LEGAL CONTEXT
Scope and context
In line with the political orientation and guidance note of the College on the next Multiannual
Financial Framework (MFF), there is a need to explore ways to incorporate the cross-cutting
objectives of the new MFF in the future EU investment programme, particularly with regards to
simplification, flexibility, synergies and ensuring coherence with other EU programmes. The
considerations put forward in the Commission's Reflection Paper
2
on the future of EU finances
highlight the need "to
do more with less"
and leverage the EU budget at a time of budgetary
constraints. To address the overlaps inherent in the current multitude of EU-level financial
instruments (FIs) and applicable rules, the Reflection Paper suggests as a possible solution their
integration in a single fund. This single fund would provide support via a wide variety of
financial products while having a strengthened focus on policy areas and objectives. It also
requests EU-level financial instruments and those managed by Member States under cohesion
policy to be complementary.
EU financial instruments and budgetary guarantees (BGs) are financial tools aimed to support
investment and to achieve EU policy objectives. Financial instruments can take the form of debt,
guarantees, equity, etc. Budgetary guarantees back financial products provided by implementing
partners.
Their main objective is to address market failures and suboptimal investment situations related to
the supply of financing to economic actors with a risk profile that private financiers are not
always able or willing to address. The reasons can range from asymmetry of information to risk
averseness of private investors, underdeveloped financial markets and liquidity problems.
This lack of financing provided by the market may have negative externalities that hinder
economic growth, job creation, innovation, the pursuit of long term objectives, the emergence of
more sustainable economic models and the resilience of the financial system. In these cases,
financial public support may be justified.
The public support may be provided in the form of grants or repayable instruments. For
economically viable projects with a revenue generating capacity, a more systemic use of
financial instruments and budgetary guarantees can help increase the impact of public funds.
The EU has been successfully addressing investment gaps related to market failures with EU
financial instruments since the mid-1990s. The EU's first budgetary guarantee, the External
Lending Mandate, was created in the 1970s and is still used today to support EIB’s lending
activities outside the EU. The New Community Instrument, mobilising investments by the EU
budget in the form of loans "to stimulate an economic upturn and support common policies", was
created in 1978.
Under the current and previous MFFs, financial instruments have been expanding under a variety
of programmes. During the 2014-2020 MFF, the Commission established 16 centrally managed
FIs
3
. The budget allocation for these instruments for internal action currently amounts to EUR
2
3
COM(2017) 358 of 28 June 2017.
These financial instruments were created under Regulations establishing different Union Programmes, under the relevant
provisions of the Financial Regulation. This impact assessment does not consider financial instruments created under the
previous MFF and those targeting external action.
1
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5.4 billion
4
. These instruments aim at supporting investments in different policy areas, like
Research and Innovation (R&I), small and medium size enterprises (SME) financing,
infrastructure, cultural sectors as well as promoting environmental and social sustainability (see
Annex 5 for a complete list of 2014-2020 centrally managed financial instruments and budgetary
guarantee for internal action).
Financial instruments are also a delivery mechanism for the European Structural and Investment
Funds' (ESI Funds) programmes delivered under shared management. These instruments address
specific Member States and regions and they are managed by the relevant Managing Authorities.
The total budget planned to be delivered through financial instruments under shared management
for the 2024-2020 period amounts to approximately EUR 21 billion.
Moreover, in the aftermath of the financial and sovereign debt crisis, boosting jobs, growth, and
investment has become one of the top 10 priorities of the Juncker Commission
5
. As a response to
the subdued investment levels, the Commission launched in November 2014 the Investment Plan
for Europe
6
. It focuses on removing obstacles to investment and seeks to deliver jobs, growth,
and innovation in Europe. One of its key actions is the European Fund for Strategic Investments
(EFSI)
7
, which aims at mobilising EUR 500 billion of additional investment through support via
an Infrastructure and Innovation Window, and an SME Window by end-2020. EFSI provides a
budgetary guarantee of EUR 26 billion underpinned by provisioning of budgetary resources of
EUR 9.1 billion. Moreover, the EIB provided additional risk-bearing capacity of EUR 7.5
billion.
Other actions include the European Investment Advisory Hub (EIAH) that provides technical
assistance to private and public project promoters, as well as the European Investment Project
Portal (EIPP) that is an online platform connecting project promoters and investors.
The conditions for an uptake of investment have improved since 2014, thanks to the
improvement of the economic conditions and also due to the public intervention such as the
EFSI. However, important investment gaps have been observed in different policy areas often
held back by persistent market failures.
Based on the public consultation for the next MFF and the mid-term evaluations of the EU
centrally-managed financial instruments and the EFSI, the Commission intends to propose the
creation of the InvestEU Programme, a single EU investment support mechanism for internal
action for the 2021-2027 MFF. The Programme would include an InvestEU Fund, InvestEU
Advisory as well as the InvestEU Portal. The InvestEU Fund would be the successor programme
to the EFSI and the current centrally managed financial instruments (excluding external action
financial instruments). The InvestEU Advisory would be the successor mechanism to the EIAH
and current centrally managed technical assistance initiatives. The InvestEU Portal is the
successor of the European Investment Project Portal.
The InvestEU Fund will consist of providing an EU budget guarantee that will back the financial
products provided by the implementing partners. It would target EU added-value priority
projects and promote a coherent approach to financing EU policy objectives. It would use an
4
5
Source: Commission services. See Annex 5.
https://ec.europa.eu/commission/sites/beta-political/files/juncker-political-guidelines-speech_en.pdf
6
https://ec.europa.eu/commission/priorities/jobs-growth-and-investment/investment-plan-europe-juncker-plan_en
7
The Regulation (EU) 2015/1017 was amended by Regulation (EU) 2017/2396 of the European Parliament and of the Council of
13 December 2017 amending Regulations (EU) No 1316/2013 and (EU) 2015/1017 as regards the extension of the duration of
the European Fund for Strategic Investments as well as the introduction of technical enhancements for that Fund and the
European Investment Advisory Hub (OJ L 345, 27.12.2017, p. 34).
2
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effective and efficient mix of EU financing tools for specific policy areas and would target cross-
sector needs and emerging priorities. It will also improve complementarity between different EU
investment financing instruments by avoiding duplications and overlaps.
The InvestEU Fund would also be accompanied by technical assistance (TA), the InvestEU
Advisory, aimed at preparing, developing and implementing a robust investment pipeline. The
InvestEU Advisory will build on existing initiatives (e.g. EIAH, ELENA, InnovFin Advisory)
and provide support where possible and appropriate within InvestEU Fund objectives. Such TA
support will also promote environmental and social sustainability that are important cross-cutting
objectives.
The envisaged scope of this impact assessment relates to identifying the main challenges to be
addressed by this support mechanism with a focus on the main improvements and possible
disadvantages in terms of budgetary efficiency, synergies, simplification, flexibility and policy
impacts that it can bring compared to the current interventions from the EU budget in the form of
financial instruments and budgetary guarantee.
The baseline for the InvestEU Fund is built on the budgetary allocations under the current MFF
for centrally managed financial instruments and the EFSI (more details in section 3 and Annex 5)
This impact assessment constitutes an ex-ante evaluation in the sense of the requirements of the
Financial Regulation for the creation of the InvestEU Fund and its budgetary guarantee.
1.2
Investment in a post-crisis economic environment
Since 2008, the crisis has motivated specific initiatives aiming at promoting economic activity in
order to support jobs and growth and/or mitigate the effects of the crisis: the European Economic
Recovery Plan (2009-2010), the Marguerite Fund (launched in 2010), Progress-Microfinance
(launched in 2011), the SME Initiative (launched in 2014) and the EFSI (launched in 2015).
Figure 1
-
GDP per capita at current prices, 2006 and 2016 (EU-28 = 100)
Source:
Eurostat
According to the last Commission economic forecasts
8
, the expansion is making its headway.
Lending to non-financial corporations grew by 2.9% in 2017 and investment should continue to
8
European Economy Forecast, Winter 2018 (interim), Institutional Paper 073, February 2018
3
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grow at a robust pace in 2018 and 2019. Over the forecast horizon, the expansion is expected to
remain solid. By 2021, Member States are expected to have recovered their pre-crisis GDP level,
with very few exceptions.
However, persistent market gaps holding back investment are still observed in different policy
areas. The recent acceleration of investment in the EU has not managed to bring investment rates
up to historical averages. Efforts will therefore need to continue beyond 2020 to bring
investment back to its long-term sustainable trend with particular focus on current and emerging
EU policy priorities.
Figure 2 - Investment (% GDP) in EU28
Source:
AMECO and ECFIN calculations
Against this background, the InvestEU Fund will be designed by refocusing the EU investment
support intervention in a more policy-oriented way, addressing the challenges identified below.
1.2.1
Sustainable infrastructure
9
Infrastructure investment activities in the EU in 2016 were about 20% below investment rates
before the global financial crisis. Investment rates in 2016 represented 1.8% of EU GDP, down
from 2.2% in 2009
10
. Compared to 2009, current infrastructure investment in Europe declined
most in the transport sector.
The Commission has estimated investment needs in several key policy areas. For example:
To reach the EU’s 2030 climate
and energy target, about EUR 379 billion investments are
needed annually over the 2020-2030 period, mostly in energy efficiency, renewable energy
sources, and infrastructure
11
–
excluding transport infrastructure.
Circa EUR 500 billion will be needed to complete the TEN-T core network
12
during 2021-
2030 and up to EUR 1.5 trillion, if the TEN-T comprehensive network and other transport
investments are included. In case of the TEN-E (i.e. energy transmission projects with cross-
border relevance), it is projected that EUR 179 billion will need to be invested during 2021-
9
Infrastructure in this context is broader than large, cross border, network infrastructure (i.e. a concept used in trans-European
network regulations) and refers broadly to the infrastructure necessary for economic development.
10
EIB,
Investment Report 2017/2018
–
From Recovery to Sustainable Growth
11
Clean Energy For All - European Communication COM(2016) 860 final
12
TEN-T Work Plans: https://ec.europa.eu/transport/themes/infrastructure_en
4
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2030
13
. These include investments that can enable important CO
2
reductions as well as other
priority air pollutants, and/or provide alternatives for infrastructure with large impacts on
natural capital.
The estimated investment required to achieve the objectives stated in the EU Urban Waste
Water Directive ranged between EUR 22 and 25 billion, according to the information
gathered under the last article 17 Report from EU Member States forecasts
14
. Investments
forecasted increasingly relate to the renewal, improvement and extension of the existing
infrastructure.
Figure 3 - Infrastructure investment by sector and by source, 2005-2016 (in % of GDP)
Source:
Eurostat, Projectware, EPEC
The weak infrastructure investment in Europe has been largely attributed to a decline in
investment activities by governments (primarily regional or local authorities). Fiscal constraints,
regulatory or political instability and investment decisions driven by political choices have been
identified as the main challenges to infrastructure investment. According to EIB estimates, the
overall investment gap in transport, energy and resource management infrastructure has reached
a yearly figure of EUR 270 billion
15
.
Figure 4 - Annual Investment needs (current levels and gaps) for sustainable infrastructure
Source:
Action Plan: Financing Sustainable Growth, COM (2018)97 final
Based on the study "Investment needs in trans-European energy infrastructure up to 2030 and beyond", Ecofys, July 2017.
Figures based on the information gathered from EU Member States forecasts under Art 17 of the Urban Waste Water
Treatment Directive (UWWTD) . These include investment forecasted for achieving compliance with the UWWTD, also (and
increasingly) for the renewal, improvement and extension of the existing infrastructure.
15
See EIB,
'Restoring EU competitiveness',
2016. The estimate, until 2020, include investments in modernising transportation
and logistics, upgrading energy networks, increasing energy savings, renewables, improving resource management, including
water and waste.
14
13
5
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In the field of telecommunications, the investment gap is approximately EUR 65 billion to reach
the global benchmark for broadband services and to match US investments in cyber security and
data centre capacity
16
.
Therefore, it is essential to further stimulate private sector investment.
The lack of a strong pipeline of sustainable infrastructure projects is a recurring concern for
investors. The capacity to develop and implement projects varies widely across the EU and
between sectors. Therefore, technical assistance is key to further support the development of
sustainable infrastructure projects in the EU and to scale up small and scattered projects.
In addition, from environmental, and climate policy perspectives, the failure to reflect
environmental costs in market prices renders sustainable investment in infrastructure less
attractive.
Further challenges arise for cross-border projects. Costs and benefits of projects involving
several Member States are asymmetrically distributed among them, leading to coordination
failures. At the same time, costs are charged at the national and local level, while benefits are
realised transboundary or at EU scale and are dependent on other investments in the supply
chain, value chain or network.
1.2.2
Research and Innovation
Research and Innovation (R&I) investment is a key driver of productivity and economic growth.
However, private companies do not sufficiently invest in R&I from a welfare perspective. The
reason is that companies do not take into account the positive externality from knowledge spill-
overs, which benefit the whole economy. Indeed, the social returns from R&D investment are
estimated to be two to three times higher than the private returns. The IMF (2016) shows that
fully internalising the externalities of R&D would lead to 40% higher investments compared to
the status quo. Such an increase could lift GDP in individual economies by 5% in the long term
–
and globally by as much as 8% due to international spillovers.
17
R&I projects are more difficult to finance because they are risky and their returns are highly
skewed. R&I may face significant adverse selection and moral hazard problems. This leads to
lower investment both in terms of equity
–
as investors discount this uncertainty on financial
markets
–
and in terms of debt financing
–
because of the intangible nature of investment or high
risks related to innovative technologies, which makes collateralisation difficult, if not
impossible. Financing constraints thus hamper profitable R&I investment opportunities, reduce
firms’ innovative performance and growth prospects of economies, as opposed
to the case of
frictionless capital markets
18
. R&D investment has typically also high adjustment costs (i.e. it
relies on highly skilled human capital with firm specific knowledge). Firms therefore tend to
smooth their R&D investment over time. Corporate liquidity can have an important impact on
innovative firms' behaviour: young and smaller firms rely extensively on cash reserves to buffer
R&D from the volatility in key sources of finance.
19
The InvestEU Fund would allow financially
16
17
IDEM.
IMF (2016),
Fiscal Monitor: Acting Now, Acting Together,
Washington, April.
18
Carpenter, R, and B. Petersen (2002) "Capital market imperfections, high-tech investment, and new equity financing",
The
Economic Journal,
112. Hall, B, Moncada-Paterno, P, Montresor, S and A. Vezzani (2016) "Financing constraints, R&D
investments and innovative performances: new empirical evidence at the firm level for Europe".
Economics of Innovation and
New Technology.25:3,
183-196.
19
Brown, G. Martinsson, and B. Petersen (2012)" Do Financing Constraints Matter for R&D?",
European Economic Review,
56(8).
6
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constrained firms to maintain a relatively smooth flow of R&D expenditure in the face of shocks
to finance, thereby reducing adjustment costs.
The intensity of financial constraints for R&I vary with the structural and sectoral characteristics
of companies. While financing constraints are in particular acute for younger and smaller
innovative companies, such barriers can also be nonlinear. D’Este et al (2012) demonstrate that
cost and market barriers for innovation are very present for non-innovative firms that want to
embark on innovative projects as well as for highly innovative firms.
20
This is in particular the
case in the EU. R&D investments made by EU leading innovators, which are typically large
firms, are more sensitive to financing constraints than their US counterparts, particularly in high-
tech sectors
21
.
Better access to finance could also improve sluggish productivity growth. A slowdown in
productivity growth is particular acute in the EU and threatens future increase in living
standards. Recent research shows that the productivity puzzle is not due to a lack of innovation,
but to a lack of innovation diffusion between firms across all sectors.
22
Cutting-edge firms are
not slowing down in their productivity growth, but other firms are not keeping up. The gap
between a handful of innovation leaders and the rest is widening. Furthermore, greater inequality
among firms is one of the main culprits behind the rise in income inequalities. Coad, Pellegrino
and Savona (2015) show that the cost and the availability of finance appear as crucial innovation
barriers and negatively affect productivity across the whole distribution (conditioned on size,
age, exports and education levels of firms).
23
Brown, Martinsson and Petersen (2012) results
suggest that better access to equity finance would significantly increase firm-level R&D
intensity
24
.
Although ample evidence exists that economies achieve large and significant returns on R&I
investments, and that the latter create new and better jobs in an economy that is ever more
knowledge-based and intangible asset-intensive, the EU underinvests in R&D compared to its
major competitors
25
. Businesses in the EU spend far less on R&D than, those in the US and
Japan, and less than a half of the South Korea, and the latest figures show a further increase of
the gap. The underinvestment in business R&D is one of the reasons behind the widening of the
EU’s productivity gap compared to the US.
The R&D investment gap to reach the 3% EU GDP amounted to EUR 144 billion for the year
2016
26
.
1.2.3
SMEs
There are 23.8 million enterprises in the EU that employed 93 million people in 2016, and which
accounted for 67% of total private-sector employment and generated 57% of value added in the
20
21
D'Este, P. et al (2012), "What Hampers Innovation? Revealed Barriers versus Deterring Barriers",
Research Policy
41(2)
Cincera, M., J. Ravet, and R. Veugelers (2016) "The sensitivity of R&D investments to cash flows: comparing young and old
EU and US leading innovators,"
Economics of Innovation and New Technology.
22
"The future of productivity", OECD, 2015.
23
Coad, A. , G. Pellegrino and M. Savona (2016) "Barriers to innovation and firm productivity",
Economic of Innovation and
New Technology,
Volume 25.
24
Brown, G. Martinsson, and B. Petersen. (2012) “Do financing constraints matter for R&D?”,
European Economic Review,
Volume 56, Issue 8, Paes 1512-1529.
25
Gross domestic expenditure on R&D in the EU is stagnating around 2% over recent years, while the United States, Japan and
South Korea invest 2.8 %, 3.3 % and 4.2 % respectively. China, at 2.1 %, has also recently overtaken the EU. Business R&I
intensity in the EU stands at 1.3 % compared to almost 2 % for the United States and nearly triple that for South Korea, at almost
3.5 %:
http://ec.europa.eu/eurostat/statistics-explained/index.php/R_%26_D_expenditure.
26
Commission services calculations based on Eurostat data.
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EU-28 non-financial business sector. About 85% of newly created jobs in the EU are accounted
for by SMEs. However, obtaining financing in the form of debt or equity can still be a hurdle for
company creation and its growth and scale-up, in particular in Member States with less
developed financial markets. European SMEs rely heavily on debt finance in the form of bank
overdrafts, bank loans or leasing. Market-based instruments (e.g. equity) are only considered
relevant by 12% of SMEs
27
although in many cases equity (risk-capital) is more suitable, as
small companies often lack collateral or have irregular cash-flows (equity does not impose
specific repayment schedule, and hence can be less of a burden during times of economic stress).
Providing more diversified sources of funding is necessary for increasing the ability of SMEs to
withstand economic downturns and for making the financial system more resilient during
economic shocks. This is a key objective pursuit under the Capital Markets Union.
Problem with access to debt finance
Following the financial crisis, higher capital requirements (e.g. CRD) and the need for banks’
deleveraging, negatively affected banks’ willingness and ability to lend and to accept risk. This
had a major negative effect on available SME bank finance across the EU. Credit standards
tightened considerably and SMEs as a consequence experienced a credit crunch.
The ECB’s monetary policy has significantly improved the liquidity situation and positive
economic developments have helped as well. In addition, an SME Supporting Factor was
introduced, thus reducing the capital requirements for exposures to SMEs in comparison with the
pre-CRR/CRD IV framework.
All of these activities have led to an improvement in the conditions for access to finance, and
SMEs have on average recovered. Moreover, financial markets in the Member States show
different degrees of development, in terms of diversity of financial institutions, product offerings
and risk appetite. SMEs have no means to overcome these national differences because they rely
on local or national providers of finance. SME financing is predominantly provided within
national boundaries due to regulatory constraints. Cross-border lending is only at a nascent stage,
predominantly fuelled by the emergence of fintech companies.
For SMEs, the debt finance gap is estimated at EUR 30 billion annually
28
. The financing
problem is acute for firms that are undertaking activities with significant financial, technological,
organisational or business-model risk and those wanting to finance growth projects which do not
result in the acquisition of fixed assets which could be collateralised (e.g. in the area of culture
and creativity, digitisation, internationalisation, etc.). For example, the financing gap for creative
SMEs across Europe has been estimated at between EUR 8 and EUR 13 billion over 2014-2020.
This sizeable gap is the consequence of a very dynamic sector that contributes 4.4%
(approximately EUR 558 billion) of the EU GDP and 3.8% (8.3 million jobs) of the total EU
workforce.
29
Moreover, SMEs face a knowledge gap regarding investments in their digital
transformation including Artificial Intelligence adoption. This is shown by the difference of take
up of digital technologies by large companies (42% are highly digitised) vs SMEs (only 16% are
highly digitised).
27
Survey on the Access to Finance of Enterprises in the euro area April to September 2017, section 3.1:
https://www.ecb.europa.eu/pub/pdf/other/ecb.accesstofinancesmallmediumsizedenterprises201711.en.pdf?beb1832df4af9efa945a
5a1f7b99eeb7
28
COSME+ impact assessment
29
The economic contribution of the creative industries to EU GDP and employment, TERA, 2014,
8
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Furthermore, undertaking innovative and other high-risk activities that are poorly understood by
finance providers, result in low credit scores and lead to high interest charges to compensate for
the perceived risk.
Moreover, especially younger and smaller companies or those requiring rather small financing
amounts are faced with a structural financing gap due to information asymmetries, lack of
financial track records and disproportionate dossier costs, which is independent of the economic
cycle or the country they are located in. If financing is offered at all, it is offered at unreasonable
conditions in terms of interest rates applied, maturities, repayment terms and collateral required.
These market failures
–
prevalent cross the EU
–
hinder the start-up and growth of companies.
Companies rarely have the internal funds they need, and consequently seek external financing.
This market environment results in an access to finance gap for SMEs that have a higher risk
profile or insufficient collateral, and such access to finance gap differs from country to country.
Insufficiently developed equity financing market
Despite the fact that only 12% of SMEs currently consider equity financing relevant for their
business, it is an important financing component, specifically for high-risk start-ups and high
growth companies that require significant long-term investments and which do not produce
immediate free cash-flows which would allow servicing debt payments nor do require the need
for a collateral.
Alternative sources of finance, complementary to bank-financing - including public equity
markets
–
private equity and venture capital - are more widely used in other parts of the world,
and should play a bigger role in providing financing to companies that struggle to get funding,
especially SMEs
But Europe's capital markets are still very fragmented and underdeveloped (EU SMEs receive
five times less venture capital funding compared to US as shown in figure 5).
Figure 5 -
Total annual venture capital funding by continent (USD billion)
Source:
PwC, MoneyTree Report, Q4 2017
For high-risk start-ups and high growth of companies, obtaining equity finance on reasonable
terms is difficult for different reasons: one is the asymmetry between the information held by the
firm and that known to the investor; and conflicts of interest between a firm's managers and its
shareholders (the principal-agent conflict).
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Figure 6 - 448 emerging, current & exited tech companies valued at more than $500m
Sources:
TechCrunch, Rocket Internet Research
While private capital for initial public offerings (IPOs) and pre-IPOs is in principle available, it
is not sufficiently made available for this particular asset class of risk capital investments.
Investors consider the risk/return profile for venture and growth capital investments
inappropriate and the cost of undertaking research too high. Moreover, investors find it
inefficient to invest because the funds are very often too small. These framework conditions
create a market gap for equity risk capital finance that narrows the opportunities for exit
strategies for leading technology companies (see figure 6). Matching US levels of venture capital
financing as share of GDP would require around EUR 35 billion a year in additional EU venture
capital activity
30
.
1.2.4
Social investment and skills
Investments in social infrastructure, social economy enterprises or social enterprises producing
goods ('tangibles') as well as social services, ideas and people ('intangibles') are crucially lacking
in the EU, yet are critical for the EU and its Member States to develop into a fair, inclusive and
knowledge-based society. At the moment the social sector as a whole continues to experience a
significant investment shortfall, and has to date been considered in a fragmented and scattered
manner. Efforts to bridge the investment gap should also contribute to make social infrastructure
and service provision more people-centred, accessible, and affordable.
The social infrastructure investment gap is not easily quantifiable. Due to the heterogeneity of
the sector, no comprehensive market gap analysis on the entire social sector in Europe has been
performed to date.
According to the report of the “High-Level
Task-Force on Investing in Social
Infrastructure in Europe” (HLTF)
31
, public investment in social infrastructure, including for
education, health and housing, has been and remains low over the past decade, despite EIB/EFSI
support. The HLTF has estimated that the investment gap for the priority sectors of affordable
housing, education and healthcare can be calculated as an uplift of 25% of the current percentage
30
EIB report: Restoring EU competitiveness. 2016 updated version
available at
http://www.eib.org/attachments/efs/restoring_eu_competitiveness_en.pdf
31
The report of the "High-Level Task-Force on Investing in Social Infrastructure in Europe" estimated the minimal investment
gap for Education, health & long-term care, and affordable housing at EUR100-150 billion annually.
See: http://ec.europa.eu/info/publications/economy-finance/boosting-investment-social-infrastructure-europe_en
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of GDP identified for each sector. This estimate determines an investment gap of EUR 142
billion p.a. as illustrated by the table below.
Table 1 - Minimum estimate of the gap in social infrastructure investments
Current
annual
investment
in EUR
billion p.a.
Minimum gap per
sector in EUR bn
p.a. (uplift of 25 per
cent of the current
percentage of GDP)
Additional items in EUR
bn p.a.
Annual
Investment
GAP in EUR
bn
p.a.
Sector
Education &
Lifelong
Learning
(0.4% of GDP)
Health & Long-
Term Care
(0.5% of GDP)
Affordable
housing
(0.4% of GDP)
Totals
65
15
-
15
75
20
EUR 50 billion pa for
long-term care
Unknown amount for
disability and migrants
EUR 50 billion pa to
address energy poverty
100
70
28
168
7
42
57
142
Source:
HLTF Report on Investing in Social Infrastructure in Europe, January 2018
Microfinance and social enterprises in Europe are still recent developments and part of an
emerging market that is not yet fully developed. Both micro-enterprises, in particular those
employing vulnerable persons, and social enterprises are often confronted with difficulties in
getting access to finance, which is a significant barrier to their growth and development while
public finance in this area is still lacking, especially at the European level.
The investment gap for micro-enterprises has been estimated through the same Survey on Access
to Finance of Enterprises
32
, and constitutes between EUR 33 billion and EUR 81 billion of the
loan gap. Social enterprises constitute around 10% of EU business. This indicates that the
financing gap for social enterprises is at least 10% of the total estimated gap, between EUR 3
billion and EUR 8 billion.
As regards skills development, there are very large gaps in terms of providing apprenticeship-
type training across the EU
33
. Overall, the average annual company spending on apprenticeships
in the EU is around 0.5% of their annual labour costs, or around EUR 30 billion, with potential
gap of EUR 30 billion of investment to reach the level of financing in countries with advanced
apprenticeships systems
–
i.e. 1% of the annual labour costs
34
.
32
Survey on the Access to Finance of Enterprises in the euro area April to September 2017:
https://www.ecb.europa.eu/pub/pdf/other/ecb.accesstofinancesmallmediumsizedenterprises201711.en.pdf?beb1832df4af9efa945a
5a1f7b99eeb7
33
Most of this type of training is performed in a small number of countries (notably Germany, contributing around 50% of all EU
company spending on apprenticeships). Annual company spending on apprenticeships is estimated to stand at around 1% of their
annual labour costs, or around EUR 30bn, see: Eurostat, Labour Cost Survey, 2012
34
Source: Eurostat, Labour Cost Survey, 2012
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A Commission analysis
35
shared and discussed in the Eurogroup confirms the importance of
investments in human capital to raise productivity and boost potential growth. The EIB
36
considers that to reach US standards mostly in higher education annual investment of EUR 10
billion for state-of-the-art education facilities would be required, in addition to annual EUR 90
billion increased operational spending.
EU support is therefore needed for improved educational attainment and skills providing easier
access to labour market, lifelong skills development facilitating career progression, and
minimising the risk of poverty/social exclusion
37
. This includes investing in quality and
affordable education, childcare, healthcare, long-term care, social housing and access to essential
social services. Support for companies (particularly SMEs) to get involved more in combined
school-and work-based education and training programmes as well as to improve the utilisation
of skills through redesigned business processes is also needed.
1.3
Lessons learned from previous programmes
It has been recognised that financial instruments such as guarantees, loans, and equity play an
important role for the achievement of EU policy objectives and one of the advantages is that the
FIs support has to be repaid, which leads to resources being used for several funding cycles.
Their repayable nature also ensures better alignment of interests between different stakeholders,
greater economic scrutiny of projects, as well as more financial discipline. An additional
important feature is the leverage effect. This relates to the total investment mobilised by private
investors in relation to the deployment of EU budget resources. These financial instruments and
the EFSI "have
[also] become EU trademarks, making the EU visible and recognisable in the
daily lives of its citizens"
38
.
However, there have been numerous requests underlining the need to simplify and streamline the
available offer of EU investment support instruments. The fragmentation of the EU offer led to
the emergence of overlaps, different sets of rules by instruments and a lack of visibility of the
EU activity in this field. This results in unnecessary complexity and higher budgetary and
administrative costs. There is also some criticism that the proliferation of financial instruments
led to insufficient accountability and control.
39
More importantly, final beneficiaries and
financial intermediaries have become confused about the different solutions offered in terms of
instruments and products. The post-2020 investment support scheme must therefore be focused,
simpler and more transparent, while allowing for quick response to a changing market
environment through an increased flexibility of budgetary allocations to emerging priorities. A
similar need for simplification has also been identified for the TA offers as they often underpin
individual initiatives.
The Reflection Paper on the Future of EU Finances"
40
underlined that there seems to be evidence
that
"[t]he number of EU-level financial instruments and rules applying to them is an obstacle to
Commission note: Investment in human capital discussed at Eurogroup on 06/11/2017
http://www.consilium.europa.eu/media/31409/investment-in-human-capital_eurogroup_31102017_ares.pdf
36
See EIB,
'Restoring EU competitiveness',
2016.
37
https://ec.europa.eu/info/business-economy-euro/growth-and-investment/structural-reforms/ageing-and-welfare-state-
policies_en
38
"Reflection paper on the future of EU finances", June 2017,
https://ec.europa.eu/commission/publications/reflection-paper-
future-eu-finances_en
39
Annual report of the Court of Auditors on the implementation of the budget concerning the financial year 2016, OJ 2017/C
322/01, p. 55.
40
https://ec.europa.eu/commission/sites/beta-political/files/reflection-paper-eu-finances_en.pdf
35
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their efficient use”.
The Commission Communication on the next MFF
41
also underlined that
"[…] the current landscape of EU market-based
instruments is fragmented, with almost 40
financial instruments and three budgetary guarantees and guarantee funds managed centrally,
which amount to a share of around 4% of the current Multiannual Financial Framework. There
is clear scope for rationalisation and greater efficiency."
The High Level Group on Simplification for post 2020
42
recommended: "For
those EU funds
which support investments (ESIF, EFSI, CEF, Horizon 2020, etc.) overlaps which lead to
competition based on a more beneficial legal regime should be identified and removed, with
effectiveness and results being the relevant factors to determine which instrument should be the
most appropriate in a given context".
The European Parliament also calls for simplification and greater efficiency. In its Resolution on
the Reflection Paper on the Future of EU Finances
43
the European Parliament:
"[A]dvocates a real and tangible simplification of implementation rules for beneficiaries and
a reduction of the administrative burden”.
“Encourages
the Commission, in this context, to identify and eliminate overlaps between
instruments offered by the EU budget which pursue similar objectives and serve similar types
of actions.
"
In particular, the Parliament "calls
on the Commission to simplify and harmonise the rules
governing the use of financial instruments in the next MFF with the aim of creating synergies
between the different instruments and maximizing their efficient allocation."
44
Finally, there is a need to step up mainstreaming efforts notably related to the EU (and global)
sustainable development objectives. It is important to ensure that EU investment support
mechanisms such as the InvestEU Fund are guided by robust and advanced sustainability
criteria, including those set by the EU climate and environment policy
45
.
Therefore, the InvestEU Fund will draw lessons from the past and current EU investment support
instruments. This concerns in particular the experience with the 2014-2020 financial instruments
as well as the EFSI. Detailed lessons learned and past evaluation results are included in Annex 3.
Past evaluations have demonstrated that the EFSI has been effective in delivering concrete
results and encouraging a sustainable increase in the low investment levels in Europe.
In particular, the budgetary guarantee underpinning EFSI has proven to be an efficient tool to
increase considerably the volume of riskier operations financed by the EIB. The EFSI budgetary
guarantee freezes less budgetary resources compared to financial instruments, as it requires
limited provisioning needs compared to the level of financial engagement. In other words, it
assumes a contingent liability and is consequently expected to achieve efficiency gains that result
in higher investment mobilised per euro spent. A budgetary guarantee has also proven more cost-
41
"A new, modern Multiannual Financial Framework for a European Union that delivers efficiently on its priorities post-2020",
February 2018, COM(2018) 98 final
–
http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX%3A52018DC0098&from=EN
42
"Final conclusions and recommendations of the High Level Group on Simplification for post 2020", July 2017 -
http://ec.europa.eu/regional_policy/sources/newsroom/pdf/simplification_proposals.pdf
43
European Parliament resolution on the Reflection Paper on the Future of EU Finances (2017/2742(RSP))
44
European Parliament resolution of 14 March 2018 on the next MFF: Preparing the Parliament’s position on the MFF post-2020
(2017/2052(INI))
45
https://ec.europa.EU/info/files/180308-action-plan-sustainable-growth_en
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efficient for the EU budget, as it is remunerated for the risk taken and it limits the payment of
management fees to the implementing partner(s).
Past EFSI evaluations have also stressed the need to improve EFSI’s geographical balance, avoid
overlaps with other EU Financial Instruments, as well as reinforce and clarify additionality. It is
also generally recognised that there is a need for greater advisory and technical assistance which
would contribute to a sizeable pipeline of projects that contribute to the EU policy objectives.
Evaluations of investment support programmes noted a certain level of fragmentation and
overlaps among different EU investment support instruments as well as with financial
instruments under shared management. For instance, CEF evaluation showed that its financial
instruments have seen limited uptake, partly due to the new financing opportunities opened by
the EFSI. The Interim Evaluation of Horizon 2020 also points out that "since
the set-up of EFSI
in 2015, it has proved challenging to reach InnovFin's objectives, as a significant part of the
products deployed overlap with EFSI in terms of both risk spectrum and eligibility".
There is currently a certain overlap also between different financial instruments targeting SMEs,
including with programmes under shared management. More detailed assessment of duplications
and overlaps is presented in Annex 12. Moreover, as highlighted in the European Court of
Auditors’ report
46
on the COSME Loan Guarantee Facility, the latter has achieved positive
results, but needs better targeting of beneficiaries and more coordination with national schemes.
In particular, the report recommended that the Commission carries out an assessment of market
needs and how EU guarantee instruments can best respond to these needs alongside
national/regional instruments. In this regard, the Commission has prepared an in-depth market
assessment at the level of each Member State demonstrating the market gap and the rationale for
an intervention at EU level (more details are available in the IA related to the Single Market
Programme).
The EU support has also played an important role in the development of the nascent social
investment market through the Programme for Employment and Social Innovation (EaSI), in
particular for microfinance and social entrepreneurship, empowering European citizens and
fostering social inclusion
47
. Based on the public consultation, the social inclusion and
employment areas are seen as the biggest challenges where the EU response in terms of
investment is least sufficient. However, the resources have been rapidly absorbed and there is an
important unmet demand.
The experience of blending CEF grants with financing products or EIB or National Promotional
Banks conventional lending or private finance has also been positive. More effort is needed to
facilitate combining, when appropriate, different forms of support to maximise the leverage and
impact of private or public funds.
For future instruments, it will be important to strengthen the mobilisation of private capital and
avoid potential crowding out effects (linked to additionality).
1.3.1
Complementarity between the EU level and ESIF
According to the ESIF Operational Programmes 2014-2020, financial instruments will account
for 9.5% of the European Regional Development Fund (ERDF), 2.7% of the Cohesion Fund
46
"Special Report EU-funded loan guarantee instruments: positive results but better targeting of beneficiaries and coordination
with national schemes needed, 2017, n. 20, European Court of Auditors, Special Report (pursuant to Article 287(4), second
subparagraph, TFEU)",
https://www.eca.europa.eu/Lists/ECADocuments/SR17_20/SR_SMEG_EN.pdf
47
http://ec.europa.eu/social/main.jsp?langId=en&catId=1081&newsId=9071&furtherNews=yes
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(CF) and 1.3% of the European Social Fund (ESF) allocations included in multi-fund
programmes. The average allocation to FIs is 7.2%. This compares to 5% of ERDF allocation to
FIs in the previous programming period
48
.
Experience under the current and previous programming periods show that the complementarity
of financial instruments under shared management and those centrally managed could be further
improved. In particular, the Court of Auditors noted that how the various EU guarantee
instruments can best respond to SMEs needs alongside nationally/regionally funded instruments,
thereby ensuring EU added value, was not adequately assessed
49
.
The attempts to combine FIs centrally managed and those under shared management have
proven to be complex and this might have been one of the reasons that slowed down their
uptake.
The Commission's Reflection Paper on the EU's finances
50
pointed out that the "new
EU-level
financial instruments and the loan, guarantee, and equity instruments managed by Member
States under cohesion policy should be complementary".
It further indicates that this
"complementarity
between the different instruments should be ensured, through upstream
coordination, same rules and clearer demarcation of interventions"
(p. 27).
1.3.2
Results from the Open Public Consultation
Open Public Consultations (OPC) for the post-2020 impact assessment were organised per group
of policy areas. This impact assessment will mainly consider the results from the OPC on the EU
Support for Investment
51
. For this policy area, 642 replies were received from all Member States.
Relevant results from OPCs regarding different policy areas like Cohesion; Security, Migration
and Asylum; Strategic Infrastructure; Values and Mobility are also taken into consideration.
The following issues raised are particularly relevant and have been taken into account in
assessing the different possible actions presented in this report:
Most respondents believe that the current EU support for investment does not sufficiently
address policy challenges like reducing unemployment, support social investment, facilitate
digital transition, facilitate access to finance in particular to SMEs, ensure a clean and
healthy environment and support industrial development.
The respondents stressed the importance of EU wide policy challenges, among others, in
areas like research, support for education, clean and healthy environment, and transition to
low carbon and circular economy, and reducing unemployment.
Most participants believe that current EU investment support programmes to a fairly large
extent add value compared to what Member States could achieve at national or regional
level.
Around 60% of respondents to the OPC on Strategic infrastructure expressed a view that
difficulty to access financial instruments is an obstacle that prevents the current programmes
from successfully achieving policy objectives. For OPC on Security and Cohesion, the
insufficient use of financial instruments is identified by around 40% of participants.
"The use of new provisions during the programming phase of the European Structural and Investment funds"
–
Final Report ,
Altus Framework Consortium, May 2016.
49
ECA Special report No 20/2017:
https://www.eca.europa.eu/Lists/ECADocuments/SR17_20/SR_SMEG_EN.pdf
50
Reflection paper on the future of EU finances", June 2017,
https://ec.europa.eu/commission/publications/reflection-paper-
future-eu-finances_en
51
This was a subpart of the OPC on Investment, research and innovation, SMEs and single market.
48
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A vast majority of participants support the identified steps that could help simplify and
reduce administrative burdens. In particular, this includes fewer, clearer and shorter rules,
alignment of rules between EU funds, as well as a stable but flexible framework between
programming periods.
The way forward: a single investment support instrument
1.4
The Reflection Paper on EU Finances
52
proposes the following: “[o]ne
option to address this
could be […] integration [of financial instruments] within a single fund which would provide
loans, guarantees and risk sharing instruments
—
blending with EU grants where appropriate
—
depending on the project and windows for the different policies (such as research, innovation,
climate action, environment, SME support, infrastructure, including for energy efficiency) to
cater for different objectives".
The Commission Communication further clarifies that
"[o]ne option to improve the efficiency
and impact of instruments aiming at investment support in the EU could be their integration
within a single investment support instrument. This would further reinforce the European Fund
for Strategic Investments and have a positive impact on investment levels, economic growth and
employment across the EU"
53
.
The European Parliament
54
"considers
the option of a single fund that would integrate financial
instruments at EU level that are centrally managed under such programmes as the Connecting
Europe Facility (CEF), Horizon 2020, COSME, Creative Europe and the Employment and
Social Innovation programme (EaSI) on the one hand and the European Fund for Strategic
Investments (EFSI) on the other, a proposal to be discussed further".
The European Parliament "is
of the opinion, however, that such simplification should not result
in the replacement of grants by financial instruments and must not lead to a sectorialisation of
EU programmes and policies, but should guarantee a cross-cutting approach with
complementarity at its heart. [It also] calls for a far-reaching harmonisation of rules with the
aim of creating a single rulebook for all EU instruments."
Based on the above consideration it is proposed to set up a single investment support instrument
- the InvestEU Fund. It will be a centrally managed instrument/framework for financing EU
investment priorities. It will integrate under a single framework all centrally managed financial
instruments and the EFSI budgetary guarantee.
2
2.1
T
HE OBJECTIVES
General objectives of InvestEU Programme
As single investment support scheme for internal Union policies, the InvestEU Programme is
both a policy instrument and a delivery tool. As a policy instrument, the InvestEU Programme
general objective is to support EU policy priorities by financing investment operations that
contribute to:
52
the competitiveness of the Union, including innovation and digitisation;
Reflection paper on the future of EU finances", June 2017,
https://ec.europa.eu/commission/publications/reflection-paper-
future-eu-finances_en
53
https://ec.europa.eu/commission/sites/beta-political/files/communication-new-modern-multiannual-financial-
framework_en.pdf,
COM(2018) 98 final
54
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+MOTION+B8-2017-0565+0+DOC+XML+V0//EN
16
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the sustainability of the Union economy and its growth;
the social resilience and inclusiveness of the Union; and
the integration of the Union capital markets and the strengthening of the Single Market,
including solutions addressing the fragmentation of the Union capital markets, diversifying
sources of financing for Union enterprises and promoting sustainable finance.
The objective is to mobilise public and private investment operations within the EU addressing
market failures and investment gaps that hamper the achievement of EU goals regarding
sustainability, competitiveness and inclusive growth. Underpinned by an EU guarantee, the
InvestEU Fund will contribute to the modernisation of the EU budget and will increase the
impact of the EU budget by "doing
more with less".
The InvestEU Programme should have the capacity to shape the EU strategy to tackle the
subdued investment activity in Europe. With this, it should increase the competitiveness of the
Union and contribute to the economic growth and job creation. By diversifying the sources of
funding and promoting long term and sustainable finance, the InvestEU Programme will
contribute to the integration of European capital markets and the strengthening of the Single
Market. As an EU wide resource pooling financial, market, technical and policy expertise, the
InvestEU Fud shall also be a catalyser for financial innovation at the service of policy objectives.
2.2
Specific objectives
In particular the InvestEU Programme would aim at the following specific objectives:
to promote financing and investment operations supporting sustainable infrastructure;
to promote financing and investment operations supporting research, innovation and
digitisation;
to increase the access to and the availability of finance for SMEs and, in duly justified
cases, for small mid-cap companies; and
to increase the access to and the availability of finance to social enterprises, promote
financing and investment operations supporting social investment and skills and develop
and consolidate social investment markets.
As a delivery tool, the InvestEU Programme aims at implementing financial instruments and
budgetary guarantees more efficiently, achieving economies of scale, increasing the visibility of
EU action and enhancing the reporting and accountability framework applicable to those
instruments. The proposed structure aims at simplification, increased flexibility, and removal of
potential overlaps between seemingly similar EU support instruments.
The InvestEU Programme interventions will be channelled through four thematic policy
windows, each one entailing two compartments, one at EU level and one under ESIF, the
Member State compartment (see section 3.1,):
Sustainable infrastructure;
Research, innovation and digitalisation;
Small and medium-sized enterprises; and
Social investment and skills.
In addition, the InvestEU Programme will include the InvestEU Advisory for project
development and advisory support throughout the investment cycle to foster the origination and
development of projects. The TA support will be provided in the InvestEU policy areas and will
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also ensure a single point of access for final beneficiaries including project promoters and
intermediaries.
These general and specific objectives will be taken into account in section 5 (Delivery
mechanism) and section 6 (Performance measurement). The above general and specific
objectives are translated into operational objectives for each policy area, as detailed below.
2.2.1
Sustainable Infrastructure Window
The objective of the investment support from the InvestEU Fund under this window would be
the provision of finance to sustainable infrastructure
55
in areas such as transport, energy
(including energy efficiency), network infrastructure (smart grids, energy storage, e-mobility),
broadband, environmental related sectors (e.g. waste, water, air, circular economy), innovative
sectors (such as green infrastructure and other natural-capital related projects), and emerging
priorities in areas such as urban mobility and digital service (see scoping paper on Sustainable
Infrastructure available in Annex 4).
Support from the InvestEU Fund under this policy window will:
Orient capital flows towards sustainable infrastructure investment, in order to achieve
sustainable and inclusive growth
56
;
Stimulate investment needed to respond to the challenge of climate change mitigation and of
meeting the greenhouse gas emission reduction commitments by 2030 taken by the EU under
the Paris agreement;
Contribute to coordinated investments in infrastructure projects involving several Member
States (cross-border projects), in particular the financing of trans-European networks;
Address emerging market needs, new technological developments and priorities;
Promote interoperability;
Foster cross-sectoral synergies between energy, transport and digitalisation; and
Provide assistance to continue to build more capacity for developing projects, platforms and
programmes.
Sustainability proofing of infrastructure investments
Long-lifetime infrastructure should be resilient to potential effects of climate change and other
environmental challenges.
Climate change adaptation and mitigation considerations need to be integrated throughout the
project cycle. Projects shall be subject to climate proofing, which entails two components: first,
ensuring the resilience to the current and future adverse impact of climate change through a
climate vulnerability and risk assessment and integration of relevant adaptation options; second,
accounting for the cost of greenhouse gas emissions in the cost-benefit analysis facilitating due
consideration of low-carbon options. Major projects
–
funded by the European Regional
55
Sustainable and resilient infrastructure integrates environmental, social and governance (ESG) aspects into a project’s
planning, building and operating phases while ensuring resilience in the face of climate change or other shocks such as rapid
migration, natural disasters or economic downturns. Service needs will be met in a manner that minimizes or reverses
environmental damage, improves social equality and does not waste resources.
(UNEP & Global Infrastructure Basel Foundation;
http://unepinquiry.org/wp-
content/uploads/2016/06/Sustainable_Infrastructure_and_Finance.pdf)
56
See also Commission Action Plan: Financing sustainable growth, COM(2018)97, 08.03.2018
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Development Fund and Cohesion Fund in the 2014-2020 programming period
–
are already
subject to climate proofing
57
.
Factors such as the increase in weather related risks caused by climate change should also be
taken into account when making investment decisions. In addition, other environmental
challenges other than deriving from climate change per se should be addressed (such as
biodiversity loss, air, water and soil pollution, due to fragmentation and degradation of land and
unsustainable land-use,).
For investments in new sustainable infrastructure, negative externalities related to climate and
other environmental risks need to be taken into account in the overall project risk assessments
and mitigation strategies during planning and development phases.
The sustainability proofing of investments will need to reflect the latest developments in the
field, notably the progress made to develop an EU taxonomy under the Commission Action Plan
on Financing Sustainable Growth
58
.
2.2.2
Research, Innovation and Digitalisation Window
The Research, Innovation and Digitalisation Window will aim to mobilise significant R&I
investments to deliver higher productivity, economic growth and better living standards. It will
stimulate all innovation: from radical to incremental.
The specific objectives of the Research, Innovation and Digitalisation window will aim to:
Improve access to and availability of finance for R&I projects adapted to the different needs
and risk appetite of potential final beneficiaries at various stages of the innovation cycle;
Create critical mass of financing to stimulate industrial scale demonstration of innovative
technologies, disruptive innovation and support high-risk investments in R&I and new
technologies to boost the EU’s global
competitiveness;
De-risk investment in R&I and help upscale and deploy innovative solutions at commercial
scale;
Support innovation diffusion and transfer established solutions to new markets to improve
innovation performance across the EU;
Address investment gaps through supporting new Financial Products and innovative
financing solutions such as crowd-lending or hybrid instruments and cross-border financing
options;
Foster the transfer of best practices between financial intermediaries with a view to
encourage the emergence of a broad product offering supporting R&I activities and R&I-
intensive entities; and
Provide technical assistance to improve investment readiness and bankability of R&I
projects, including deep tech
59
companies, middle market firms, universities, technology
transfer offices, public research organisations and large research infrastructures.
57
See guidance on the climate change related requirements for major projects in the 2014-2020 programming period: European
Commission, "Climate
change and major projects"
2016:
https://ec.europa.eu/clima/sites/clima/files/docs/major_projects_en.pdf
58
Communication from the Commission, Action Plan: Financing Sustainable Growth, COM(2018)97, 08.03.2018
59
"Deep tech" refers to companies of any sector that are "founded on a scientific discovery or meaningful engineering
innovation".
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2.2.3
SME Window
The main objective of the SME Window is to increase the access to and availability of finance
for European SMEs, in support of employment creation and economic growth.
This could be achieved by providing support for categories of SMEs for which the access to
finance problem is the most pronounced
–
start-ups, younger and smaller companies, SMEs
lacking sufficient collateral to realise their investment projects linked to the growth of the
company, and innovative companies. At the same time, the SME window would also aim to
promote the implementation of specific policy priorities of the EU that do not receive sufficient
level of support from the private sector. For example, the areas of internationalisation,
digitisation or the uptake of innovation, and in sectors such as innovative SMEs and the cultural
and creative industries. Furthermore, the capacity of financial intermediaries to work with SMEs,
e.g. in the cultural and creative sectors, needs to be improved so that they can fully play their
market role of channelling private investment resources to these areas and thus increase their
growth potential. The SME window could also contribute to supporting farm investments for
restructuration and modernisation, as well as rural entrepreneurship.
The SME Window will also support the Capital Markets Union strategy by promoting more
diversified sources of funding and overcoming fragmentation of capital markets as a means to
increase the ability of SMEs to withstand economic downturns and making the financial system
more resilient during economic shocks.
The EU-level debt products should focus on SMEs that would not receive support from the
market due to the perceived higher risk or the lack of collateral. Where justified, more dedicated
support may be provided for SMEs or organisations or, were justified to small mid-caps, for a
specific sector or a specific policy orientation.
Concerning equity in particular, the aim would be to increase private equity investments in R&I-
intensive or high-risk SMEs and small midcaps and tackle market gaps that are not properly
addressed by national and regional programmes. The strengthening of the EU equity industry's
ability to attract institutional and other investors to operate on a pan-European basis and to
provide European exit strategies for leading growing companies will also be targeted.
To ease high growth SMEs to scale up beyond the private equity markets notably when going
public, the window could also support and facilitate SMEs seeking a listing on a SME Growth
Market
60
–
Multilateral Trading Facility created by MiFID II, aiming to improve the functioning
of the entire funding escalator of the SMEs and providing fast and profitable exit opportunities
for venture capital and private equity investors.
It is essential to ensure the complementarity and EU-added value of the support by focusing it on
market gaps which are not adequately addressed through national or regional programmes. A
possibility to avoid such overlaps would be that support targets especially those countries where
the access to finance problem is most pronounced and not addressed nationally.
60
In order to qualify as an SME Growth Market, at least 50% of the issuers whose financial instruments are traded on an SME
growth market shall be SMEs, defined by MiFID II as companies with an average market capitalisation of less than EUR 200
million.
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2.2.4
Social, skills and human capital Window
The European Pillar of Social Rights recognises among its core principles the right to education,
training and lifelong learning as well as to social protection including childcare, housing,
healthcare and long-term care.
The general objective of the Social Investment and Skills Window would be to support private
and public investment in social infrastructure in areas such as education, social housing, and
health, as well as to develop and consolidate the nascent market structures underlying the
European social economy and social enterprises
61
and the training and education sectors, both in
terms of financing support and technical assistance/capacity building.
Taking account of and providing leverage to policy instruments in support of the social
dimension of the EU in the next MFF and against the backdrop of the European Pillar of Social
Rights, support from this Window will aim to:
Consolidate the nascent market structures underlying the European social economy
organisations and social enterprises ecosystem;
Increase access to, and the availability of, microfinance for vulnerable persons (e.g.
unemployed, youth, elderly, migrants) and micro-enterprises, social enterprises;
Build up a stronger capital market for social infrastructure promoters investing in areas such
as education (including childcare), social housing, and health (including long-term care);
Support human capital investments (both demand and supply side), for students and workers
and other persons in need of initial training, reskilling and upskilling, as well as for education
and training providers, start-ups and companies at large;
Support the Commission’s future action in the field of social enterprises at EU level
62
; and
Support the emergence and consolidation of social investment markets by boosting both the
supply and demand sides; supporting investment readiness and capacity building of public
authorities and of intermediaries active in the micro-finance, social economy organisations
and social enterprise finance sector.
Simplification
2.3
Suboptimal investment situations are currently addressed through a heterogeneous and
fragmented portfolio of EU financial instruments and the EFSI. These all come with different
legal, administrative, and operational arrangements that result in unnecessary complexity.
The aim of the InvestEU Fund would be to simplify the EU investment support by constructing a
single framework that would help to reduce the complexity. Due to a lower number of
agreements under a single set of rules, the InvestEU Fund will simplify the management of
investment support instruments, the governance and the final beneficiaries' access to the EU
support.
61
"Social enterprise" refers to businesses which have an explicit primary objective to generate positive social or societal impact,
independently of their legal form. They are part of the "Social economy" which, as a broader concept, also includes all co-
operatives, mutual societies, foundations and associations and which are based on principles such as the primacy of people over
capital, the democratic control by the membership, the reinvestment of the surplus to carry out its societal objectives or to the
interest of its members, and an autonomous management. Altogether the social economy is estimated to represent 10% of jobs
and 8-10% of EU GDP.
62
In its 2016 Start-up and Scale-up initiative the Commission identified five priorities for further actions, drawing form the
experience of the 2011 SBI initiative, the Council conclusions of 7 December 2015 and the recommendations of the Expert
Group on Social Entrepreneurship (GECES) as well as the conclusions of the evaluations conducted so far.
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Moreover, as the InvestEU Fund covers all investment support policy needs, this would allow
streamlining and harmonising the reporting requirements and performance indicators.
2.4
Enhanced flexibility
EU investment support instruments address market gaps and suboptimal investment situations.
However, investment support needs are constantly evolving due to changes in technology, laws
and rules, policy priorities, economic cycles, and risk appetite of financiers and investors. It
should thus be possible to modify easily the products. Imposing strict and rigid rules and
mechanisms would negatively affect beneficiaries. This could have negative repercussions on
investment levels, growth prospects, employment, as well as on achievement of policy
objectives.
The EU investment support needs to respond quickly to these changes and requires flexibility in
the following areas:
Ability to align existing financial products to new market conditions. This implies an ability
to change particular investment guidelines, criteria as well as the amount of support during
implementation;
Possibility to discontinue underperforming financial products or create new ones. This would
also include a possibility for the Member States to withdraw contributions from a financial
product set up under the InvestEU Fund Member State compartment (see section 3.2) under
certain principles;
Ability to reallocate resources between products within a specific policy window;
Possibility to reallocate a portion of resources among policy windows. Any reallocation of
resources between windows could be limited to [15% ] of the guarantee amount of any of the
windows;
Possibility to easily combine or blend, when appropriate, support under the InvestEU Fund
with grants from other EU programmes;
It should be possible to design products with specific risk coverage rates (e.g. level of first
loss piece or guarantee rates) for particular market failures; and
The Commission should also have the flexibility to grant the EU guarantee to several
implementing partners that fulfil the required eligibility criteria (see section 5.3).
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3
P
ROGRAMME STRUCTURE AND PRIORITIES
The current experience with the EU financial instruments and the EFSI budgetary guarantee
demonstrated a need for simplification, streamlining and better coordination of EU’s investment
support instruments during the next MFF. Experience with the EFSI also revealed significant
benefits and efficiency gains inherent in using, where possible, a budgetary guarantee instead of
traditional financial instruments.
It is therefore proposed to set up a single investment support instrument, the InvestEU Fund,
underpinned by a budgetary guarantee. It will be a centrally managed framework for financing
EU investment priorities. It will integrate under a single framework all centrally managed
investment support instruments and the EFSI and will allow to also cover new and emerging
priorities.
The budgetary guarantee underlying the InvestEU Fund will be allocated to four thematic policy
windows as indicatively shown in the table below. The split is based on policy prioritisation,
absorption capacity, and the size of the investment gasps. The InvestEU Fund will however
foresee a possibility to reallocate a limited portion of resources among policy windows (see 2.4).
The InvestEU Fund assumes a slight increase in the EU budget from EUR 14.5 billion during the
current MFF (see Annex 5) to 15.2 billion allocated or an increase of almost 5%. The InvestEU
Fund is however expected to increase the overall available budgetary guarantee much more. The
available EU support would increase by 21% to EUR 38 billion and the total expected
investment mobilised by 16.3% to EUR 650 billion (as illustrated in the table below). The
increase of the available EU support is due to a shift from the current mix of FIs and the EFSI
(EU) guarantee to the use of a single budgetary guarantee that is a much more efficient delivery
mechanism.
Table 2 - Overview of budget allocations and estimated investments to be mobilised in the
current MFF and under the InvestEU Fund
2014-2020
(EUR m)
Thematic Policy
Windows
Sustainable
Infrastructure
Research, Innovation
and Digitisation
SMEs
Social, Investment and
Skills
Total
EU Budget
(Baseline: EFSI + FIs)
2021-2027
(InvestEU Fund)
Weight of windows
(based on the
budgetary
guarantee/FIs)
2014-
2020
39%
24%
30%
7%
100%
2021-
2027
30%
30%
30%
10%
100%
Budgetary
Investment Budgetary Investment
guarantee
mobilised guarantee mobilised
/ FIs
12.215
7.560
9.413
2.233
31.421
14.521
216.370
148.250
171.848
26.520
562.988
11.500
11.250
11.250
4.000
38.000
15.200
185.000
200.000
215.000
50.000
650.000
Source:
Commission services, 2018 (indicative split in current prices)
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The fact that the budgetary guarantee is set to increase more (21%) than the expected investment
mobilised (16.3%) is explained by the following InvestEU Fund characteristics:
Compared to the EFSI, it would include more targeted products oriented on delivering more
additionality and having more policy value added;
The InvestEU Fund assumes a much higher share for the thematic products that are more
budget consuming and also display a lower multiplier; and
The InvestEU Fund would also have more implementing partners and there is therefore a
need for a more cautious estimate of the provisioning rate and the multiplier.
The funding priorities for each policy window will be developed in investment guidelines. These
investment guidelines will determine some basic principles of intervention, such as additionality
criteria, alignment of interest, proportionality, good market practice, sustainability, support to
new investment (no refinancing), sectoral and geographic balance, leverage and multiplier effect.
Figure 7 - Correspondence between existing instruments & proposed InvestEU Windows
Source:
Commission services
For each policy window, the guidelines would furthermore specify:
Policy areas for intervention
–
this would define in more detail the areas/sectors of
intervention responding to the specific policy objectives and sectors identified under the
InvestEU Programme regulation;
Type of financial products envisaged to serve the different objectives identified in the
regulation and the policy areas, including risk and revenue sharing arrangements;
Blending needs with other EU programmes;
Monitoring and performance framework to be put in place to measure the impact of the
financial products envisaged.
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For each window, a Policy Board, composed of representatives of the lead policy Directorate-
Generals and a number of other relevant Directorate-Generals, will define the strategy of the
policy window, in line with the investment guidelines and design concrete financing products
(see section 3.4 for more details on the governance of the InvestEU Fund).
The InvestEU Fund will also allow for a voluntary contribution of shared management resources
where this delivers on ESIF policies i.e. Member States would use InvestEU Fund as the delivery
mechanism for part of their ESIF allocation. This would be used under the InvestEU Fund
framework but would be earmarked for investment support in specific Member States.
The InvestEU Fund would also be accompanied by the InvestEU Advisory providing technical
assistance support building on existing TA initiatives (EIAH, ELENA, InnovFin Advisory)
which aims at preparing, developing and implementing a robust investment project pipeline.
Furthermore, the InvestEU Fund will enable additional contributions from other EU
programmes, including those outside the EU budget, where relevant and appropriate (e.g. the EU
ETS Innovation Fund
63
).
The InvestEU Fund main characteristics include:
A single structure, directly communicated to financial intermediaries, project promoters and
final beneficiaries in search of financing;
Flexibility measures that will enable the InvestEU Fund to quickly react to market changes
and policy priorities that evolve over time;
The ability to deliver sector-specific instruments to support particular market failures e.g.
Green Shipping, energy demonstration projects, natural capital;
Increased leverage and more efficient use of budgetary resources through the use of a
budgetary guarantee. Compared to financial instruments, budgetary guarantees freeze less
budgetary resources due to limited provisioning compared to the level of financial
engagement and the overall investment mobilised;
Simplified and focused offer of investment support instruments targeting the main EU policy
objectives. Such offer would also enable combining grants and finance from different EU
programmes, or EIB conventional lending or private finance;
An integrated governance and implementation structure that enhances internal coordination
and strengthens the position of the Commission towards implementing partners. This would
lead to management cost efficiencies, avoidance of duplications and overlap and increased
visibility towards private investors;
Simplified reporting, monitoring, and control requirements; due to the single framework, the
InvestEU Fund will foresee integrated and simplified monitoring and reporting rules;
Better complementarity and ease of combination between programmes managed centrally
and those under shared management;
A possibility for Member States to channel shared management allocations through the
InvestEU Fund (in the Member State compartment);
63
The Innovation Fund is established by the Article 10 (a) 8 of the ETS Directive (EU) 2018/410.
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Possibility to contribute additional resources, if relevant and appropriate, from other EU
programmes for specific policy objectives such as low-carbon innovation in energy, CCS
(Cultural and Creative Sectors), and energy intensive industry supported under the EU ETS
Innovation Fund; and
Association of the InvestEU Advisory to the InvestEU Fund in order to support the
development and implementation of a pipeline of bankable projects.
Furthermore, the single integrated structure of the InvestEU Fund offers the opportunity to
address the shortcomings identified in the lessons learnt section in the following way:
Better coordination, single approach to implementing partners. Instead of a multitude of
delegation agreements and different provisions in different delegation agreements (even
when addressing the same issue), the InvestEU Fund will feature a single agreement per
implementing partner. The governance structure, comprising all relevant DGs, will ensure
effective coordination among instruments.
Competition among implementing partners. Under the current MFF, most intervention under
budgetary guarantees and financial instruments for internal policies is operated via the EIB
Group. The InvestEU Fund opens up the possibility for other partners or consortia to enter in
agreements directly with the EU, ultimately increasing the choice of policy implementation
options for the EU.
Additionality and EU added value. In response to recommendations from evaluations and
audits of the EFSI and financial instruments, the InvestEU Fund will aim to strengthen
requirements on additionality and EU added value of the intervention.
Stronger verification of compliance with policy objectives, to balance the demand-driven
approach at the level of individual operations. The scrutiny of the EU policy consistency of
the financed projects will be intensified due to the work of the Commission staff in the
Policy Boards and the Project Team.
Table 3 - From the EFSI and financial instruments (2014-2020) to the InvestEU Fund
InvestEU (Next MFF)
Shift towards budgetary
guarantees by default
Improvement compared to the current MFF
Less budgetary resources to achieve the same objectives.
More efficient due to economies of scale and diversification
compared to several ring fenced budgetary guarantees: less
provisioning needed for the same level of protection from the
EU budget.
Overcomes fragmentation, overlaps and inconsistencies.
Higher capacity to redeploy resources and to develop new
products according to the demand.
For financial intermediaries and final beneficiaries: single set
of rules and reporting requirements, cross-reliance on audits.
For implementing partners: single contractual framework.
For the EU Budget, risk remuneration and limited fees.
A single budgetary guarantee
A single fund: common rules,
consistent products, single voice
Flexibility
Efficiency gains
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InvestEU (Next MFF)
Budgetary guarantees under
ESIF
Improvement compared to the current MFF
Higher impact with fewer resources.
Better respect of the subsidiarity principle.
Upfront coordination between
the EU centrally managed
instruments and ESIF levels
More efficient allocation of budgetary resources.
Qualitative upgrade of interventions.
Synergies.
Lower need for combinations, but when needed: single set of
rules.
Non-exclusive access to the EU
guarantee
A structured and streamlined
framework for blending
Increased visibility, enhanced
accountability
Coherent framework for
technical assistance
Diversification of pipelines and wider coverage of policy
objectives. Enhanced coordination and negotiation capacity.
Simplification.
Single brand. More effective democratic control.
Technical assistance will be streamlined under a single
framework
3.1
InvestEU Fund structure
The InvestEU Fund aims at achieving a balance between a lean and flexible structure with
simple rules and the need to cater for specific investment support needs in different policy areas
and for different types of beneficiaries. While there are some trade-offs to be made, these two
objectives are not mutually exclusive.
Lessons learned from the EFSI’s structure and in particular the use of windows
64
suggest that an
organisation into policy windows achieves a good balance between simplicity, streamlining and
ability to target specific policy needs.
The windows will be used to deploy financing products (e.g. debt, equity) as well as thematic
sub-instruments and pilot initiatives targeting high risk and first-of-a-kind projects, as currently
done under certain financial instruments (e.g. InnovFin Energy Demo Projects, Natural Capital
Financing Facility, SME guarantees) and provide for a more comprehensive guarantee coverage.
The number and scope of InvestEU Fund’s policy windows would need to achieve the following
objectives:
Simplicity
–
there should be only a handful of policy windows to avoid fragmentation and
confusion among implementing partners and beneficiaries;
Target specific EU policy priorities and respond to market needs that can be addressed with
similar financial products; and
The structure should minimise potential scope overlaps between windows through simple
and pragmatic demarcation rules.
64
Under the EFSI, investment support is provided under two windows: Infrastructure and Innovation Window and SME
Window.
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Based on the main policy challenges and their nature (see section 1.2), it is proposed that the
InvestEU Fund includes the following four windows: (i) sustainable infrastructure, (ii) research,
innovation and digitalisation, (iii) SMEs, and (iv) social investment and skills and human capital.
The InvestEU Fund budgetary resources will be distributed among the four windows. This
allocation will be based on the size of the respective market gaps and experience with the current
financial instruments and the EFSI. An additional argument to be taken into consideration is the
absorption capacity by implementing partners, financial intermediaries and final beneficiaries.
The InvestEU Advisory/TA support will be allocated among policy windows according to
identified needs and market gaps. Moreover, limited resources would be kept outside the policy
windows at the InvestEU Fund level to support initiatives like a single entry point and cross-
policy advisory products and would ensure flexibility for emerging needs.
3.2
Member State compartments
The EU budget implemented through shared management with Member States also deploys
financial instruments to address local market failures or sub-optimal investment situations. The
policy objectives of the EU-level and investments support instruments under ESI Funds are not
identical; the former focus on EU-wide and the latter on regional or national suboptimal
investment situations. However, the experience has demonstrated the need to increase
complementarity and ease of combination between the two types of support mechanisms.
In the current programming period, not many Member States have channelled part of their ESIF
allocations through EU level financial instruments. The InvestEU Fund will offer a compelling
opportunity to increase effectiveness and impact of ESI Funds for investment support in a given
Member State through the use of a budgetary guarantee. The same objective of budgetary
efficiency that recommends the shift from financial instruments to budgetary guarantees at EU
level (see section 5.2) applies to ESIF.
Member States will have the possibility, on a voluntary basis, to channel part of their ESIF
resources through the InvestEU Fund. For this purpose, the InvestEU Fund structure would
include a Member State compartment under each window. However, the possibility for the
Managing Authorities to implement their programmes partly through tailor-made financial
instruments including in combination with InvestEU Fund would be kept in the post-2020 legal
framework.
The EU would be the guarantor (otherwise, in most convergence Member States the guarantee
would be weaker and, thus, financially less effective) and the EU budget (ESIF) would provide
the provisioning against expected losses, managed in the common provisioning fund established
by Article 212 of the revised Financial Regulation (FR), and Member States would assume the
contingent liability. No national co-financing would be required. The Commission would select
the implementing partner, among those eligible for indirect management according to Article
154(4) FR and which have expressed an interest to become an implementing partner for the
Member State compartment. The Commission would then sign a guarantee agreement providing
the EU guarantee to the selected implementing partner.
This proposal would bring the following benefits for Member States and for the EU budget:
Wider impact of the EU budget on investment and economic and social welfare with fewer
budgetary resources.
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No national co-financing required by the Member State and very low probability of any
disbursement related to the contingent liability. Any provisioning left at the end of the
budgetary guarantee comes back to the Member State.
Predefined scheme and products provided by the InvestEU Fund, which simplify for Member
States the design of effective market instruments (or provides them with a product they do
not have the expertise to develop) and facilitate the switch from grants towards market
instruments; it also reduces the scope of the ex-ante assessment to be carried out by Member
States. Products designed for the entire window may need to be adjusted to address specific
policy issues.
As the management model for the ESIF compartment is indirect management, not shared
management, the choice by the Member States of the implementing partner does not need to
follow public procurement rules.
The management role of the Commission will alleviate the administrative burden for
Member States and will ensure spread of good practices across the EU.
A simplified State Aid compliance mechanism would be put in place.
Member States will have the possibility to withdraw from InvestEU Fund their contributions
under certain principles.
The InvestEU Fund would provide central performed monitoring and evaluation activities,
including centralised reporting. Reporting systems will ensure sufficient information flows to
the Member States.
Respective scopes of the EU level and the Member State compartments
The proposed structure with two compartments in each window should allow a better
complementarity and division of labour between the two levels and a more effective application
of the principle of subsidiarity. In addition, the two compartments within each window will share
the same InvestEU Fund rules, which would allow a clearer and simpler framework for
combining different sources of EU funds.
The scope of the EU level compartment would comprise:
Investments supporting EU policy priorities addressed at EU level;
EU wide market failures and investment gaps; and
The design, development and EU wide market testing of innovative financial products, and
the corresponding ecosystems to spread them, for new or complex market failures and
investment gaps.
The Member State compartment would address country specific market failures and investment
gaps ensuring a critical mass and a more efficient geographical concentration of resources.
Country specific market failures and investment gaps widespread among Member States would
be addressed in a complementary manner, whereby the EU level compartment would ensure the
possibility to address the market failure in all Member States, while the Member State
compartment would allow a more effective geographical concentration of resources in
accordance with the needs of each Member State.
During the InvestEU Fund mid-term review the Commission will assess whether certain
instruments developed and tested at EU level, but that address market failures and investment
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gaps that have a local dimension, could better be deployed at Member State level in line with the
principle of subsidiarity.
3.3
EU added value
The EU long-term goals regarding sustainability, competitiveness and inclusive growth require
significant investments in different policy areas. This includes,
inter alia,
new models related to
mobility, renewable energies, energy efficiency, natural capital, innovation, digitalisation, skills,
social infrastructure, circular economy, climate action, and small businesses growth and creation.
Renewed efforts are needed to tackle persisting market fragmentation
65
and market failures
caused by private investors' risk-averseness, the public sector's limited funding capacity and
structural inefficiencies of the investment environment. Member States cannot sufficiently bridge
those investment gaps alone.
An intervention at EU level ensures that a critical mass of resources can be leveraged so as to
maximise the impact of investment on the ground. Intervention at EU level can better attain the
objectives pursued mainly because of the disparities in Member States' fiscal capacity to act. In
addition, the EU level provides for economies of scale in the use of innovative financial products
by catalysing private investment in the whole EU and making best use of the European
institutions and their expertise for that purpose. The EU intervention also provides access to a
diversified portfolio of European projects, thereby catalysing private investment, and allows for
the development of innovative financing solutions which can be scaled up or replicated in all
Member States.
Added value could also be expected from channelling ESIF contributions to the InvestEU Fund
where the budgetary guarantee could enhance the support to specific final recipients or products
in the programme areas.
In addition, an EU intervention is the only tool capable to effectively address investment needs
linked to the EU-wide policy objectives. Tackling the problem only with structural reforms and
improved regulatory environment would not be sufficient to address the remaining investment
gaps in the post 2020 period.
A more detailed analysis of the EU Added Value per policy window is available in the Annex 4
(Scoping Papers per policy Window).
Moreover, the InvestEU Fund will develop a set of principles and criteria to address additionality
at project level. An initial reflection on the subject is included in Annex 10.
3.4
Governance
There are several options on how the InvestEU Fund’s governance could be organised. These
options relate to several possible layers: centralisation versus decentralisation, in-house
governance at the Commission level versus independent governance structure outsourced to an
implementing partner similar to the system for the EFSI.
The governance structure currently used for the EFSI exhibits important drawbacks in the
context of the InvestEU Fund ambitions. Compared to the EFSI, and also due to the need for
flexibility to respond to changing market needs, the InvestEU Fund will be more focused on
65
Market fragmentation - preventing the smooth and effective functioning of the internal market - can only be truly tackled
through an intervention at Union level because of the disparities in Member States' fiscal capacity to act.
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addressing specific policy objectives. This will require a stronger policy steer. Second, the need
for simplification, flexibility, and the fact that InvestEU Fund foresees several implementing
partners exclude the possibility for external governance organised at a specific implementing
partner level. Under the InvestEU Fund, the Commission will be able to grant the EU Guarantee
to any implementing partner that fulfils the relevant criteria.
Therefore, maintaining the governance at the Commission level will better fulfil the InvestEU
Fund’s objectives and accountability, and in terms of structure will ensure an adequate and
coherent policy steer. It will also facilitate a more in-depth overview of the supported projects
and consequently facilitate risk management. Outsourcing the governance to several
implementing partners would weaken the policy steer compared to an in-house Commission
solution and potentially weaken the alignment of interests and coherence in decision-making.
Neither a completely decentralised nor a centralised system is desirable. The decentralised
governance would just imitate the current fragmented governance for the existing instruments. A
single governance for the whole InvestEU Fund would on the other hand be too general and
would not cater for specific policy needs. Thus, the governance should be aligned with the
proposed window-based structure of the InvestEU Fund. This would include an overall InvestEU
Fund governance complemented by separate but interlinked governance arrangements at policy
windows level.
Figure 8 below presents a visual comparison of the governance arrangements for the EFSI and
current centrally managed financial instruments compared to the proposal under the InvestEU
Programme (full-sized graphs can be found in Annex 13).
A key challenge of a governance structure organised at a Commission level is to ensure an
appropriate level of banking and investment expertise. This can however be mitigated with
active involvement of experts and implementing
partners in the InvestEU Fund’s structure.
Overall, the governance structure aims at looking at the InvestEU Fund as a whole while
pursuing the different policy objectives and maintaining an acceptable level of risk. To this end,
effective risk management with regard to the use of the EU budget guarantee is foreseen to be
set-up and implemented with the aim to ensure that risks are identified, managed and
communicated. In particular, a risk assessment function will be established for the purpose of
monitoring the EU guarantee under the InvestEU Fund. Moreover, effective rules for managing
conflicts of interest will be put in place to ensure segregation of duties, and proper verification at
all governance levels will be consistently maintained.
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1909982_0039.png
Figure 8 - Current governance for EFSI and FIs vs the proposed governance under
InvestEU
Proposed InvestEU Programme governance
Source:
Commission services
Moreover, the governance structure of the InvestEU Programme reflects its reinforced policy
orientation and strengthened steer by the Commission. The InvestEU Programme planned
governance is composed of both external elements to be foreseen in the draft legislation
(Advisory Board, Investment Committee and, partially, Project Team) and Commission internal
coordination (Steering Board, Policy Boards, Inter-Service Coordination Committee, Secretariat
and, partially, Project Team):
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1909982_0040.png
Advisory Board:
An Advisory Board meeting in two compositions: (i) representatives of the
implementing partners, and (ii) representatives of the Member States will be set up in order
to allow the Steering Board and the Policy Boards (see below) to consult the implementing
partners and the Member States when preparing and designing new financial products,
following market developments and sharing information.
Steering Board (Commission internal):
A Steering Board to ensure horizontal coordination
and steering of the InvestEU Fund will be set up. The Steering Board will prepare the various
horizontal documents necessary for the functioning of the InvestEU Fund (investment
guidelines, scoreboard, harmonised format for project submission by implementing partners
etc.). Moreover, the Steering Board will monitor the overall risk profile of the InvestEU Fund
and verify that the risk characteristics of the financial products proposed under the policy
windows correspond to the general risk profile and general orientations of the InvestEU
Fund.
66
Policy Boards (Commission internal):
Investment support will be allocated under four
policy windows clustering financial products by policy areas. Each window will have a
Policy Board, composed and led by policy DGs. The Policy Board will be in charge of the
design of financial products within a window (including the resources attached to them and
the necessary risk provisioning within the parameters set by the Steering Board) and
monitoring of the performance of the implementing partners within that window.
Investment Committee:
The Investment Committee, which meets in four different
configurations corresponding to the windows, approves the use of the EU guarantee
according to the eligibility criteria set by the InvestEU Fund regulation to operations
proposed by implementing partners. The Investment Committee will be composed of four
independent experts who will be the same for all the four compositions to ensure horizontal
consistency and of two independent experts per window specialised in the policy area of their
respective window. It will make its assessment on the basis of the scoreboard.
Project Team:
The Project Team will comprise experts put at the disposal of the
Commission by implementing partners. Subject to a positive confirmation by the
Commission of consistency of the proposed operations with Union law and policies, the
Project Team will perform a quality control of the due diligence of the proposed financing
investment operations carried out by the implementing partners. Financing and investment
operations are then submitted to the Investment Committee for approval of the coverage by
the EU guarantee. All implementing partners will be requested to second a number of
banking and risk management experts to the Commission who will review the risk
features/issues of the projects submitted for this purpose. These experts will not work on
projects submitted by their institution of origin to prevent conflicts of interest.
Secretariat (Commission internal):
The implementing partners will send projects or
facilities/programmes to the InvestEU Fund Secretariat, which will attribute them through
the Project Team to the Investment Committee of the relevant Policy Window.
66
The existing risk management staff of the Commission will also need to be reinforced. This will be part of the financial
statement for the legislative proposal. The risk managers will perform risk related calculations based on reporting from the
implementing partners to allow for a thorough supervision by the Steering Board of the risk under the EU guarantee in total and
under each window and to adjust, if needed, the financial products.
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3.5
Avoiding overlaps among policy windows
The 2014-2020 investment support instruments have generally proven effective in addressing
market gaps. However, the fragmentation of the EU offer led to the emergence of several
overlaps. Past EFSI evaluations found overlaps between EFSI and other centrally managed
financial Instruments. While these have been addressed during implementation by re-focusing
existing instruments towards new market segments, it is important to avoid such overlaps in the
future. Moreover, several overlaps have been identified between the centrally managed financial
instruments. Under the current MFF there have been at least 14 different instruments focusing on
SMEs under internal, centrally managed EU FIs and the EFSI (see annex 12). In addition, there
are overlaps between centrally managed instruments and investment support instruments under
shared management. Avoiding overlaps and simplification is one of the main reasons for the
creation of the InvestEU Fund.
The InvestEU Fund structure is designed to group instruments into clear policy priorities. The
InvestEU Fund with its centralised approach (i.e. a single fund, a single Steering Board, a single
approval process of the operations by the Investment Committees, a single agreement with each
implementing partner and participative involvement of all relevant policy DGs in the Policy
Boards and the Inter-Service Coordination Committee) would ensure that EU financing is
channelled in a coordinated and harmonised manner, without overlaps. The governance structure
ensures coordination and provides for information exchange channels between the Commission
services and key stakeholders. Furthermore, in its oversight capacity, the Steering Board will
ensure avoidance of overlaps of eligibility between windows and products.
Avoidance of potential overlaps between financial products offered within a policy window
would be a competence of relevant Policy Boards. Nevertheless, there may still be borderline
cases that will have to be addressed based on demarcation principles for allocation of proposals
submitted by implementing partners between windows. An example for a possible set of
principles could be the following:
1. Does a product proposal support a social objective?
Proposals for support having a social objective, regardless of their nature
–
whether it relates
to infrastructure, microfinancing or SMEs - will fall under the social investment and skills
window.
2. Does a product proposal support an SME via financial intermediary?
Proposals that support SMEs through an intermediated lending will fall under the SME
window, except for those proposals for support that have a social objective.
3. Does a proposal support research and innovation activities?
The research, innovation and digitalisation window will support projects/products, which fall
within the definition of research and innovation activities other than innovative SMEs and
small midcaps (financed under SME window).
4. Does a proposal support an infrastructure?
Infrastructure projects/products that are not social infrastructure and not [primarily/fully]
R&D infrastructure will fall under the Sustainable Infrastructure Window.
In practice, the implementing partner will indicate the relevant policy window in their
submission of a specific operation and financial product to which the operation would be
assigned. This will then be reviewed by the Commission.
A similar solution is proposed for technical assistance, the InvestEU Advisory. In order to avoid
overlaps and to simplify the access to the services for end-beneficiaries, the InvestEU Advisory
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1909982_0042.png
would provide for a single entry point and will also include technical assistance components at
Policy Window level.
3.6
Geographical distribution
The InvestEU Programme support is available to all EU Member States. The InvestEU
Programme could be also open to third countries that are members of the European Free Trade
Association, acceding countries, candidate countries and potential candidate countries, countries
covered by the Neighbourhood policy and other countries, in accordance with the conditions laid
down between the Union and those countries. The geographical scope of the current instruments
is included in Annex 11.
Based on the current experience and past EFSI evaluations recommendation to improve the
geographical distribution in finance provisioning, the InvestEU Programme is designed in such a
way to make sure it benefits all Member States, irrespective of their size and of the development
of their financial market:
Implementing partners
(see section 5.3) - As the only financial institution active across the
EU, the EIB will continue to deploy EU-wide financial products and therefore ensure equal
access and coverage of financial products. In addition, the opening of the EU guarantee to
NPBs aims at better targeting local financing needs. To avoid the EU guarantee benefitting
mostly the countries with big, long-established NPBs, the InvestEU Fund is also open to
consortia of NPBs that cover at least three countries. This will require NPBs to cooperate to
develop joint products and will foster an exchange of best practices and expertise. Smaller
and more recent NPBs will thus be able to benefit from this cooperation. Finally, multilateral
development banks will also support a more balanced distribution of the EU financial
support. The EBRD is active in 11 Member States
67
and will be able to increase its
operations in these countries
–
especially in the crucial fields of energy transition and capital
market development - thanks to the EU guarantee. The same applies to the Council of Europe
Bank that has a specific focus on social investment.
Member State compartment
- This feature of the InvestEU Fund, which is described in
Section 3.2, is designed to mainly benefit cohesion countries, which will benefit from an
increased volume of EU supported finance.
Blending
- Synergies between EU instruments will be further facilitated by easier rules for a
smooth and efficient blending of grants in with the InvestEU Fund guarantee. The addition of
a grant element sometimes enables a project to become bankable and thus eligible for support
under the EU guarantee.
InvestEU Advisory
–
The InvestEU Fund will be accompanied by a comprehensive
technical assistance scheme, the InvestEU Advisory. It will,
inter alia,
provide project
development and capacity building support to develop organisational capacities and market
making activities needed to originate quality projects. The aim is to create the conditions for
expanding the potential number of eligible recipients in nascent market segments, in
particular where the small size of individual projects raises considerably the transaction cost
at the project level. Project promoters in cohesion countries are expected to be natural
candidates for this technical assistance support.
67
Bulgaria, Cyprus, Greece, Romania, Croatia, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic, and Slovenia
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4
T
ARGET ACTIONS
,
FINANCING PRODUCTS AND BENEFICIARIES
The InvestEU Fund support will be delivered in the form of a budgetary guarantee, which will be
able to support all types of financial products, such as debt, equity and quasi equity.
The InvestEU Fund will also foresee a limited envelope for thematic products under each policy
window for pilot initiatives which feature high volatility of revenues and/or are deployed in
uncertain markets and that cannot be covered by horizontal/standard products available in the
windows. These products could target very high risk and first-of-a-kind projects, as currently
done under financial instruments such as InnovFin Energy Demo Projects, Natural Capital
Financing Facility, SME guarantees, and hence require higher guarantee coverage. New
innovative instruments could be deployed in line with new developments to test market interest.
In certain circumstances, the combination of the EU level and the Member State compartment
would be possible for example to co-invest in certain operations/products or to support
investment platforms bundling small and medium-size projects.
The InvestEU Fund would be open to all Member States including for cross-border projects with
certain third countries (e.g. similar to the EFSI).
4.1.1
Sustainable Infrastructure Window
The type of actions covered under the sustainable infrastructure window should be closely
related to the type of investments, the beneficiaries, their risks and financial structuring
fundamentals.
For investments that can be consolidated on the balance sheets of promoters (core business type
of investments, strong promoters), standard type of instruments/ products (such as loans,
guarantees, credit enhancement) could be provided. Same applies also for well capitalised
special purpose vehicles (SPVs) backed-up by strong promoters. This type of products could be
feasible e.g. for certain transport or energy infrastructure (inter-connectors for large-scale
renewable power) projects. On the other hand, there may be investment situations and projects
that would require less standardised instruments, with higher risk coverage and potentially a
variety of financing products.
Compared to actions currently offered under various instruments, such as the CEF Debt
Instrument, i.e. senior debt/project bond credit enhancement, funded senior loan, hybrid
securities, guarantees, or development of new products specifically focusing on low carbon
infrastructure (e.g. smart grids at intersection with energy storage/mobility), the future actions
should expand the perimeter of the infrastructure window towards business models of the future,
essentially laying the ground for their "standardisation" after reaching the critical mass.
For highly innovative and high-risk projects, blending with a grant component coming from
other instruments should be possible. A technical assistance layer addressing the preparatory
phase of projects until their financial close would certainly help speed up the pipeline evolution
and reducing the risks of projects related to financial, legal, technical and procedural elements.
With regard to the envisaged financing mechanisms, a key aspect is flexibly determining the
most effective capital structure and mix of private and public funding through the life cycle of
the project from greenfield into the brownfield phase. No refinancing would be possible under
the InvestEU Fund.
In this context, the EU budget provisioning of debt financing that facilitates access to finance in
suboptimal investment situations where projects will have difficulties to receive adequate bank
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or capital market financing should be continued. Given the different needs emerging in
infrastructure, such financing will support senior debt operations (loans and guarantees), and
subordinated ones (funded and unfunded, including project bonds, loans and guarantees).
Given the continued need for infrastructure renewal and development and the ambitious
decarbonisation targets set at European level, the need for equity remains high, particularly
during project construction. Complex undertakings such as land remediation projects and assets
with yet untested technology and revenue models such as battery storage still find it difficult to
raise equity capital for their construction phase. Projects that have a greater degree of revenue
risks, operating risks, or construction risks that limit the capacity to borrow may face financing
gap where equity can be used to provide the necessary additional financial backing.
Technical assistance supporting the preparation of infrastructure investment shall also support
the sustainability proofing of investment projects (notably related to climate), partly by ensuring
due consideration of low-carbon and environmentally friendly options and solutions, partly by
ensuring infrastructure's resilience to the current and future climate throughout its lifespan. The
objective of these aspects of technical assistance lies in better identification and reduction of
project risks during construction, maintenance, operation and decommissioning of the
infrastructure at stake.
In the utility sectors, notably in the energy sector, project promoters would mostly come from a
mix of public (cities, municipalities), semi-public and private sector, such as transmission and
distribution system network operators, electricity suppliers and retailers, energy, water and waste
service companies, generation companies, energy communities, large property owners etc. These
entities may be public sector by tradition operating on commercial or non-commercial basis,
privatised with or without public service objective, or recently created public entities in nascent
markets (e.g. for energy services). The InvestEU Fund is well placed to realise cross-sectoral
synergies, e.g. between energy, transport and digital connectivity. Large and medium private or
public entities or SPVs also operate under concession or PPP such as in ports, airports and
motorways projects, and as well to deliver water and wastewater services.
In the sector of telecommunications, project promoters can be private and public and vary
significantly in size. It is of particular importance that smaller promoters have adequate access to
such instruments. On the other hand, strict eligibility criteria should be imposed in relation to the
projects deployed (e.g. contribution to EU's connectivity targets/increasing coverage, state of the
art technology, innovative business model).
In the blue economy, project promotors cover the whole value chain, ranging from public, to
semi-public and private entities varying from multinational, medium size maritime businesses to
SMEs.
4.1.2
Research, Innovation and Digitalisation Window
An adequate mix of debt, equity and risk-sharing products will be developed to tailor to the
needs of innovators depending on the nature, development stage and risk of R&I projects. This
will take into account the variety of potential R&I beneficiaries such as European Innovation
Council (EIC) beneficiaries, European Research Council (ERC) grantees, Marie Skłodowska-
Curie actions, middle market companies, large companies, stand-alone projects, SPVs,
Universities, Research Centres, Innovation Agencies, R&I infrastructures, and other R&I driven
institutions such as research funding foundations and European Institute of Innovation and
Technology (EIT) Knowledge and Innovation Communities.
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The focus of the actions of the research, innovation and digitalisation window would be on:
Creating critical mass of financing to support high-risk investments in R&I, digital market
and new technologies. This will include large-scale first-of-a-kind demonstrations for which
market investor interest may be low and which could deliver a step change in support of
specific EU policy objectives, such as the low-carbon innovation in energy and industrial
sectors; Innovation, in particular disruptive, will increasingly rely on complex combinations
of various technologies, digital transformation and intangible assets. This new wave of much
deeper and transformative innovations will merge digital with physical and will go more and
more into 'deep tech'. This will foster emergence of new business models and changes in
traditional business models that will require substantial financial resources.
De-risking investments in innovative technologies, and transfer established solutions to new
markets. Financial products of the InvestEU Fund would reduce time to market at potentially
lower costs. Finance providers remain rather averse towards providing financial support for
R&I activities, which results in low credit scores and high interest charges or sub-optimal
repayment terms to compensate for the perceived risks embedded in the innovative
technologies or ventures. In many instances, private sector financiers and investors do not
finance uncollateralised projects with unsecure return prospects due to the early stage of their
development, the capital intensiveness and the long time to market. This is particularly
relevant in the case of R&I activities with medium and long-term innovation cycles such us
deep tech, health, new advanced materials or low-carbon technologies in the energy sector,
CCS and industry.
Stimulating innovation diffusion and uptake of technologies from radical to incremental. It
will help deploy innovative solutions, translate research results to market and support
innovation diffusion. This window will help address societal challenges linked to health,
energy, security, climate change mitigation and adaptation, decarbonisation of the economy,
low-carbon mobility and transport, water and food crisis, environmental disasters, migration,
digitalisation, oceans, and biodiversity loss.
Foster the transfer of best practices between financial intermediaries with a view to
encourage the emergence of a broad product offering supporting R&I activities and R&I-
intensive entities.
Technical assistance will be provided to promoters to structure their projects in order to
improve their investment readiness and bankability. In addition, horizontal advice can be
supported to improve investment conditions in sectors and markets with suboptimal
investment. This includes measures such as: developing a business case for new financing
mechanisms, preparing studies on increasing the effectiveness of financial instruments in
addressing specific R&I and digital needs and should also cover the project development
documents and advise related to speeding-up the project development, Front End
Engineering Design studies, documentation and processes towards the financial close and
legal contracting issues (e.g. Intellectual Property Rights) counterparty liabilities settlement).
Debt products will directly lend to final beneficiaries for investment in R&I activities: (i)
indirectly via (counter-) guarantees to financial intermediaries providing debt finance to final
beneficiaries, (ii) may set up investment platforms with public-private co-investment
arrangements structures with a view to catalysing investments in a portfolio of projects through a
combination of direct loans and indirect finance (counter-) guarantees with a thematic or
geographic focus and (iii) guarantees and/or counter-guarantees for national or regional debt-
financing schemes.
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The equity and quasi equity products would focus on innovative mid-caps either through direct
quasi equity investments or through risk sharing arrangements or co-investments with financial
intermediaries and national public and semi-public financial institutions.
4.1.3
SME Window
Under the SME window all priority actions will be geared towards facilitating access to finance
to SMEs and small mid-caps.
The EU-level debt instruments could focus on SMEs according to the applicable EU definition,
more specifically those which would not receive support from the market due to the perceived
higher risk or the lack of collateral. Where justified, more dedicated support may be provided for
SMEs or organisations, or to small mid-caps, for a specific sector or a specific policy orientation.
On the debt side, the SME window could also encompass SME guarantee schemes which shall
provide guarantees on a broad range of different financing transactions (including investment
loans, guarantees, working capital facilities, leasing transactions, subordinated loans, bank
guarantees). This is essential to achieve the appropriate coverage and to respond to the financing
needs/business needs of SMEs.
The equity instruments could focus on investments in SMEs according to applicable EU
definitions, and more specifically those which activities would help achieve the EU policy
priorities. Where duly justified, investments may also be made into small midcaps. Targeting
could be done on a sectoral basis (linked to the fields in which the policy priorities will be
implemented) and a company life-cycle basis (on the basis of funding gap analyses).
As regards equity, the products to be included in the SME Window could support technology
transfer, equity crowdfunding, business angel investments, venture capital (VC) investments
(including investments into VC funds-of-funds), and initial public offerings. In addition, the
SME window could support cornerstone and catalytic investments in established financial
intermediaries, or entities to be incorporated, that make equity, quasi-equity, hybrid debt-equity
and other forms of mezzanine finance investments in projects, start-ups and established SMEs
and small midcaps.
Equity investments may be combined (blended) with debt finance and grant funding under EU
central programmes or those established under cohesion policy (shared management) or under
national programmes.
Technical assistance or capacity-building support where such activities are crucial to achieve a
smooth implementation of the financial instruments, such as best-practice exchanges between
financial intermediaries of a particular type, matchmaking between investors and investees
(database, events) and investment-readiness training, coaching in raising finance, and mentoring
for founders and CEOs.
4.1.4
Social Investment and Skills Window
The InvestEU Fund support can be used in multiple sectors under the scope of this window.
While all the projects will have to be ultimately economically viable and generate revenues for
the investors, the financial products in use, their investment guidelines, pricing and return
conditions will change according to the specific policy sector, the market gap to be addressed
and the specific project structure. The following areas have been identified as the focus of
intervention for the InvestEU Fund support under this window:
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1909982_0047.png
Supporting social economy and social enterprises and microfinance recipients: support to
promote inclusive entrepreneurship, improve access to employment (including self-
employment), job creation, labour market integration, social inclusion. This will be achieved
by increasing the availability of and access to micro-finance, and access to finance including
patient capital to social economy organisations and social enterprises. It also includes support
for the upscale or development of new business models focusing on social return on
investment.
Skills, education, and integration: for building a knowledge-based society, investment is
necessary in all levels of education and training (early childhood education and care,
secondary schools, higher education), as well as support to increase vocational training and
lifelong learning, including non-formal learning investment in human capital (inter alia
focused on improving the integration of young people in society, of refugees and asylum
seekers who are undertaking upskilling actions or qualifying training). Supporting investment
projects in this field will result in more vibrant education and training systems and markets,
enabling easier professional transitions for people and being responsive to the lifelong need
for upskilling and reskilling. For knowledge-intensive institutions (such as universities,
research & innovation centres) the combined support under several of the InvestEU Fund
windows may provide a welcome boost towards a knowledge-intensive society.
The InvestEU Fund will facilitate the mobilisation of investments in the health sector, for the
transition to new care models in order to adapt to an increasing demand for healthcare due to
population ageing and the rising burden of chronic conditions. Investments in reformed care
models are complex and of high risk as they concern a range of elements in infrastructure,
technologies and services, and the return is expected in the medium to long term. Up-front
investments are required to set-up the new care models, followed by sustained investments
over a period of time to facilitate the complete implementation of the reforms
68
. Return on
investment may only come in the medium-long term and, consequently, investments in
reformed care models are of high risk.
Social infrastructure and services: investments in the construction, expansion or
refurbishment of buildings and in the provision of related services for:
Education and training (educational facilities courses development, and digital
equipment)
Childcare (e.g. nurseries and kindergartens)
Social housing (including energy efficient social housing)
Healthcare (e.g. clinics, hospitals, primary care centres, health promotion
programmes, integrated care services) and
Long-term care (e.g. home-care and community-based services).
Support to physical infrastructure developments could be complemented with funding for
social economy and social service provision, including through outcomes-based projects, in
an integrated way.
For several of the areas mentioned above the financial support by the window will be
complemented by the offer of the InvestEU Advisory including capacity building to “grow” the
respective market players, including social innovators, social entrepreneurs, social impact
investors, and philanthropists and create a pan-European network of social impact and social
68
See also: "The case for investing in Public Health", World Health Organization, Regional Office for Europe ( 2015)
http://www.euro.who.int/__data/assets/pdf_file/0009/278073/Case-Investing-Public-Health.pdf
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innovation relay and coaching centres. The capacity-building programme will need to take into
account the different needs of financial intermediaries and procuring authorities in accordance
with their investment portfolio and the long-term needs of market development as well as the
geographical coverage of financial intermediaries throughout the EU.
As regards social innovation, creation of markets for social outcomes, expertise and capacity
building, tools may be developed: (i) to help national, regional or local authorities develop skills
for configuring investment strategies, blending financing, and bundling projects such as the
development of social clusters; (ii) to grow social innovators, social entrepreneurs, social impact
investors and philanthropists; and (iii) to facilitate agreement on operational definitions.
Capacity building also include promoting innovation by and for the European society, in
particular, targeting new products, services and organisational models that meet social needs,
foster new social relationships or collaborations, and empower citizens.
Debt products offered under this window may include direct lending to project promoters and
portfolio guarantees. Funded instruments are complementary to guarantees as they provide
senior and subordinated loans to intermediaries that are in turn on-lent to vulnerable groups and
social enterprises. It will target predominantly non-bank intermediaries given that these entities
have difficulties obtaining debt finance in view of the early stage of their development.
Subordinated loans are more relevant for bank intermediaries, as they often provide capital relief.
Equity support may be channelled to social enterprises which can benefit from risk financing
structured in the form of equity/quasi-equity investment participations and hybrid funding. This
spectrum of patient capital, used in the pre-bankable stages of business start-ups in all sectors,
allows social enterprises (including micro-enterprises) to move gradually away from a charity-
based funding approach and enhance their innovation and growth potential.
Thematic products: another specific delivery mechanism akin to equity-type investments is
Payment-by-Results (PbR) which is a financing mechanism and tool for impact investing in
which public procuring bodies purchase social impact based on pre-defined social outcomes
delivered by social service providers with proven intervention models in a number of areas
(including access to education, housing, health, and employment services). Social impact bonds
are PbR schemes that facilitate risk-sharing between private and public investors to help local,
regional and national governments improve efficiency in spending and increase the value for
money in social service delivery.
4.2
Related programmes under preparation
Several programmes of relevance to the scope of the investment mechanism proposed herein are
under preparation. The InvestEU Fund will broadly support policy objectives set by these
programmes and will target areas where financing needs can be covered through the InvestEU
Fund financial products (and not only by grants).
Examples of the priority issues tackled in these programmes under preparation are listed below:
The CEF 2.0 programme targets transport, energy, and ICT projects;
COSME+ in the framework of the Single Market Programme that will be predominantly
dedicated to the support of SMEs;
The European Social Fund including in particular a programme for upskilling, employment
and social innovation;
Erasmus + for education, training, youth and sport;
The Framework Programme for Research and Innovation;
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The Programme for environment and Climate Action, including Natural Capital
69
, Energy
Efficiency, and the circular economy;
The European Culture, Rights and Values programme for the cultural and creative sectors;
The Digital Europe Programme supporting the digital transformation of the European
industry through advanced technologies, including Artificial Intelligence; and
The European Defence Fund.
The above mentioned programmes under preparation will focus on the use of grants and
blending.
4.3
Blending and combinations
The InvestEU Fund will include a possibility for easier and more efficient blending or
combination of its support with EU grants and EU Emissions Trading Scheme Innovation Fund.
Blending grants could be used for investments with high socio-economic and policy benefits that
can be effectively realised, but where investment costs are higher than potential revenues. In
other words, such projects would not be able to be rolled out and financed without non-repayable
support. This would broaden the scope and would increase the impact of the investment support.
There are two options on how to organise easier blending and combinations. The first would be
to include the grant budget under the specific policy windows. The grant and the investment
support decision would both be taken under the framework of the InvestEU Fund. This would
however require a capacity to plan, implement, and monitor two different types of EU support
schemes with different objectives characteristics. Apart from investment support expertise, the
InvestEU Fund would thus need to integrate a broad spectrum of policy know-how. It would also
require a substantial administrative capacity for implementation.
It is thus proposed to use a second option where the decision on the use of grants and FIs under
sectoral programmes is made by the relevant sectoral DGs in line with the sectoral programme
policy objectives. The implementation of blending operations would be done in accordance with
the InvestEU Programme Regulation and the Title X of the Financial Regulation.
The blending would thus result in simplified administrative procedure for project applications,
monitoring, and reporting. The simplification measures would include:
Single application: the project promoter will be able to ask for a combined support with one
single application;
Simple, clear and transparent rules: the criteria for a combined support will be clearly and
transparently communicated to potential beneficiaries and implementing partners;
Single reporting: beneficiaries will provide single reporting including information on the EU
grant and the InvestEU Fund support; and
Single monitoring, control and audit procedures for final beneficiaries.
69
Natural capital in this context includes Nature and Biodiversity as well as the other natural capital components related to air,
water, land, and related ecosystem services.
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5
5.1
D
ELIVERY MECHANISMS OF THE INTENDED FUNDING
Single fund
Setting up a single fund would primarily improve the impact of the EU intervention through a
more efficient use of budgetary resources. Compared to financial instruments, budgetary
guarantees freeze less budgetary resources due to limited provisioning compared to the level of
financial engagement and the overall investment mobilised. Moreover, the risk is remunerated
and fees would be limited.
A single fund would also achieve better integration and simplification of the different financial
instruments and the EFSI budgetary guarantee currently available. It would also solve the
increasing issue of possible overlaps and duplications between the different programmes,
through better coordination, a single set of rules and clearer demarcation of interventions.
To complement these integration and simplification efforts and to focus on the final beneficiaries
needs, the InvestEU Advisory accompanying the InvestEU Fund would also aim at better
channelling the technical assistance needs to the policy areas covered by the InvestEU Fund.
5.2
Single budgetary guarantee
It is proposed that support from the InvestEU Fund will be underpinned by a single budgetary
guarantee and will be provided through financial products that address a diversified portfolio of
risks. This presents efficiency gains when compared to the option of having several ring-fenced
budgetary guarantees addressing a limited range of risks, in that it requires a lower provisioning
rate while providing an equivalent level of protection.
The experience in managing budgetary guarantees as demonstrated in the successful
implementation of the External Lending Mandate (ELM, since 1970s) and the EFSI (since 2015)
- where the financial risk exposure is not fully provisioned (provisioning rate: 35%) - as well as
the inclusion of budgetary guarantees under the scope of the revised Financial Regulation (Title
X), including a robust framework for the management of contingent liabilities, have paved the
ground for a better alignment of provisioning rates with risk. The recourse to a budgetary
guarantee presents thus significant efficiency gains compared to financial instruments, which
require 100% funding.
The range of interventions envisaged under the InvestEU Fund will be implemented through
different products targeting different risks that would inherently require high, medium or low
provisioning rates, depending on the type of operations guaranteed. The Commission will
provide guidance and monitor the usage and the risks incurred under different products, so as to
ensure that the overall portfolio of interventions is compatible with the general provisioning rate
referenced in the InvestEU Fund regulation.
For this reason, it is proposed to underpin such financial support within the EU by one single
budgetary guarantee. A theoretical provisioning rate would be assigned to each financial product
under the different policy windows, which would depend on the nature of the product (debt or
equity), the granularity, the revenue generating potential and the risk sharing arrangements with
implementing partners.
For example, one can assume that support from the social investment and skills window may be
provided more in the form of highly provisioned products, whereas lower provisioning needs
may be foreseen for the support offered through the sustainable infrastructure window, as
infrastructure projects present a higher likelihood to generate revenues which would remunerate
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the EU guarantee. In the same vein, the support from the SME window would be in the form of a
mix of highly provisioned products (i.e. SME guarantees) and of medium provisioned ones, such
as venture capital
70
. The general provisioning rate of the single budgetary guarantee would
represent the weighted average of the specific rates.
Specific interventions that would require a grant component to ensure the economic viability of a
project could be carried out by blending or combining the support from the budgetary guarantee
with complementary EU funds in the form of a grant. In such case, the grant would be managed
under sectoral programmes and appropriate synergies would be built with the intervention under
the InvestEU Fund. In the cases where blending support is expected to be provided in the form
the financial instruments, e.g. for high-risk targeted portfolios, such support would be provided
under the InvestEU Fund.
5.3
Implementing partners
The investment support has to be delivered to eligible beneficiaries in the most effective and
cost-efficient manner. The implementing partner should possess banking and investment
expertise, should have adequate financial capacity, as well as an in-depth understanding of the
specific market needs and beneficiaries. Moreover, its interests should be closely aligned with
the InvestEU Fund policy objectives.
The EIB Group is currently the biggest implementing partner for EU financial instruments and
budgetary guarantees. However, under the Financial Regulation, these can also be implemented
through financial intermediaries such as multilateral developments banks (MDBs), bilateral
financial institutions, or national promotional banks and institutions (NPBs) (together defined as
"implementing partners"). This is currently the case for financial programmes in the external
action sphere.
The main options for the InvestEU Fund are whether to keep the EIB Group as the exclusive
implementing partner or open the possibility to deploy the support through other NPBs and
MDBs.
The EIB Group will remain the strategic implementing partner for EU investment support
instruments. This is because the EIB Group:
Is the European Union's non-profit lending institution created by the Treaty to implement EU
policy;
The Treaty foresees that "the
bank shall facilitate the financing of investment programmes in
conjunction with assistance from the structural funds and other Union Financial
Instruments"
(art. 309 TFEU).
Covers a broad spectrum of policy areas and is the only such institution with an outreach
across all EU Member States;
Has a longstanding experience and track record in supporting investment and implementing
EU financial instruments and budgetary guarantees; and
70
The provisioning rate in terms of the products targeting SME financing will need to be higher than the EFSI provisioning rate.
The is because the guarantee instruments originated under EFSI SME Window have a rather low provisioning rate as a result of
the credit enhancement provided by the EU financial instruments, which take the First Loss Piece (FLP) position. However,
given that in the next MFF, it will no longer be possible to provide an FLP through the support from EU financial instruments,
the full guarantee amounts of underlying operations will need to be provisioned under the InvestEU Fund SME window.
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Has the organisational and financial capacity necessary to deliver a broad spectrum of
investment support instruments.
Having a single implementing partner
on the other hand limits the Commission’s flexibility to
target specific suboptimal investment situations. Deployment of EU investment support through
other implementing partners would in particular be useful for programmes, sectors, and regions
where such institutions contribute to EU policy objectives in a more targeted manner. This would
also be relevant in cases where other implementing partners can offer specific expertise and
added value by extending the outreach of the InvestEU Fund.
Therefore, it is considered that the InvestEU Fund should not work exclusively with one
implementing partner. The Commission should have the possibility to choose one or several
partners that will most effectively achieve the given policy objective while maintaining an EU
multi-country dimension. All implementing partners will however have to respect the relevant
criteria in the Financial Regulation, in particular in Article 154 on indirect management.
The EU level compartment could thus be mainly implemented by the EIB Group as well as by
other multilateral development banks (e.g. EBRD, Nordic Investment Bank, Council of Europe
Bank), or consortia of national promotional banks and institutions that would cover at least three
Member States, ensuring a diversification of pipelines and a wider coverage of the policy
objectives. NPBs are likely to be the main implementing partner of the Member State
compartment, although the EIB Group and other multilateral development banks will also be
eligible.
The foreseen collaboration between implementing partners for the quality check of proposals and
the integrated risk assessment under the Project Team could have several benefits, e.g. a closer
relationship among European public financial institutions, enhanced capacity building of national
and regional development banks and institutions.
The financing support provided under the InvestEU Fund will be implemented in an indirect
management mode by implementing partners. In turn, the implementing partners could either
finance projects directly or sign agreements with financial intermediaries in order to reach out to
the targeted eligible final beneficiaries.
The advantage that the InvestEU Fund will bring will be the possibility to sign one agreement
per implementing partner which relates to all instruments/initiatives across windows that will be
implemented by the same partner. This will allow for improved efficiencies and economies of
scale. This will also improve the Commission’s coordination and negotiation capacity.
In the field of intermediated debt finance, participating intermediaries will benefit from a
guarantee or a counter-guarantee from the EU in order to originate portfolios of higher risk
financing whereas at the same time sharing the portfolio risk with the EU for the sake of
alignment of interest. The additionality stems from the fact that the EU guarantee will enable the
intermediaries to reach out to beneficiaries that otherwise would not be financed or will allow
them to increase significantly their lending volumes to eligible beneficiaries at better terms
(lower pricing, reduced collateral requirements, longer maturities).
The intermediated equity instruments will be delivered through national promotional institutions,
funds-of-funds, private equity funds (infrastructure, SMEs), venture capital funds, business angel
funds, technology transfer funds, crowd-equity platforms, social intermediaries or social sector
intermediaries, special-purpose vehicles, and co-investment funds or schemes. The participation
of the EU will have a catalytic role to attract other private investors.
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The allocation of the InvestEU Fund guarantee should be based on the implementing entities'
abilities to address and contribute to EU policy objectives covered by the InvestEU Fund. In
accordance with Article 154(1) of the Financial Regulation, the selection of implementing
partners "shall
be transparent, justified by the nature of the action and shall not give rise to a
conflict of interests".
In the EU level compartment, the following criteria would determine the
allocation of the guarantee to the investment programmes proposed by eligible implementing
partners:
Coverage of InvestEU Fund policy objectives,
Geographical reach out,
Own resources pledged by the implementing partner,
Range of effective financing products and innovative risk solutions,
Costs and pricing structures, and
For entities other than the EIB Group, their operational and financial capacity.
A significant proportion, of the EU Guarantee should be reserved for implementing partners
capable to address suboptimal investment situations in all EU Member States. The rest of the
guarantee could be granted to implementing partners able to operate and address market gaps in
at least three Member States. Groups of NPBs would also be able to form a consortium in order
to address cross border investment needs and benefit from the EU Guarantee. This would allow
for flexibility, favour cooperation between NPBs, and focus the use of the EU Guarantee on EU
policy objectives.
5.4
Technical assistance (InvestEU Advisory)
Technical assistance capacity has been highlighted as a key challenge to investment in many of
the policy areas expected to be covered by the InvestEU Fund, including in the recently adopted
sustainable finance action plan. Many private funds are ready and willing to invest but are unable
to identify attractive investment opportunities, not least because of poor enabling environments.
In this sense, support is needed to transfer lessons from one member state to another, as well as
to advise Member States, local authorities and private project promoters on how best to develop
projects in this space.
Effective technical assistance services are one way to address this challenge. These could take
the form of centrally-managed advisory support provided at EU level to develop investment
projects, platforms and programmes.
The advisory support is particularly relevant for:
Project promoters to develop and implement investment projects and covering specific steps
of the project development or the entire life-cycle of a project. This also includes access to
finance and grants,
Financial and other intermediaries to develop investment project pipelines and investment
platforms;
Local authorities to develop investable projects and programmes (avoiding overlaps with the
TA under operational programs).
Depending on the facilities, TA can be provided directly in the form of advisory services, or
through a grant which the beneficiary uses to cover its internal costs (e.g. staff) and the required
external expertise (specialist consultants to be procured).
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Better coordination amongst the existing EU initiatives is key to avoid duplication and not to
reinvent the wheel each time a new need is identified and a TA facility is launched. Moreover,
the large number of separate agreements, with different delivery modes, contractual forms,
pricing etc. for often similar types of services, call for simplification and streamlining. The
centrally managed TA initiatives available during the current MFF are totalling around EUR 500
million with additional more than EUR 200 million for supporting development of projects under
shared management with JASPERS (see Annex 6).
The TA component under the InvestEU would contribute to the preparation and the development
of an investment project pipeline in the policy areas covered by the InvestEU Fund. Given that
TA is offered upfront, not all projects supported by it would be receiving financing support
through the InvestEU Fund. The TA will also aim at building capacity of promoters and
intermediaries to develop and implement projects in the policy areas covered by the InvestEU
Fund. TA could also be used to facilitate blending opportunities with grants schemes. Each
policy window under the InvestEU Fund through the Policy Board would be in charge of
developing its TA offer based on specific needs identified.
A cross sectoral TA component would also be set up in order to address common/cross sectoral
TA needs, emerging/strategic areas where additional priority should be given. In order to
simplify the access to TA for the final beneficiaries, this cross-sectoral TA component would
also provide for a single entry point for TA support request.
Figure 9 - TA component (InvestEU Advisory) under InvestEU
Source:
Commission services, 2018
Mirroring the flexibility introduced by the InvestEU Fund regarding implementing entities, the
InvestEU Assistance offer would be ruled by common provisions and implemented by relevant
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implementing entities (i.e. geographical, sectoral type of technical support specialisations).
Moreover, synergies with other TA initiatives under grant programmes would be created through
the use of common provisions in the respective legal bases.
6
H
OW WILL PERFORMANCE BE MONITORED AND EVALUATED
?
The InvestEU Fund's aim is to better leverage and use EU funds, simplify and streamline rules,
avoid duplications, and achieve better policy delivery. Therefore, focused reporting, monitoring
and evaluation arrangements will be key to measure the degree of the progress.
Performance monitoring will be carried out both at overall InvestEU Fund level and at policy
window level. The Commission will develop performance indicators to assess the impacts of the
InvestEU Fund intervention at the general level and for the specific policy objectives.
At InvestEU Fund level, in line with the provisions of the amended Financial Regulation, the
InvestEU Fund regulation will put forward several indicators based on the common policy
objectives, while the measurement mechanisms for these indicators will be developed in advance
of the implementation of the new regulation. Given the policy nature of this instrument, the
success of this instrument would not only be measured against the overall volume of investment
mobilised, as it was the case for the EFSI, but also through more targeted impact indicators
identified under each policy window or of a cross-cutting nature. Several of these indicators
would mirror the corresponding impact indicators being developed under the structural funds so
as to be able to measure the combined effort of the EU towards important policy priorities.
Sectoral information reported at NACE level 2 would also be provided.
The targets under each policy window will measure performance related to the specific policy
challenges and will thus be more detailed and granular. Policy specific indicators will be
developed upon the design of the financing products to be deployed under each window, and will
comprise the measurement of progress towards achieving specific policy objectives, such as
sustainability of infrastructure and climate investments, reduction of emissions, CO2 mitigation/
GHG reductions/ avoidance/ capture, investment in R&I, support of jobs and growth, and energy
efficiency targets.
Annex 7 includes the list of core indicators that could be used under the InvestEU Fund. In
addition to these core indicators, more detailed indicators will be included in the investment
guidelines or guarantee agreements on the basis of the specific financial products to be deployed.
Moreover, specific indicators will be developed for the InvestEU Advisory and the InvestEU
Portal.
A more detailed example of performance and monitoring indicators for the SME window is
included in Annex 8, as well as in Annex 9 for the Social investment and skills Window.
While Policy Boards will design specific impact measurements and indicators for each policy
window, the overall performance and monitoring system will be approved by the InvestEU Fund
Steering Board. Concrete and measurable targets for the support provided under the InvestEU
Fund and under each policy window level will be set in the guidance of the Steering Board.
The required data will be collected from implementing partners.
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Monitoring and evaluations
The Commission in cooperation with the implementing partners will monitor the performance
and implementation of the InvestEU Fund. Monitoring will be undertaken in line with the
requirements laid down in the Financial Regulation.
Monitoring indicators may not be sufficient to provide an adequate evaluation of the effects of
the programme. For this reason, it is foreseen to plan for impact evaluations of the effects of
specific projects/interventions on selected outcomes (measured on intermediate/end users), along
with the relevant data collection at the appropriate level of granularity.
The Commission will perform external evaluations of the InvestEU Fund. They will thoroughly
assess the InvestEU Fund’s performance in terms of relevance, effectiveness, efficiency and
EU
added value. The first interim evaluation will be carried out in 2025 so as to assess the initial
progress and to inform the decision making process on the successor instrument. The final
evaluation will take place after the implementation period. These evaluations will also address
causality between the intervention and the observed results.
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A
NNEX
1: P
ROCEDURAL INFORMATION
Lead DG(s), Decide Planning/CWP references
The Directorate-General (DG) for Economic and Financial Affairs (ECFIN) was leading the
preparation of this initiative and the work on the impact assessment in the European
Commission.
Coordination and consultation with all the other relevant Commission departments was
organised in the context of the existing Financial Instruments Inter-service Expert Group
(FIIEG). DG ECFIN together with DG Budget chaired discussions regarding this initiative. Nine
FIIEG meetings dedicated entirely to the InvestEU Programme were organised from December
2017 to March 2018
71
. The following Commission services participated in the group: Secretariat
General, Legal Service, Economic and Financial Affairs, Budget Competition, Internal Market,
Industry, Entrepreneurship and SMEs, Climate Action, Communications Networks, Content and
Technology, Employment, Social Affairs & Inclusion, Energy, Environment, Mobility and
Transport, Research and Innovation, Agriculture, Anti-fraud Office, Education and Culture,
Executive Agency for SMEs, Financial Stability, Financial Services and Capital Markets Union,
Health and Food Safety, International Cooperation and Development, Joint Research Centre,
Maritime Affairs and Fisheries, Migration and Home Affairs, Neighbourhood and Enlargement
Negotiations, Regional and Urban Policy, Taxation and Customs Union.
Organisation and timing
This Impact Assessment was prepared based on experience and past evaluation of the EFSI and
other centrally managed financial instruments. The preliminary work and analysis started in
second half of 2017 and intensified in 2018 through extensive consultation and exchanges with
above mentioned Commission services. An external consultants led by ICF Mostra provided
some additional support for this Impact Assessment.
Consultation of the RSB
An informal upstream meeting was held on 2 February 2018 with Regulatory Scrutiny Board
(RSB) representatives and the participation of SG, DG BUDG, DG ECFIN, DG GROW, DG
CNECT and JRC. During this discussion, Board members provided early feedback and advice on
the basis of the inception impact assessment. Board members' feedback did not prejudge in any
way the subsequent formal deliberations of the RSB.
The RSB scrutiny took place on 25 April 2018. The board gave a positive opinion with
reservations that have all been addressed in the revised version of the impact assessment report.
The table below summarises the changes introduced to this Impact Assessment in response to the
Board’s main considerations:
Main RSB considerations:
The report does not sufficiently explain how
InvestEU will avoid financing overlaps. These
can be either internal, among its thematic
windows, or external, with instruments funded
71
Changes made to the Impact Assessment
Section 3.5 was redrafted to better explain the
current overlaps and how the potential overlaps will
be avoided.
More details are included in Annex 12. This includes
One meeting was dedicated to the InvestEU Fund in general while others were dedicated to specific policy areas/Windows.
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directly by the Member States under European
structural and investment funds (ESIF).
two tables analysing the currently observed potential
overlaps of SME products under centrally managed
FIs for debt and equity products. Moreover, section
3.1 explains how InvestEU will address the
identified shortcomings and lessons learnt with
existing instruments.
The report does not elaborate on the choice of the Additional drafting has been provided in section 3.4
envisaged complex governance structure of the that explains in detail the reasons for the choice of
Fund. It does not sufficiently explain the the governance structure and the role of different
functioning of the new structure and to what bodies. This includes also a comparison of the
extent this would constitute an improvement, as governance arrangements currently in use for the
EFSI and the FIs with the one proposed under the
compared to the current situation.
InvestEU Fund. Annex 13 includes detailed figures
that represent the current governance arrangement
with those proposed under the InvestEU Fund.
The report should elaborate on possible higher
risk-taking by the EU budget related to the
increased use of financial instruments and the
lower provisioning rates implied by the recourse
to a global guarantee. The report should describe
how the risk assessment function would be
organised within the governance structure of
InvestEU. It should explain how this would
effectively protect the interests of the EU budget
from undue or excessive risk-taking. To assess the
overall risk to the established budget guarantee,
the report should clarify the issue of assessing
individual provisioning rates, the ensuing overall
provisioning rate for the Fund and risk sharing
and its rationale between the EU budget and the
implementing partners. Moreover, it should
provide more details on the allocation of the
budget guarantee across thematic windows and
sectors.
In addition, past EFSI evaluations have also
stressed the need to improve the geographical
distribution in finance provisioning. Building on
the experience with EFSI, the report should better
explain how the Fund would deal with
geographical distribution, given the overall
bottom-up approach to financing projects. It
should also thoroughly describe the mitigating
measures that the proposal envisages to put in
place.
Additional clarifications on the assumptions for the
foreseen level of risk and the provisioning rates have
been added to section 5.2 "Budgetary Guarantee".
An overview of the indicative allocation of the
budgetary guarantee has been added to section 3
"Programme Structure and Priorities". Further
explanations concerning the risk assessment function
within the governance structure have been added to
section 3.4 "Governance".
A new section (3.6 - Geographical distribution) was
introduced to the report providing details on how the
design of the InvestEU Fund will ensure a balanced
geographical distribution and avoid concentrations
of the EU support.
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Evidence, sources and quality
Sustainable infrastructure window
TEN-T Work Plans:
https://ec.europa.eu/transport/themes/infrastructure_en
EIB,
Investment Report 2017/2018
–
From Recovery to Sustainable Growth
http://www.eib.org/infocentre/publications/all/investment-report-2017.htm
EIB, Restoring EU Competitiveness 2016 -
http://www.eib.org/attachments/efs/restoring_eu_competitiveness_en.pdf
European Commission, 2016, Clean Energy for all Europeans, COM(2016) 860 final -
https://ec.europa.eu/transparency/regdoc/rep/1/2016/EN/COM-2016-860-F1-EN-MAIN.PDF
European Commission, 2016,
Climate change and major projects:
https://ec.europa.eu/clima/sites/clima/files/docs/major_projects_en.pdf
European Commission, 2018, Action Plan Financing Sustainable Growth, COM(2018) 97 final -
https://ec.europa.eu/transparency/regdoc/rep/1/2018/EN/COM-2018-97-F1-EN-MAIN-PART-
1.PDF
European Commission, 2018, Financing a Sustainable European Economy by the High-Level
Expert Group on Sustainable Finance, Final Report 2018
https://ec.europa.eu/info/publications/180131-sustainable-finance-report_en
Research, innovation and digitalisation Window
DG RTD, 2013, Independent Expert Group (IEG), Second interim evaluation of the RSFF, Final
Report -
http://ec.europa.eu/research/evaluations/pdf/archive/other_reports_studies_and_documents/interi
m_evaluation_report_rsff.pdf ;
EIB Working Papers, 2016/08, Intangible investment in the EU and US before and since the
Great Recession and its contribution to productivity growth -
http://www.eib.org/attachments/efs/economics_working_paper_2016_08_en.pdf ;
EIB, 2014, MidCap Growth Finance, Flexible financing for innovative mid-cap companies -
http://www.eib.org/attachments/general/events/20141211_innovfin_oslo_mgf_workshop_en.pdf;
EIB, 2014, Unlocking lending in Europe -
http://www.eib.org/attachments/efs/economic_report_unlocking_lending_in_europe_en.pdf
EIB, 2015, Operations Evaluation: EIB group’s support to the knowledge economy 2007-2013
-
http://www.eib.org/attachments/ev/ev_support_to_knowledge_economy_en.pdf;
EIB, 2016, Investment and Investment Finance in Europe, Financing productivity growth -
http://www.eib.org/attachments/efs/investment_and_investment_finance_in_europe_2016_en.pd
f;
European Commission, 2015, Action Plan on Building a Capital Markets Union, COM(2015)
468 final -
http://ec.europa.eu/transparency/regdoc/rep/1/2015/EN/1-2015-468-EN-F1-1.PDF;
European Commission, 2016, Accelerating Clean Energy Innovation, COM(2016) 763 final -
https://ec.europa.eu/energy/sites/ener/files/documents/1_en_act_part1_v6_0.pdf;
52
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European Commission, 2016, Commission Staff Working Document, Activities relating to
Financial Instruments, SWD(2016) 335 final -
https://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:52016SC0335&from=EN;
Brown, G. Martinsson, and B. Petersen (2012)" Do Financing Constraints Matter for R&D?",
European Economic Review, 56(8).
Carpenter, R, and B. Petersen (2002) "Capital market imperfections, high-tech investment, and
new equity financing", The Economic Journal, 112.
Cincera, M., J. Ravet, and R. Veugelers (2016) "The sensitivity of R&D investments to cash
flows: comparing young and old EU and US leading innovators," Economics of Innovation and
New Technology.
D'Este, P. et al (2012), "What Hampers Innovation? Revealed Barriers versus Deterring
Barriers", Research Policy 41(2)
Hall, B, Moncada-Paterno, P, Montresor, S and A. Vezzani (2016) "Financing constraints, R&D
investments and innovative perfromances: new empirical evidence at the firm level for Europe".
Economics of Innovation and New Technology.25:3,
183-196.
IMF (2016), Fiscal Monitor: Acting Now, Acting Together, Washington, April.
OECD (2015) "The future of productivity", OECD, 2015.
SME Window
SME Window: Cultural and Creative Sectors
Survey
on
access
to
finance
for
cultural
and
http://ec.europa.eu/assets/eac/culture/library/studies/access-finance_en.pdf
creative
sectors,
Impact Assessment for Creative Europe (2014-2020) -
http://ec.europa.eu/programmes/creative-
europe/documents/ce-impact_en.pdf
(Part III- Financial Instrument, pages 115-170)
Good practice report "Towards more efficient financial ecosystems: innovative instruments to
facilitate
access
to
finance
for
the
cultural
and
creative
sectors"
-
https://ec.europa.eu/culture/news/2016/new-good-practice-report-innovative-financing-
instruments-cultural-and-creative-sectors_en
Report on a coherent EU policy for cultural and creative industries
http://www.europarl.europa.eu/sides/getDoc.do?type=REPORT&reference=A8-2016-
0357&language=EN
-
Social investment and skills window
Mid-term evaluation of the Erasmus+ Programme -
https://ec.europa.eu/assets/eac/erasmus-
plus/eval/icf-volume2-student-loan.pdf
DG EAC,
Study on feasibility of an education and training investment platform
(2017)
Report of the High Level Task Force (HLTF) on Investing in Social Infrastructure -
http://eltia.eu/images/Boosting_investment_in_Social_Infrastructure_in_Europe.pdf
53
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CEEP (2017) CEEP response to the reflection paper on the future of EU finances -
http://www.ceep.eu/wp-
content/uploads/2017/07/17SAB08_DRAFT_CEEP_response_to_Reflection_paper_future_of_t
he_EU_Finances-12092017-2.pdf
ESF 2007-2013 Ex post evaluation: Investment in human capital, Volume 1
ESF 2007-2013 Ex post Evaluation: Access and sustainable integration into employment
European Policy Centre (2011) The EU Added Value Test to Justify EU spending: What Impact
for Regions and Local Authorities? -
http://www.cor.europa.eu/en/documentation/studies/Documents/eu-added-value-test-to-justify-
eu-spending.pdf
Commission, DG Employment (2010): Study on the Return on ESF Investment in Human
Capital, Final report -
http://ec.europa.eu/employment_social/esf/docs/human_capital_final_report_en.pdf
G. Verschraegen, B. Vanhercke, R. Verpoorten (2011): The European Social Fund and domestic
activation policies: Europeanization mechanisms; In: Journal of European Social Policy; Vol 21,
Issue 1, pp. 55
–
72 -
http://journals.sagepub.com/doi/abs/10.1177/0958928710385733
.
G. Lejeune; I. Maquet (2014) Job creation, productivity and more equality for sustained growth
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for the EMPL Committee -
http://www.europarl.europa.eu/RegData/etudes/STUD/2017/595351/IPOL_STU%282017%2959
5351_EN.pdf
Commission, DG Employment, Social Affairs and Equal Opportunities (2011) Evaluation of
ESF Support for Enhancing Access to the Labour Market and the Social Inclusion of Migrants
and Ethnic Minorities -
https://circabc.europa.eu/webdav/CircaBC/empl/ESF%20Evaluation%20discussion%20group/Li
brary/commission_evaluation/20072013/evaluation/evaluation_integration/Final%20Report%20
ESF%20support%20to%20migrants%20and%20minorities.pdf
Bertelsmann Stiftung (2013): The European Added Value of EU Spending: Can the EU Help its
Member States to Save Money? Exploratory Study -
https://www.rand.org/content/dam/rand/pubs/external_publications/EP50000/EP50350/RAND_
EP50350.pdf
Dheret, C. and Roden, J., 2016,
Towards a Europeanisation of Youth Employment Policies: A
Comparative Analysis of Regional Youth Guarantee Policy Designs,
Issue Paper, No.81 -
http://www.epc.eu/documents/uploads/pub_6949_towardseuropeanisationyouthemploymentpolic
ies.pdf
Eurofound, 2015,
Beyond the Youth Guarantee: Lessons learned in the first year of
implementation,
Background document to the informal EPSCO meeting 16-17 July 2015,
Luxembourg -
http://www.eu2015lu.eu/fr/actualites/notes-fond/2015/07/info-epsco-
documents/WL_Beyond-the-Youth-Guarantee_Eurofound---June-2015_EN.pdf
European Commission, 2016,
The Youth Guarantee and Youth Employment Initiative three years
on,
Strasbourg -
http://eur-lex.europa.eu/resource.html?uri=cellar:73591c12-8afc-11e6-b955-
01aa75ed71a1.0001.02/DOC_2&format=PDF
54
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Cernat, L, Mustilli, F.,
Trade and Labour Adjustment in Europe: What Role for the European
Globalisation Adjustment Fund -
http://trade.ec.europa.eu/doclib/docs/2017/may/tradoc_155512.pdf,
European Commission, 2015,
Ex-post evaluation of the European Globalisation Adjustment
Fund (EGF)
–
Final Report,
Directorate-General for Employment, Social Affairs and Inclusion,
Directorate C
–
Europe 2020: Employment policies, Unit C.2
–
Sectorial Employment
challenges, Youth Employment and Entrepreneurship, Brussels
European Commission, 2017,
Revised draft Report from the Commission on the mid-term
evaluation of the European Globalisation Adjustment Fund (EGF),
forthcoming
European Commission, 2017,
Report from the Commission to the European Parliament and the
Council on the activities of the European Globalisation Adjustment Fund in 2015 and 2016,
Brussels
European Court of Auditors, 2013,
Special Report No 7: Has the European Globalisation
Adjustment Fund delivered EU added value in reintegrating redundant workers,
Luxembourg -
https://www.eca.europa.eu/Lists/ECADocuments/SR13_07/SR13_07_EN.pdf
European Commission, 2017,
Mid-term evaluation of the EU programme for employment and
social innovation - EaSI - Final Evaluation Report
European Commission (2017), Study on the assessment of the adequacy of the ESF's design to
support human capital policies
European Commission (2017), The Value Added of Ex ante Conditionality in the European
Structural and Investment Funds: SWD (2017) 127 -
http://ec.europa.eu/regional_policy/sources/docgener/studies/pdf/value_added_exac_esif_en.pdf
European Commission (2017), Synthesis Report of ESF 2016 Annual Implementation Reports-
https://publications.europa.eu/en/publication-detail/-/publication/4fd56da6-99bf-11e7-b92d-
01aa75ed71a1/language-en
European Commission (2017), Performance Monitoring Report of the European Union
Programme for Employment and Social Innovation (EaSI) 2015-2016
European Commission (2017), Study on linkage with Country Specific Recommendations and
supporting structural reforms (concept)
European Commission (2017), Study on the implementation of the provisions in relation to the
ex-ante conditionalities during the programming phase of the European Structural and
Investment (ESI) Funds -
http://ec.europa.eu/regional_policy/en/information/publications/studies/2016/the-
implementation-of-the-provisions-in-relation-to-the-ex-ante-conditionalities-during-the-
programming-phase-of-the-european-structural-and-investment-esi-funds
European Commission (2017), Study on the implementation of the provisions in relation to the
performance framework during the programming phase of the ESI Funds -
http://ec.europa.eu/regional_policy/sources/policy/how/studies_integration/impl_exante_esif_rep
ort_en.pdf
European Commission (2017), Support of ESI Funds to the implementation of the Country
Specific Recommendations and to structural reforms in Member States -
http://ec.europa.eu/regional_policy/en/information/publications/studies/2015/support-of-
55
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european-structural-and-investment-funds-esi-funds-to-the-implementation-of-the-country-
specific-recommendations-and-to-structural-reforms-in-member-states
“Mapping of the use of European Structural
and Investment funds in health in the 2007-2013 and
2014-2020
programming periods”, report of the project “Effective use of European Structural
and
Investment
(ESI)
Funds
for
health
investments”,
http://www.esifforhealth.eu/Mapping_report.htm
Report of the seminar "Strategic investments for the future of healthcare" (2017),
https://ec.europa.eu/health/sites/health/files/investment_plan/docs/ev_20170227_mi_en.pdf
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A
NNEX
2: S
TAKEHOLDER CONSULTATION
Open Public Consultations for the post-2020 Impact Assessment were organised per group of
policy areas. This impact assessment will mainly consider the results from the OPC on the EU
Support for Investment
72
. Any relevant results from OPCs regarding different policy areas like
Cohesion; Security, Migration and Asylum; Strategic Infrastructure; Values and Mobility will
also be taken into consideration.
A. Results from the Open Public Consultation on EU funds in the area of investment,
research & innovation, SMEs and single market
1. Introduction and methodology
On 10 January 2018, the European Commission launched an open public consultation (OPC) on
EU funds in the area of investment, research & innovation, SMEs and single market. The survey
was conducted on the Commission webpage through an online survey consisting primarily of
multiple-choice questions, with some open-ended questions.
Figure 1: Country of residence
300
250
No of respondents
200
150
100
50
0
Austria
Belgium
Bulgaria
Croatia
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Other
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
United Kingdom
By the end of the consultation on 9 March 2018, 4052 respondents provided valuable
information to the Commission. All citizens, organisations and stakeholders with an interest in
issues related to investment, entrepreneurship, research, innovation and SMEs were welcome to
respond to this consultation. In total, 1808 respondents answered in their personal capacity,
while 2244 in their professional capacity or on behalf of an organisation. Replies from
organisations were received from Think Tanks (12), Academia (526) and Research Institution
(347). The respondents had to answer to a specific questionnaire and they also had a possibility
to attach any relevant document. Figure 1 shows the residence of respondents
73
.
72
73
This was a subpart of the OPC on Investment, research and innovation, SMEs and single market.
1808 respondents out of 4052 answered this question
57
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Figure 2 highlights the awareness of the respondents of the European programmes in connection
to the topic area to which they answer. As the figure shows, Horizon 2020 is the most known
programme. In other words, almost 9 out of 10 respondents are aware of the EU R&I programme
Horizon 2020, which remains by far the most known EU programme among respondents. This is
followed by ESIF (21,7%), EU Health Programme (9%), COSME (8%), EFSI (6,15%) and EaSI
(3,15%), which are not recognized as Horizon 2020.
Figure 2: Programme Awareness
3616
1000
No of Respondents
750
500
250
I te ope a ilit solutio s…
Digital Si gle Ma ket…
I ple e tatio of si gle…
Support for the
…
Sta da ds i the field of…
E ha i g o su e s…
atio …
0
EU Health Programme
COSME
Horizon 2020
EaSI
EFSI
ESIF
EU Food and Feed prg
EURES
Consumer prg
European statistical prg
Customs 2020
Fiscalis
PF4EE
EEEF
2. EU support for investment
Figure 3: EU support by policy area
4500
94,69%
4000
3500
100,00%
90,00%
80,00%
70,00%
60,00%
50,00%
2000
1500
1000
500
3837
0
EU support for
EU support for SMEs
research and
and Entrepreneurship
No of Respondent
innovation
EU support for
EU support for the
investment
single market
Percentage on total Respondent
1034
642
25,52%
15,84%
307
7,58%
40,00%
30,00%
20,00%
10,00%
0,00%
No of Respondents
3000
2500
As illustrated in Figure 3, due to the structure of this questionnaire, it was possible to extrapolate
the answers of people whose replies concerned the support for investment at European level. In
58
A ti-F aud I fo
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total, 642 out of 4052 replies were dedicated to this topic and, as per Figure 4, the sample covers
all the countries in European Union and it only shows those respondents that provided their
country of residence.
Figure 4: Respondents' country of residence
No of Respondents
30
25
20
15
10
5
0
Belgium
Spain
Italy
France
Germany
U ited…
Netherlands
Estonia
Hungary
Czech Republic
Slovenia
Moreover, data on the policies awareness on this specific subgroup are in line with the sample
presented in Figure 2. The only exception is that more than 20% of the respondents are aware of
the EFSI, compared to 6.15% in the total sample.
As far as the ability of the European institutions to intervene, respondents believe that there is
room for improvement. According to their opinion, presented in Figure 5, the majority of the
respondents believe that European institutions are not sufficiently addressing most of the
challenges listed above. In particular, they stress the inability to address unemployment and
social disparities, access to finance especially for SMEs and social investment and social
innovation.
59
Denmark
Portugal
Romania
Slovakia
Greece
Bulgaria
Croatia
Poland
Ireland
Sweden
Finland
Austria
Cyprus
Malta
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1909982_0067.png
Figure 5: To what extent do the current policies successful adress these
challenges
E su e s ooth i ulatio of goods oth ithi EU a d at…
Foster research and innovation across the EU
Fa ilitate t a sitio to lo a o a d i ula e o o …
Provide reliable and comparable statistics
Support capital flows and investment
Ensure fair conditions of competition in the EU
Support labour mobility
Promote financial stability
Support education, skills and training
Promote security of citizens
Promote and protect public health
Support industrial development
E su e a lea a d health e i o e t a d the p ote tio …
Promote a safe and sustainable food chain
E su e a high le el of o su e p ote tio a d effe ti e…
Fa ilitate digital t a sitio of the e o o , i dust ,…
Ensure safe, sustainable transport and mobility
Facilitate access to finance, in particular to SMEs
E su e that e isti g ules a e applied a d e fo ed…
Support social investment and social innovation
Improve quality of public institutions (including digitalisation)
Reduce unemployment and social disparities
0%
25%
50%
75%
100%
EU at least fairly addressing (fully addressed + fairly addressed)
EU not addressing (addressing at some extent + not at all)
More interestingly, the respondents on the EU support for investments firmly believe that
currents actions at European level bring added value and that this is complementary to what
Member States could achieve at national, regional and/or local levels. More than 70% of the
respondents affirmed that at least to a fairly good extent the EU intervention adds value.
Furthermore, Figure 7 shows the importance that respondents give to preliminary identified
policy challenges that according to the European Commission should be targeted in the future.
60
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For instance, research and innovation, the facilitation of the transition to low carbon and circular
economy, education, skill and training or digitalisation are priorities that new programmes
should clearly address.
Figure 7 : The Commission has preliminarily identified a number of policy
challenges which programmes/funds in this area of investment, research &
innovation, SMEs and single market could address. How important are these
policy challenges in your view
Foster research and innovation across the EU
E su e a lea a d health e i o
e t a d the…
Reduce unemployment and social disparities
Promote and protect public health
Ensure fair conditions of competition in the EU
Facilitate access to finance, in particular to SMEs
I p o e ualit of pu li i stitutio s (i ludi g…
Support social investment and social innovation
Promote financial stability
E su e s ooth i ulatio of goods oth ithi EU a d at…
Support capital flows and investment
0%
25%
50%
75%
100%
Great Importance (Very Important + Rather Important)
No Importance (Neither + Rather not important + not at all)
Finally, Figure 8 confirms the steps that should be undertaken in order to simplify and reduces
administrative burden for beneficiaries, according to the importance given by respondents. The
entirety of challenges listed by the Commission should be addressed in the future. In particular,
respondents believe that simplification of rules is the most important point that could help solve
the administrative burdens for beneficiaries. Respondents also stress an alignment of rules
between the EU Funds and a stable but flexible framework between programming periods.
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Figure 8: The Commission has preliminarily identified a number of steps that
could help to further simplify and reduce administrative burdens for
beneficiaries under current programmes/funds. To what extent would these
steps be helpful in your view?
Fewer, clearer, shorter rules
Alignment of rules between EU funds
A sta le ut fle i le f a e o k et ee p og a
i g…
Better feedback to applicants
User-friendly IT tools
Extension of the single audit principle
Adequate administrative capacity
E-governance
More structured reporting
More reliance on national rules
0%
Burden (to a large extent + to a fairly extent)
25%
50%
75%
100%
not a burden (to some extent only + not at all)
3. Other Open Public Consultations.
In parallel to this consultation, the Commission conducted different OPC covering the entire
spectrum of EU policies: Cohesion; Security; Migration and Asylum; Strategic Infrastructure;
Values and Mobility. Figure 9 and 10 present the results of these consultations regarding the
respondents’ views on importance of Financial Instruments in the relevant policy area.
For the Cohesion and Security, around 40% of the respondents believe that the insufficient use of
Financial Instruments is an obstacle preventing the current programmes/funds from successfully
achieving their objectives.
Figure 9: Percentage of respondents considering the insufficient use of FIs as
obstacles which prevent the current programmes/funds from successfully
achieving their objectives
EU Funds Security
Cohesion
0%
25%
Insufficient
50%
Sufficient
75%
100%
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For Strategic Infrastructure, around 60% of the respondents believe that the difficulty to access
74
to Financial Instruments is preventing the current programmes regarding infrastructures from
successfully achieving their objectives.
Figure 10: Percentage of respondents considering difficulty to access to financial
instruments as obstacle which prevent the current programmes/funds from
successfully achieving their objectives
Strategic Infrastructure
0%
25%
Difficulty to access
50%
Easy to access
75%
100%
74
Differently from EU Funds Security and Cohesion OPCs, where respondents were asked to judge if Financial Instruments were
insufficiently used, in the Strategic Infrastructure OPC respondents were asked to manifest their opinion about the difficulty to
access to Financial Instruments.
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A
NNEX
3: E
VALUATION RESULTS
1. Introduction
Annex 3 summarises the main findings of related programmes relevant for the InvestEU
Programme. This includes in particular the various EFSI evaluations and the findings on
financial instruments under sectoral regulations.
2. EFSI
The European Fund for Strategic Investments (EFSI) was launched in July 2015 as a response to
the global economic, financial, and sovereign debt crisis. It is currently the biggest EU
investment support instrument. It aims at mobilising EUR 500 billion of additional investment in
infrastructure, innovation, and SME financing by end-2020. EFSI has introduced a new approach
for providing investment support, namely the use of a budgetary guarantee
75
. The EFSI's EU
budgetary guarantee to the EIB Group amounts to EUR 26 billion. It allows the EIB to increase
financing of projects with a higher risk-profile and to mobilise private capital.
Given the relatively recent launch of the EFSI, most signed projects supported by EFSI have not
yet been completed. Therefore, the evaluations performed focused on the results achieved so far
and their expected impacts.
Several EFSI evaluations have been conducted or are ongoing:
a Commission evaluation on the use of the EU guarantee and the functioning of the EFSI
guarantee fund
76
accompanied by an opinion of the Court of Auditors
77
,
an EIB evaluation on the functioning of EFSI
78
, and
an independent external evaluation on the application of the EFSI Regulation
79
published
in November 2017. Main findings of these evaluations were summarised in the
Commission Communication on the Investment Plan for Europe (COM (2016) 764)
80
,
an independent evaluation as required under article 18 of the EFSI Regulation. The
evaluation was performed by ICF Mostra (hereafter referred to ICF evaluation and is
published concurrently with the InvestEU Programme proposal), and
an ongoing EFSI evaluation by the EIB Group (deadline for publication 30 June 2018).
Relevance
All evaluation found that the EU guarantee proved relevant and enabled the EIB to undertake
riskier activities in line with expectations. The European Fund for Strategic Investments also
proved a relevant tool to mobilise private capital. The volumes of investment mobilised under
EFSI are deemed sufficient scale to make a significant contribution to these investment needs.
However, the evaluations have underlined some concentration in those MS with well-developed
institutional capacities.
75
76
A similar approach has been used under the EU's External Lending Mandate.
http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52016SC0297&from=EN
77
https://www.eca.europa.eu/Lists/News/NEWS1611_11/OP16_02_EN.pdf
78
http://www.eib.org/infocentre/publications/all/evaluation-of-the-functioning-of-the-efsi.htm
79
https://ec.europa.eu/commission/publications/independent-evaluation-investment-plan_en
80
http://ec.europa.eu/transparency/regdoc/rep/1/2016/EN/COM-2016-764-F1-EN-MAIN.PDF
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The relevance of EFSI is also indicated by the introduction of new higher risk products reflecting
the objective of taking on higher risk investments.
The Scoreboard was evaluated as a relevant tool that allows a consistent approach to project
presentation and to summarise appraisal conclusions.
The ICF evaluation found the EU Guarantee to be highly relevant in permitting the additional
financing to be deployed.
Effectiveness
These evaluations have demonstrated that the EFSI is effective in delivering concrete results and
encouraging a sustainable increase in the low investment levels in Europe by increasing access to
financing and mobilising private capital.
Based on reported investment mobilised to the cut-off date of the ICF evaluation (31 December
2017), EUR 207 billion has been mobilised by achieved signatures corresponding to 66 per cent
of the target (and EUR 256 billion as per all approved operations corresponding to 81 per cent of
the target). Extrapolating this trend a further 6 months with the completion of EFSI 1.0 in mid-
2018, then mobilised investment from approved operations is expected to come very close or
reach the 315 billion by mid-2018.
Under the amended EFSI Regulation
81
('EFSI 2.0') support will continue towards financing of
projects, leading to higher productivity and competitiveness with enhanced focus on sustainable
investments in line with the Paris Agreement and the clean energy transition objectives.
The EFSI is a demand driven instrument and its portfolio is concentrated in few Member States.
However, if the investment mobilised is considered relative to Member States' GDP this
concentration is much less pronounced. Nevertheless, to improve geographical balance the EFSI
2.0 has already taken corrective action by strengthening the relevance of the IPE's second Pillar.
As of 31 December 2017, the actual multiplier effect of the EFSI is broadly in line with what had
been assessed at the outset
–
aggregate global multiplier achieved end 2017 of 13.5 against a
target of 15. EFSI has also been effective in mobilising private investments. Some 64 per cent of
investment mobilised is from the private sector.
The ICF independent evaluation found that the approach to modelling the EFSI target rate
appears to be broadly adequate and in line with industry standards but proposed some further
developments of the model. It also concluded that the assessment of the estimation of the current
target rate showed that the target rate is highly sensitive to the assumption related to the
correlation of defaults between individual debt operations.
81
http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32017R2396&from=EN
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Efficiency
In terms of efficiency, the availability of the EU Guarantee proved to be an efficient tool to
considerably increase the volume of riskier operations by the EIB. In particular, the EFSI
budgetary guarantee freezes less budgetary resources compared to financial instruments, as it
requires limited provisioning needs compared to the level of financial engagement. In other
words, it assumes a contingent liability and is consequently expected to achieve economies of
scale that result in higher investment mobilised per euro spent. The evidence analysed as part of
the ICF evaluation also indicated that the size of the EU Guarantee under EFSI 1.0 was
appropriate.
A budgetary guarantee has also proven more cost-efficient for the EU budget, as it limits the
payment of management fees to the implementing partner. Such fees are limited to cases where
they are strictly needed to cover part of the implementing partner's costs related to the
development of an action in a specific niche, related to high risk or an unproven area. In the case
of the EFSI, the EU is even remunerated for the EU guarantee provided under the Infrastructure
and Innovation Window.
In addition, the ICF evaluation identified no major issues with the EFSI governance. The
planned publication of the Scoreboard improves transparency. Some early issues of
communication between the Secretariat and the Investment Committee have also been resolved.
Better feedback to the Investment Committee members on the details of projects after final close
was an identified area for improvement.
The efficiency of procedures and the time taken appear consistent with the tasks required to be
undertaken.
The burden on project promotors was generally modest, especially when establishing a first
contact with the EIB Group. The appraisal procedure was considered to be difficult by a quarter
of promoters interviewed, but this is not considered to represent a need for any significant
change in procedures.
EU added value
The 2016 independent evaluation stressed the need to better define and clarify the concept of
additionality. Consequently, the EFSI 2.0 amended Regulation proposed several corrective
measures to clarify the concept, the criteria and made the process more transparent.
The ECA Opinion
82
on the early proposal to extend and expand EFSI acknowledges the
challenge to determine the exact amount of investment mobilised by public support. In
particular, the report claims that not all sources of finance attracted by a project are the result of
the EU intervention. The challenge is magnified by the difficulty to determine whether private
investment was crowded-in because of the EU intervention or would a part of it have been
mobilised even without the public support.
82
ECA Opinion No2/2016 - EFSI: an early proposal to extend and expand
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The ICF evaluation concluded in particular
83
:
Compared to EIB finance for higher risk activity (Special Activities) prior to the EFSI,
there has been a five-fold increase in investment and clear evidence that EFSI operations
are characterised by a higher level of risk as compared to standard (non-EFSI) EIB
operations.
Additionality. There is a need to further clarify the concept of additionality and the
definition of sub-optimal investment situations. In particular, the evaluation concluded
that EFSI operations are characterised by a higher level of risk as compared to standard
(non-EFSI) EIB operations as required by the EFSI Regulation. However, the survey and
interviews indicated that under the Infrastructure and Innovation Window of EFSI some
crowding out may have occurred. While there is always a risk that market-based
interventions can in certain cases have a limited crowding out effect, more analysis is
needed to verify whether the new measures foreseen under EFSI 2.0 have a positive
effect on additionality.
Non-financial added value
–
there is evidence of other added value from the EFSI in
terms of attracting new investors, providing demonstrations and market testing of new
products and financing models, and support and adoption of higher operational standards
by financial service providers.
Opportunity costs of provisioning EFSI
–
the financing of the EFSI required some
reallocation of the EU budget from existing programmes i.e. CEF and H2020 which
increased the resources for EFSI while leading to reduced resources in these programmes.
However, because of EFSI activity being partially focused on these programme areas, the
adverse policy effect has been somewhat reduced.
Coherence
The 2016 EIB evaluation found that other EU programmes and financial instruments may in
some cases compete with the EFSI. In other cases, the EFSI and other EU programmes can be
complementary. For example, resources from the CEF and H2020, and similarly the ESIF, could
finance the first-loss piece of EFSI operations, where it is needed to take projects off the ground
and maximise private sector contributions. In these cases, the EIB, with EFSI support, can
finance mezzanine tranches.
The ICF independent EFSI evaluation confirmed the initial disruption by EFSI under IIW to
other EU level financial instruments by offering similar financial products. The evaluation
however found that the main coherence issue have since been resolved during implementation by
re-focusing existing instruments towards new market segments. The evaluation also stressed
some potential coherence issue with the financial instruments used under ESIF. The evaluation
recommended to strengthen ex-ante assessments and ongoing analysis of market failures and
needs at a sectoral level to avoid any overlaps between products and to minimise any potential
crowding out effects.
83
Source: ICF Evaluation report
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3. Mid-term evaluation of Connecting Europe Facility (CEF)
The Connecting Europe Facility (CEF) programme was established in 2013 to support
investment in Trans-European networks in the fields of transport, energy and
telecommunications services. It was designed to exploit potential synergies among the three
sectors, while supporting the better integration of their respective infrastructure across EU
Member States. The CEF Debt Instrument (CEF DI), effective since July 2015 and building on
the experience gained with the Loan Guarantee Instrument for Trans-European Transport
(LGTT) and the pilot phase of the Project Bond Initiative (PBI), pioneered the use of financial
products in the three sectors. The CEF Equity Instrument (EI) is not yet in use in any of the CEF
sectors. Support from this instrument will be provided to fund the rollout of very high capacity
networks in underserved areas, with an important leverage effect, through the Connecting
Europe Broadband Fund (CEBF) which is expected to become operational in the first half of
2018.
In accordance with the CEF Regulation
84
, the Commission, in cooperation with the Member
States and the beneficiaries concerned, was required to present a report on the mid-term
evaluation of the CEF to the European Parliament and the Council. This report
85
and its
accompanying Commission staff working document were adopted by the Commission on 13
February 2018. The evaluation
assesses the programme’s overall performance in light of its
general and sectoral objectives, as well as compared to what has been achieved as a result of
national or EU action. The evaluation illustrates that after the first three and a half years of CEF
implementation, the programme is on track, although it is much too early to measure results
given that the programme implementation is still at an early stage. Moreover, the evaluation
showed that in all three sectors, the deployment of CEF Financial Instruments
86
has been limited,
partly due to the new financing opportunities opened by the European Fund for Strategic
Investments (EFSI). Other factors relate to the weak pipeline of bankable CEF-eligible projects
available in the energy sector at the time that the CEF DI became effective, or to the limited
budget available for broadband projects. To date, support from the instrument has been mainly
provided to projects in the transport sector, while only one broadband project and one energy
project were supported under the predecessor instrument, i.e. the pilot phase of the PBI. More
projects are expected however to be supported under the instrument in 2018.
The evaluation highlighted the positive experience of blending CEF grants with Financial
Instruments which was carried out in 2017 in transport, whereby EUR 2.2 billion funding was
requested for a call with an indicative budget of EUR 1 billion, which enabled the use of grants
to maximise the leverage of private or public funds. Looking forward, the evaluation stresses that
the completion of the trans-European networks will still require massive investments, part of
which will depend on continued EU support. The size of the CEF programme currently makes it
possible to address only partly the market failures identified in the three CEF sectors. Therefore,
84
85
Article 27 of Regulation (EU) No 1316/2013 of the European Parliament and of the Council of 11 December 2013.
COM(2018)65
86
CEF Financial Instruments refer to the CEF Debt Instrument and the CEF Equity Instrument.
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the evaluation recommends that unlocking further public and private investment should continue
to represent a priority in the future, which can be addressed through grant financing, but also
through the use of Financial Instruments whose relevance is found to vary across the CEF
sectors. To this end, the evaluation concludes that CEF Financial Instruments and blending of
grants with other forms of financing (notably from private sector and public banks) remain
relevant financing intervention means from the EU budget, in particular for revenue generating
projects.
4. European Energy Efficiency Fund (EEEF)
A significant challenge the Fund has faced is the limited number of ongoing projects and the
difficulty to attract a substantial number of new ones. While identifying the exact causes of this
development is an ongoing exercise, some recurring factors have been observed: 1) local
governments prefer working with grants that are, from their point of view, easier to manage and
more flexible (especially the case in Scandinavian countries and in Eastern Europe); 2)
municipalities usually need to adhere to lengthy and slow public procurement processes, which
call for a simplified, streamlined process regarding Financial Instruments to better support the
projects targeted by EEEF
–
similar to the InvestEU Fund. Mitigating actions include fine-tuning
the Fund’s marketing
approach to underline that its capacity to provide financing complementing
grants and increasing the provision of technical assistance to ensure municipalities efficiently
organise the required procurements processes.
EEEF also helped the Commission learn that the closing of projects is facilitated if technical
support is tied to use of the fund.
5. Private Finance for Energy Efficiency (PF4EE)
On energy efficiency, the PF4EE instrument targets projects which support the implementation
of National Energy Efficiency Action Plans or other energy efficiency programmes of EU
Member States. The PPF4EE also includes an Expert Support Facility to support participating
financial institutions to develop financial products for the financing of the national/regional EE
schemes.
To date the EIB have signed operations in The Czech Republic, Spain, France, Belgium, Italy,
Portugal, Croatia, Greece and Cyprus generating a portfolio worth of EUR 720 million of
investment. The investment leverage effect would be 14.6 against an initial target of 8.
With regard to the PF4EE the Mid-term
evaluation of LIFE states that ‘There are issues
regarding the complementarity of the instrument with other funding mechanisms supporting
energy efficiency, especially in some Member States.’. Potential
overlap with EBRD and ERDF
loans was highlighted. The overlap with ERDF loans is also mentioned in the section on ESIF.
However, although there are an increasing number of FIs active in the energy efficiency area, the
size and importance of the potential market is very large. According to DG ENER it is estimated
that an additional EUR 177 billion per year will be necessary over the period 2021-2030 to reach
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the EU's energy and climate objectives for 2030. Therefore, the risk of these FIs crowding each
other out appears minimal.
6. Natural Capital Financing Facility (NCFF)
Under the NCFF, LIFE provides 10M EUR of technical assistance, and a guarantee of 50M EUR
to support EIB investments (loans and equity) of up to 125M EUR that contribute to biodiversity
and/or climate change adaptation objectives.
It aims at establishing a pipeline of some 9 to 12 replicable, bankable operations that will serve
as a "proof of concept" and demonstrate to private and public investors the attractiveness of such
investments. This represents an innovation which, if successful, could drive the architecture of
natural capital financing. Although development of the pipeline has been slow, the pace is
picking up with three operations now signed, 5 additional ones in the pipeline, and 9 more
currently under scrutiny by EIB.
Recommendations from the LIFE mid-term review have been implemented including increasing
visibility and promotion, and operationalisation of the support facility. The implementation
period had been extended until 2021 and the 2018-2020 LIFE programme foresees a new
guarantee window. Experience so far with NCFF shows that there is a niche for investments in
ecosystem-based natural capital investments, though it is important to develop a pipeline to share
the experience and demonstrate the opportunities more widely. The LIFE mid-term evaluation
also recommended to consider options for blending.
7. Marguerite Fund
On the equity side, the Marguerite Fund
described also as “The 2020 European Fund for Energy,
Climate Change
and Infrastructure” was launched in 2009 at the initiative of and the Cassa
Depositi e Prestiti, the Caisse des Dépôts Group, KfW, the Spanish Instituto de Credito Official ,
the Polish PKO Bank Polski (PKO), the EIB and the European Commission.
At the end of the investment period of the Marguerite Fund invested EUR 745 million in 13
Member States. Overall, it has invested, 31% in the TEN-T eligible projects (roads and airports),
55% in the energy sector including renewables and 14% in ICT. Marguerite Fund has
demonstrated its ability to attract the private sector investments since private investors had the
possibility to invest directly in the projects. However, it was not possible to attract private
investors at Fund level.
Marguerite II (supported by EFSI) will continue focusing on both greenfield and brownfield
infrastructure investments in renewables, energy, transport and digital infrastructure.
8. Financial Instruments under FP7 and Horizon 2020
The interim evaluation of Horizon 2020 finds that Horizon 2020 provides companies, and in
particular SMEs, with access to risk finance to carry out their innovation projects, thereby
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addressing an important market failure. Under the Access to Risk Finance programme, 5,700
organisations have been funded and EUR 13 billion of private funds have been leveraged. The
total investment mobilised via debt financing amounts to EUR 29.6 billion in the first three years
of its implementation, based on a budget of EUR 2.7 billion.
Horizon 2020's Interim Evaluation has identified some potential for supporting breakthrough,
market-creating innovation, but concludes that such support must be considerably strengthened.
Only a relatively small number of firms receiving grants under Horizon 2020 benefitted from
Financial Instruments under Horizon 2020. This may hinder the scaling up of innovative firms
that could become innovation leaders at EU and global scale. To address this challenge,
synergies should be exploited between the grant and non-grant based instruments available to
firms at different stages of the innovation cycle.
The interim evaluation concluded that:
InnovFin represents a significant development in the provision of EU supported innovation
financing that builds on the more modest and rather disparate schemes that previously
existed.
InnovFin scheme is performing well against its main objectives of improving access to
finance for innovative companies and projects, and helping to address related market failures.
InnovFin’s combination of debt financing and equity-based
Financial Instruments is coherent
overall from a programme design perspective and generally provide high added value but
with some variation between InnovFin instruments and between countries.
There is an increased usage of innovative financing instruments in the EU budget under FP7
compared to Horizon 2020.
Demand for InnovFin finance has been high since the launch of the facility in mid-2014: in
its first phase (2014-2017), its take-up exceeded initial expectations, which required a
dedicated top up of more than 80% of the initial budget from the SME window of the
European Fund for Strategic Investment (EFSI).
Efforts have already been made to increase the synergies between Horizon 2020 and other
programmes, in particular the European Structural and Investment Funds and the European
Fund for Strategic Investments and these can be further strengthened. The Interim Evaluation
of Horizon 2020 points out that "since the set-up of EFSI in 2015, it has proved challenging
to reach InnovFin's objectives, as a significant part of the products deployed overlap with
EFSI in terms of both risk spectrum and eligibility." Against this background, the EIB and
DG RTD have decided to re-focus InnovFin's deployment in 2017.
9. SME Programmes
The Commission has already implemented four generations of debt Financial Instruments for
SMEs. These programmes have been subject to evaluations and close scrutiny by the Council
and Parliament, as well as by the Court of Auditors.
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In particular, the Loan Guarantee Facility for SMEs of the COSME programme has been
thoroughly assessed twice. First of all, by the European Court of Auditors in the context of a
performance audit, which comprised the COSME Loan Guarantee Facility as well as the
InnovFin SME Guarantee Facility of Horizon 2020 (published December 2017
87
) and in the
context of the COSME interim evaluation (published January 2018).
These assessments have shown that the Loan Guarantee Facility is working very successfully. It
is properly designed to help SMEs, which would otherwise struggle to obtain finance, to grow
more in terms of total assets, sales and employees when compared to the general SME
population. The impact of the facility could be further strengthened by better targeting the
beneficiaries and coordinating better with Member State activities.
In response to the assessments made, a number of recommendations are proposed for the
successor programme of COSME, such as (i) further strengthen the existing cooperation with the
Enterprise Europe Network; (ii) a better upstream co-ordination between Financial Instruments
for SMEs established by Member States and the successor instrument in the next MFF by using
the existing SME Envoys Network as an information exchange forum; (iii) reduce administrative
burden for SMEs and financial intermediaries.
The COSME interim evaluation recommends that a future EU loan guarantee facility should help
to ensure "a
more level playing field for SMEs […] in those countries where, according to
current studies, the needs among SMEs are highest."
As regards the existing Equity Facility for
Growth, the interim evaluation concluded that the facility is effective. Nevertheless, it has been
recommended to reduce the number of financial products and to align the Equity Facility for
Growth with the equity facilities established under EFSI.
Lessons learned on equity instruments for SMEs
The interim evaluation of Horizon 2020's Financial Instruments
88
assessed the 'InnovFin Equity'
product, which focuses on early-stage finance, and concentrated on Venture Capital (VC). The
key findings are that in a few countries, VC is readily available, reducing the need for InnovFin
Equity, while in other geographies, particularly for start-ups and firms that are not yet bankable,
the market gap persists, though many companies are reluctant to use equity finance because of
the dilution of ownership involved. The interim evaluation of COSME's Financial Instruments
89
assessed the 'Equity Facility for Growth' (EFG) product, which provides VC finance focused on
the growth and expansion stage. All surveyed SME beneficiaries report a positive impact of EFG
financing on their growth perspectives. Difficulties facing cross-border operations by VC funds
are persistent, however: the EU single capital market is still in its infancy, country-specific
barriers for investment have not gone away, and most funds are not large enough to operate on a
pan-European basis.
87
88
https://www.eca.europa.eu/Lists/ECADocuments/SR17_20/SR_SMEG_EN.pdf
[citation
http://bit.ly/2vLFas5
–
section 3.4.2. As well as the Member States, several other countries are
associated to Horizon 2020 (see
http://bit.ly1nvSTaf)
and can benefit from the programme's Financial Instruments.
89
[citation
http://bit.ly/2rKmigg
]
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The Council recognised that the guarantee instruments in support of SMEs have proven their
concrete results, inter alia due to their financial leverage effect, in fostering high-risk innovation,
a higher wage bill and enhanced business turn-over.
Observations made by the European Court of Auditors
As highlighted already in the title of the dedicated European Court of Auditors’ report
90
, the
COSME Loan Guarantee Facility (LGF) has achieved the positive results intended, but needs
some better targeting of beneficiaries and more coordination with national schemes. In
particular, the report recommended that the Commission carries out an assessment of market
needs and how EU guarantee instruments can best respond to these needs alongside
national/regional instruments. In this regard, the Commission has prepared an in-depth market
assessment at the level of each Member State demonstrating the market gap and the rationale for
an intervention at EU level.
One of the conclusions in the report was that a future facility should better target viable
businesses lacking access to finance and a better coordination should occur between central EU
guarantee facilities and those established at national level.
As regards the InnovFin SME guarantee facility, the report found that the loan guarantee facility
has helped beneficiary companies grow more in terms of total assets, sales, wage bills and
productivity. However, the InnovFin SME guarantee facility failed to focus on companies
carrying out innovation activities with a high potential for excellence.
The report also contains a number of recommendations to the European Commission to better
target the guarantees at viable businesses lacking access to finance and on more innovative
businesses. Moreover, it emphasises the importance of cost-effectiveness since similar
instruments already exist in the member states.
It is recommended that the above proposals are taken into account when designing successor
programmes, with a view to ensure the reinforcement, better targeting and broader uptake in all
member states of those instruments that are particularly addressed to smaller businesses.
Financing the cultural sector through Financial Instruments
The Creative and Cultural Sectors Guarantee Facility was allocated a budget of EUR 121 million
for the period 2014-2020 representing 9% of the Creative Europe budget. The first top up of its
budget through the EFSI was received in 2017. A further top-up may be envisaged in 2018. The
top-ups of the budget would allow a quicker deployment of guarantee support, reaching more
countries and sectors and enhancing the geographic and sectoral balance.
In 2017, its first full year of operation, nine guarantee agreements with six financial institutions
were signed. This strong market response to its launch in 2016 shows the relevance of this
90
https://www.eca.europa.eu/Lists/ECADocuments/SR17_20/SR_SMEG_EN.pdf
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instrument to addressing the financing gap, estimated at EUR1 billion annually, in a
geographically and sectoral balanced way.
The Creative Europe mid-term evaluation found that the Guarantee Facility responds directly to
the needs of SMEs in the sector, which have specific difficulties accessing loans due to the
nature of their business, the difficulty to evaluate intangible assets or an uncertain demand.
10. Social sector investments
Building on the milestone initiatives of the Social Business Initiative (launched in 2011) and the
Social Investment Package (launched in 2013), and more recently in the context of persisting
socio-economic challenges and political developments, social investments, including through
support from Financial Instruments, have been recognized as strategic policy tools within the
policy programmes of the European Commission
91
.
In the social sector, four primary areas have made the focus of investments, mostly carried out
by the EIB Group
92
: (i) education and skills– including financing of educational infrastructure;
(ii) health, including infrastructure and equipment; (iii) social housing; and (iv) EaSI
Microfinance and social entrepreneurship.
Under EFSI and as part of the
toolbox to support the impact investing ecosystem,
a set of
innovative
pilot impact instruments
have been developed and launched, supporting investments
into Social Incubator and Accelerator vehicles or linked to funds that provide incubation
services, a Social Business Angels co-investment facility, both of which aim to support the
provision of risk capital to early stage social enterprises, complementing the range of funding
instruments developed under EU’s Employment and Social Innovation programme. Last but not
least, a pilot instrument was developed, with the aim to support innovative outcomes-focused
Payment-by-Results schemes and the development of social outcomes contracting models on
European level.
Further, the achievements and lessons learnt from the Erasmus+ Master loan scheme should be
taken on board. In addition, the need for patient capital for these kinds of investments should be
recognised.
Under EaSI and the EFSI, the European Investment Fund (EIF) has been mandated to manage a
package of mutually reinforcing and complementary Financial Instruments, namely: the EaSI
Guarantee instrument (to enhance risk-taking and improve access to finance for social
enterprises, micro-enterprises and vulnerable groups), the EaSI Capacity Building Investments
Window (to build up the institutional capacity of microfinance institutions and social finance
providers), the EFSI equity social impact pilots (to attract public and private capital for
supporting investments in social enterprises), and the future EaSI Funded instrument (to the
boost the lending capacity of microfinance institutions and social finance providers).
91
92
Reflection paper on the Social Dimension of Europe.
EIB Group Support for the social sector:
http://www.eib.org/attachments/thematic/support_for_the_social_sector_en.pdf
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Besides EFSI, it is envisaged that EaSI is also complemented by EIB Group own contributions
resulting in an investment pool of around EUR 1billion, which in turn is expected to mobilise
nearly EUR 2.5 billion.
Financial
Instrument
in
EUR M
Indicative Budgetary
Contributions
Total
EaSI
EFSI
EIB
Group
Indicative
mobilised
volumes
Date
Launched
Scope of intervention
EaSI
Guarantee
(capped)
196
96
100
-
1530
Capped (counter-) guarantee
offered
to
financial
intermediaries to cover loan
portfolios
in
areas
of
microfinance
and
social
enterprise finance.
(Quasi-) Equity investments
aimed at building up the
institutional
capacity
of
financial intermediaries.
Equity investments early-stage
innovative social enterprises
via
social incubation facility,
business angel co-investments
and
payment-by-results pilot.
Senior and subordinated loans
channelled primarily to non-
bank financial intermediaries to
boost their capacity to on-lend
to
micro-
and
social
enterprises.
Uncapped Guarantee providing
capital relief to encourage
mainstream banks to develop
portfolios of loans for social
enterprises.
Jun 2015
EaSI
Capacity
Building
EFSI Equity
Social
Impact
Pilots
16
16
-
-
-
Dec 2016
150
27
-
-
Oct 2016
EaSI
Funded
200
67
-
133
300
2018H1
EaSI
Guarantee
(uncapped)
TOTAL
400
20
100
280
600
EFSI 2.0
planned
962
226
323
413
2430
These initial experiences in a sector characterised by a relatively small size of projects and the
related small average capital invested on, has raised the awareness on how social investment is
an opportunity for portfolio diversification,
as opposed to major economic infrastructure.
The micro and social entrepreneurship sector responded well to financing opportunities, showing
a
strong demand for EU funding.
Although the budget for the EaSI guarantee in support of
microfinance was significantly increased in comparison with EPMF, it was fully used only in
less than two years, necessitating additional investment capacity (doubling of the guarantee
being provided under EFSI). Higher average ticket size also contributed to the
fast absorption
of the facility.
By comparison, the take-up of the social entrepreneurship guarantee has been
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more moderate due to the novelty of the instrument, while the deal flow of operations has grown
positively and is expected to fully exhaust the initial budget earmarked. Therefore, the EaSI
programme has proven the capacity of EU-level Financial Instruments to deliver the objectives
envisaged by the EU Regulation for micro-finance and social entrepreneurship. Deploying the
full potential shown by the results achieved in the period 2015-2017 therefore justify its
continuity and need for additional firepower. For scaling up and assuring sustainability of project
results, dissemination activities are essential
In the realm of social infrastructures, the
limited use of the present EFSI EU guarantee
for
supporting an expanded range of social investments in the social sector, is owed to the: i) lower
level of risk, and lower level of innovation and thus additionality of the EU guarantee in the
context of PPP projects which are the primary method for engaging private finance for such
developments, and ii) the immaturity of the overall social investment market associated with the
development and design of interventions to deliver social outcomes using social or private
finance.
The moderate pipeline development of the EFSI pilots signals a market segment still in
development, with significant capacity building needs and long lead times to market in the
absence of dedicated technical support made available alongside the Financial Instruments. At
the same time the transactions approved under the EFSI social impact pilots represent the
development of replicable models of access to finance for potentially excluded social ventures
and future potential to scale
93
.
The experience over the period of EaSI implementation (2015-2017) as demonstrated by the
quick absorption of the budgetary resources, coupled with a growing deal flow and increased
absorption capacity of the sector as a whole, show there is a largely untapped demand. Building
up the social finance market will continue with the resources currently available until 2020
94
.
However, without a consequential allocation of resources for social EU-level Financial
Instruments in the period 2021-2027, supporting ESF and other funding instruments, the EU
efforts for building up market structures in support of microfinance and social enterprise needs
would be seriously compromised.
EaSI programme - the mid-term evaluation
This section includes the main conclusions regarding Financial Instruments from the mid-term
evaluation of the EaSI programme (2017):
“Financial
Instruments under the EaSI Microfinance and Social Entrepreneurship axis have
been relevant both in terms of its general objectives and the stakeholders’ needs. Existing market
imperfections in both the Microfinance and Social Entrepreneurship markets, along with
financial gaps between supply and demand of finance in a majority of Member States, suggest
the need to continuously promote financial inclusion through increasing availability and
accessibility of finance for vulnerable people."
93
The signalling effect of the pilot PbR instrument in particular for the development of outcomes-based contracting and social
innovation, including unlocking innovation in public service delivery, is of particular importance.
94
The EaSI Financial Instruments allocations have been already absorbed; without the 2017 EFSI 2.0 top-up allocation, the EU
support in this field would have already come to a halt.
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“Additionally,
in some Member States, the market for lending to social enterprises remains
undeveloped”.
“In
order to reach the most vulnerable social enterprises, which should be a core target group
according to the EaSI regulation, a recommendation is for the EIF to widen its reach by
encouraging financial intermediaries to reach the social enterprises most in need of financial
support.”
“In
terms of relevance in the light of stakeholder needs, financial intermediaries benefitting from
EaSI Microfinance and Social Entrepreneurship support can provide loans at better terms
thanks to the instrument. The guarantees have helped to overcome previous barriers preventing
final beneficiaries to access finance, suggesting it is well designed and fit for its purpose."
“[The]
amounts allocated to the axis are insufficient to meet demand and ensure a continuation
of support beyond one cycle.”
“The
EaSI Microfinance and Social Entrepreneurship axis has been efficient in increasing the
availability of and access to finance as the supply of financing has increased. Clear quantitative
changes are increased lending volume, number of loans and number of beneficiaries, in
particular for microfinance. Moreover, these quantitative effects would not have materialised or
done so at a slower pace in the absence of the EaSI Microfinance and Social Entrepreneurship
axis, as financial intermediaries would not have been able to offer similar products without
support from EaSI. Evidence of qualitative changes is however scarce. Moreover, financial
intermediaries have not reported information of the provision of monitoring and training for
more than half of the final beneficiaries at the end of 2016”.
“In
addition, the overwhelming demand for the financial guarantee under EaSI Microfinance
and Social Entrepreneurship has put pressure on the budget. As 2/3 of the allocated amount was
used already after one year, the EIF will run out of funds for the Microfinance and Social
Entrepreneurship axis before 2020. This suggests that the allocated budget for the axis is not
optimal nor sufficient for EIF’s long-term
goals to provide the financial guarantee for two or
three cycles”.
“With
regard to Microfinance and Social Entrepreneurship, there is not always coherence
between the EaSI Financial Instrument and national and regional policies, as goals and actions
of the EaSI Financial Instrument are not always aligned with national and regional policies or
interests. To maintain complementarity, nevertheless, the EIF undertakes efforts to ensure their
achievements do not interfere with programmes already implemented and that the EIF’s actions
are complementary”.
“The
EaSI programme EU added value is widely acknowledged, in particular with regards to the
cross border partnerships and the exchange of good practices. For example, one of the key
features of PROGRESS is to be the most suitable to build EU wide networks and partnership as
well as produce EU wide deliverables that are not top priority at other governance level, such as
databases, studies, policy experimentations, capacity building and mutual learning activities or
support for EU networks focused on social exclusion and poverty prevention”.
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“The
EaSI Financial Guarantee appears to fill a clear gap in the supply of microfinance. Should
EaSI be discontinued this would have repercussion on many challenges, in particular in the
employment field. In such a scenario it would be unlikely that other funding schemes at e.g.
national level would be able to support policy experimentations across different Member States”.
“With
regard to Microfinance and Social Entrepreneurship, the support for the social investment
market would most likely slow down without funding from EaSI, leading to fewer social business
across the EU and thus fewer employment opportunities in these sectors”.
Erasmus+ Student Loan Guarantee Facility - the mid-term evaluation
The Erasmus+ Student Loan Guarantee Facility
95
is an EU-supported loan scheme for
transnational studies at master level. The scheme has been developed in the context of the
Erasmus+ Programme to facilitate access to finance for postgraduate students (regardless of their
social background) to undertake a master degree at a university (or other higher education
institution) abroad.
By means of combined risk sharing at the individual level (90 % first loss guaranteed) and at the
portfolio level (max. 18 % of the portfolio guaranteed), the facility limits the Commission's
maximum risk exposure to 16.2 %, with a target leverage of 6.2. The individual loans are limited
to EUR 12,000 for a one-year Master degree programme or EUR 18,000 for a Master degree of
more than one year.
By now up to EUR 160 million is available to students in Master loans via 6 financial
intermediaries established in 6 Erasmus+ Programme Countries (ES, FR, UK, TR, LU & CY),
enabled through EUR 26.6 million in 7 EU guarantee agreements. The first Erasmus+-
guaranteed Master loans were disbursed in June 2015. By end 2017 357 students have benefited
from EUR 4.2 million in EU-guaranteed Master Loans.
The section below summarises the main conclusions regarding the Student Loan Guarantee
Facility from the mid-term evaluation of the Erasmus+ programme (2017):
Relevance
“After
some delays in kicking-off the implementation and just two years of active launch of the
facility, take-up
rates are well below initial expectations. (…)While
the facility addresses a real
problem and while there is a case to use Financial Instruments to address this problem, the
facility is focused on a segment which has less potential, in terms of volumes, than initially
anticipated.”
“Overall
the facility has an added value / a gap to fill mostly in Southern, Central and Eastern
European countries where a lot remains to be done to achieve
full portability. (…) The design of
the SLGF, whereby parental guarantee cannot be required by the financial intermediary is a
welcome attempt to cover those from lower socio-economic background.”
“First
data from Spain tend to indicate on the contrary that the SLGF is as effective as the
Erasmus programme in promoting the participation of students from non-academic
backgrounds.”
95
https://ec.europa.eu/programmes/erasmus-plus/opportunities/individuals/students/erasmus-plus-master-degree-loans_en
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Coherence
“The
SLGF complements the EU toolbox by focusing on the segment of degree mobile students.
Synergies with national schemes, whereby the same financial intermediary implements both the
national and the EU loan, have been observed only in the case of France. Some national
schemes also seem to be attracted by the EFSI for the same purposes than the SLGF
–
even if it
has not (yet) translated itself into actual projects being financed.
”
Effectiveness
“The
scheme has so far not been especially effective at attracting financial intermediaries. Aside
from the narrow focus of the facility and some national schemes already covering their market,
financial intermediaries note the riskiness of the segment despite the EU guarantee (since it is
capped), especially when it comes to incoming students.
”
“In
many countries, higher education institutions would not have incentives to act as financial
intermediaries (…) because fee levels are low or because they have limited financial autonomy.
(…) A lot remains to be done to raise awareness levels all the way throughout the supply chain
(among financial intermediaries and students, but also among the multipliers
–
e.g.
universities).”
“First
final beneficiaries are generally satisfied with the loan, which has been instrumental in
triggering their mobility. In total, 70% of the first beneficiaries (n=44) said they would not have
been able to study for their Master abroad without the E+ loan.
”
EU added value
“In
countries covered and for the limited number of final beneficiaries concerned, the main EU
added value is to lead to reduction in interest rates, the removal of the guarantor/ collateral /
resource requirement or the opening of new product lines.
”
“The
benefits of the EU guarantee are thus adequately passed on to students when comparing to
market rates, even if some beneficiaries did complain about the interest rate.”
Efficiency
“The
option of creating a financial instrument with a leverage effect of 6.2 minimum is cost-
efficient
–
especially compared with the alternative of directly administering the loans.”
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A
NNEX
4: S
COPING PAPERS
This section includes scoping papers for all proposed policy Windows approved by the Financial
Instruments Interservice Expert Group.
1. Sustainable Infrastructure Window
A. Policy Drivers, Scope and Context
Sustainable investment in infrastructure
96
will be fundamental in order to fulfil the UN Agenda
2030 and its SDG and the subsequent objectives of the Paris Agreement adopted by the EU and
the rest of the world in 2015, and as such will have to be well-reflected in and supported by the
EU's main centrally managed fund. These commitments link directly with the sustainability
policies and targets set out in the EU, including the 2030 Climate and Energy Framework.
97
To
that end, EU will have to draw on its policy framework embedded within the ETS, the Effort
Sharing Regulation, the Clean Energy for All Europeans Package, the Clean Mobility package,
the EU environmental acquis and the recently adopted framework on the Circular Economy,
Clean Air, and Nature, as well as the EU financial framework
98
.
Contributing to these objectives is targeted implementation of trans-European networks (TENs)
and the Gigabit Society Strategy in the sectors of transport, energy and telecommunications,
which set out EU's long-term policy objectives to connect Europe in a sustainable and innovative
manner. Focus on environmentally friendly, intelligent infrastructure, modes and systems as well
as alternative fuel deployment is expected to stimulate EU-wide markets and contribute
decisively to facilitating the EU's transition to low-emission economy.
Sizeable investment needs in EU infrastructure will be required to meet the EU's sustainability
targets. These include those embedded in the UN Agenda 2030 and its SDGs as well as the Paris
Agreement and related EU targets such as the 2030 relating to energy and climate, air pollution,
nature
99
, and the circular economy as well as related TEN policy objectives. To reach the EU's
2030 energy and climate targets, EUR 379 billion of average annual investment will be needed
between 2021 and 2030, mostly in energy efficiency, renewable energy sources, and
infrastructure
–
excluding transport infrastructure and recharging infrastructure. Circa EUR 500
billion will be necessitated to complete TEN-T core network
100
over 2021-30 and up to EUR 1.5
Infrastructure in this context is broadly defined. It is more than large, cross border, network infrastructure (a concept used in
trans-European network regulations) it refers broadly to basic infrastructure necessary for socio-economic development.
97
Key targets for the year 2030, a binding target to reduce greenhouse gas emissions in the EU by at least 40 % by 2030
(compared to 1990), a binding target at EU-level to increase the share of renewables to at least 27 % and a target of 30% energy
savings
98
The financing and investment gap related to achieving the policy objectives is very big
–
much beyond the size of the available
public funding, let alone the EU budget. Hence an important prioritization will be required with sustainability as an important if
not overriding criteria
99
Financing needs to implement the Natura 2000 network have been estimated at EUR 5.8 billion per year. Financial costs to
implement the target of restoring 15% of degraded ecosystems have been estimated to be between EUR 0.5 to 11 billion per
year. However not all these costs are investment costs eligible under NCFF. The 2013 ex ante assessment for NCFF estimated
the projected market size for 2020 to be between EUR 73 million to EUR 288 million, depending on the market growth rate
assumption, based on case study data on the number total cost of projects between 1994 and 2010.
100
TEN-T Work Plans:
https://ec.europa.eu/transport/themes/infrastructure_en.
The contribution of the TEN-T to
decarbonisation goes beyond the simple project by project outcome, and has as systemic impact. The TEN-T network, which
includes all modes and multi-modal connections, establishes the basis for efficient and sustainable transport chains for
passengers and freight across the modes. An efficient TEN-T, modal shift to sustainable mode of transport and the equipment
of TEN-T with intelligent transport systems within and between all modes or with alternative fuel infrastructure, helps further
96
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trillion if TEN-T comprehensive network and other transport investments are included. In the
field of telecommunications, an investment gap is in the order of EUR 70 billion in the areas of
cross-border networks, but also rural, middle and low income isolated areas across the EU.
101
These include investments that can enable important reductions CO2 as well as other priority air
pollutants
102
, and/or provide alternatives for infrastructure with large impacts on natural capital.
Approximately EUR 22 billion investment are required to achieve the objectives stated in the EU
Urban Waste Water Directive according to the information gathered under the last article
17 Report from EU Member States forecasts. Forecasts include an approximate distribution of
the investment needs as reported by the Member States. Investments are forecasted also
increasingly relate to the renewal, improvement and extension of the existing infrastructure. The
total EU yearly investments in waste water infrastructure (in general) are expected to reach EUR
25 billion per year between 2015 and 2018.
The European space industry is facing tougher global competition. Space activities are
increasingly open to private investment in the areas of satellite communications, earth
observation and even launchers. Space is now part of a global value chain that increasingly
attracts new companies and entrepreneurs, so-called 'New Space', which are pushing the
traditional boundaries in the space sector. This opens up new opportunities to develop innovative
products, services and processes which can benefit industry in all Member States, creating new
capacities and adding value in and outside the space sector. In this context, Europe needs to act
now to maintain and further strengthen its world-class capacity in space value chain and to
optimise the benefits that space brings to society and the wider EU economy.
Low infrastructure investment rates in the EU during the financial crisis undermined the EU's
ability to boost sustainable growth and competitiveness
103
. This was also caused by a reduction
in investment by the governments
104
. Differences with regard to infrastructure investment across
Member States further undermine European cohesion; a problem partially addressed by ESI
Funds. Additional complicating factors affect investment from environmental, maritime and
climate policy perspectives, related inter alia to the failure to reflect environmental costs or value
in market prices, thus making sustainable investment less attractive notably in terms of risk vs
short-term gains, market fragmentation for environmental (public) goods and related
commodities, risk avoidance and/or lack of knowledge of investors in certain areas such as the
blue economy, poor or no access to adequate combined environmental and financial structuring
expertise and/or SPVs that can enhance the attractiveness of sustainable infrastructure pipeline
and make it more suitable for commercial investors' uptake
105
.
boosting decarbonisation. Further ensuring and improving the sustainability of TEN-T nodes is important in making the
transition to smart and low-emission mobility
101
The figures included in the paragraph cannot be aggregated due to their different calculation methodologies and should not be
considered exhaustive of all investment needs.
102
Such as PM, NOx, and SOx
103
At about 20% below the investment rates of pre-financial crisis
104
In addition, information submitted by national governments of large EU economies in the context of the 2017 European
Semester does not indicate plans to significantly increase public investment over the medium term, while public investment is
expected to translate into higher infrastructure spending in some of the other EU economies
105
Noting also that these aspects, combined with volume related targets (which may be warranted to counter severe crises), have
a tendency to reinforce market failures and other barriers and thus multiple the competitive disadvantage. Strict fiscal policy
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Against this backdrop, the InvestEU Fund must fully reflect the policy priorities to reach the
EU’s targets. Thus, investments
should comply with the Paris Agreement and complementary to
EU objectives and deliver high EU-added value rather than solely a high investment volume. The
investment focus should also allow a certain degree of flexibility to react to new investment
needs that are today not yet visible.
B. Rationale for an EU level investment instrument; is subsidiarity respected?
Challenges and drivers justifying EU level support (including financial instruments) in EU
infrastructure can vary significantly depending on the sectors or areas under consideration.
Common challenges and drivers in light of subsidiarity are:
policy targets (particularly in the case of the energy sector) are defined in a collective
manner on European scale instead of national binding targets;
costs occur at national/local level while benefits are realised transboundary / EU scale;
costs and benefits of projects involving several Member States are asymmetrically
distributed among them, coordination failures;
network infrastructures serve as a 'public good' for the entire energy and transport system
and are a key enabler for e.g. higher levels of renewables, efficiency and demand
response, and e-mobility.
benefits are dependent on other investments in the supply / value chain or network and/or
entail a high first mover risk;
environmental and socio-economic costs and benefits are not (sufficiently) internalised
due for example to pricing related market failures and/or poorly designed or conflicting
policy frameworks (for instance simultaneously subsidizing green and grey or brown
activities, contribution to modal shift, air quality improvements, long term biodiversity
benefits, GHG emissions reductions
106
);
lack of interoperability in cross-border services and similar obstacles preventing
enhanced cross-border co-operation to solve transboundary (environmental) problems;
incomplete internal markets where differing national regulatory regimes and regulatory
risk still create barriers to market-based funding, market entry, weaken enforcement of
environmental standards leading to free riding, etc.
market size: individual countries may lack sufficient scale to be attractive to private
operators, and others are so large that regional fragmentation becomes an issue;
sub-optimal technical assistance and project development capacity preventing investment
in sustainable infrastructure: "Sustainability infrastructure is a new development area and
relating to government debt v. GDP ratios (to be kept in principle under 60%) combined with the longevity of infrastructure
financing (up to 30 years or more) further adds to the unfavourable conditions for greening the EU infrastructure. These barriers
could be overcome by emphasising advanced sustainability of the window and making that its unique selling proposition. Also
current positive economic cycle in the EU should be used to strongly focus on the most sustainable infrastructure segments
(avoid the higher crowding out risks that will come with traditional infrastructure).
106
Examples of insufficiently internalized pricing includes vehicle and fuel taxes based primarily on CO2 and ignoring
carcinogenic air pollutants such as NO2. Other examples are agriculture-related rules focusing mainly on soil and water pollution
whilst ignoring methane emissions contributing to climate change and PM
–related
air pollution over long distances, or some
ecosystem services not priced on the market (e.g. flood control, water filtration, recreation, pollination..)
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support is needed to transfer lessons from one member state to another, as well as to
advise member states and local authorities on how best to develop projects in this
space"
107
the value of some services is proportional to the number of users, thus it is necessary to
achieve a critical mass before having the possibility to attract private operators
Articulation between EU programmes and EIB overall support
The
overall
lending by the EIB, including EFSI, 2013-2017, has been stable at around EUR 70
billion per year
108
. However infrastructure and environment EIB lending was less than half this
(EUR 30billion in 2015) and has been declining.
109
In the same period, a substantial contribution
in the form of grants from EU programmes, including in the frameworks of the CEF, ESIF, and
LIFE
110
, will contribute to increase the level of investment in infrastructure in the current MFF
albeit the share of environmentally sustainable spending remains (very) low here too.
111
In a span
of 4 years under direct management the CEF
112
has committed around EUR 24 billion to
mobilise over EUR 50 billion of investment out of which over 10% through blending, in
sustainable infrastructure and core trans-European networks (TENs).
EU support mechanism
For infrastructure projects that have positive expected environmental and socio-economic values
in support of EU policy objectives, there exists a full spectrum of financing needs (in terms of
the financial viability of the investment): from financially viable projects based on the income
stream generated by users and concession fees in regulated sectors, to projects not generating
revenues to cover investment and therefore being highly dependent on public sector/government
support, typically in the so called "public goods" sector.
Therefore a full range of support mechanisms continue to be appropriate for infrastructure
including a continuation of EU-backed budgetary guarantees and financial instruments, delivered
through the InvestEU Fund, to complement the bulk of EU support to the sector delivered
107
108
Final Report of the HLEG on Sustainable Finance, p.35
http://www.eib.org/infocentre/publications/all/operational-plan-2014-2016.htm
109
http://www.eib.org/infocentre/publications/all/operational-plan-2018
110
Although LIFE does not provide direct grant financing for large infrastructure, LIFE Integrated Projects mobilise
complementary finance for major investments including in green infrastructure.
111
The Life programme on climate and environment amounts to ca. 0.3%
112
CEF-Transport budget is allocated 75% in rail sector and the rest on, inland navigation, deployment of alternative fuels (e-
charging points), and multimodalities and traffic management systems. CEF-Energy also played an important role in
implementing critical missing electricity and gas projects (PCIs) to enhance the security of supply and enhance the functioning of
the internal energy market. As a result, the EU should have achieved a well-interconnected and shock-resilient gas grid by the
early 2020's and CEF will have capacity to take the strengthening of networks a step forward. Focus must thus be put on the
reinforcement of the electricity transmission and distribution grids, digitalisation and smartening of the grids and deployment of
new infrastructure solutions, particularly in the electricity storage area (including power to gas), and hydrogen
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through calls for grants and blending, by the CEF, LIFE and ESIF programmes
113
, and by the
EIB standard lending.
Environment and
(socio)economic
benefits
Market
+/-
+++
Private finance exclusively, commercial banks
Financial
viability
Approach
Public and promotional banks
+
InvestEU Fund
+
+/-
EU-backed (including through budgetary guarantees)
financial instruments plus private finance
+
EIB, NPBs, etc. standard lending
CEF, LIFE and ESIF grants
+
+
+/--
-
"Blending" : EU grants plus private finance from EIB
(including EU-backed FIs), NPBs, or private investors
EU grants plus public sector finance
The above table illustrates an already available structured approach to assess the appropriate use
of EU instruments or complementary combinations of instruments, to support investment
appropriate at the EU level. Full flexibility should be maintained to allow for establishing
bundling and blending instruments throughout the next MFF following evolving needs and
maturities. There may be case in terms of economy of scale for establishing larger blending
facilities within or connected to the Single Investment Fund for small instruments such as LIFE.
Lessons learned from previous "financial instruments" programmes
A variety of EU-backed financial instruments to support investments in infrastructure have been
developed, notably the CEF Debt Instrument, PF4EE, EEEF, NCFF, and on equity side, the
Global Energy Efficiency and Renewable Energy Fund
114
, Broadband Fund as well as the
Marguerite Fund. Each of the instruments helped address specific market failures in their
respective infrastructure areas (see Annex I). Use of such targeted instruments was reduced by
the creation of EFSI in 2015 (demonstrating the need for and virtues of a horizontal, market
driven financial instrument). However, their use continues to demonstrate the need for a broad
and flexible
range
of instruments specifically tailored to (very different) market sub segments,
particularly when there is an EU policy objective related to sustainability and/or public goods for
113
ESIF in the period 2014-2020 provides EUR 63.8 billion in support of the Shift towards a low-carbon economy, substantial
envelopes are also allocated in support to Promoting sustainable transport and improving network infrastructures, Preserving and
protecting the environment and promoting resource efficiency, and in Promoting climate change adaptation, risk prevention and
management
114
Operated by EIF; albeit focusing in investments in high-risk areas outside the EU, GEEREF experience and lessons learned at
the time of its establishing remain highly relevant for promoting sustainable investment solutions in the EU.
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which investment levels beyond those delivered through normal commercially viable projects or
with purely national public support.
In general, the take up of the EFSI and CEF DI in the TENs is a delicate operation. Strong public
good issues (e.g. for railways), complex cross border arrangements, differing national regulatory
regimes, complex national planning and impact assessment processes, and technology
uncertainties can all raise project risks and thus cost of capital. The recent use of EFSI, as well as
existing pilot instruments show that there are instances where project risk or complexity (and
consequent non-viability) may warrant support beyond financial instruments including advanced
technical assistance available over a long period from pre-investment onwards and grant
financing in various modalities (e.g. including "blending"). The latter components are critical to
step up the ESG credentials of EU supported investments in line with the EU and international
commitments, notably the 2015 UN Agenda and Paris Agreements.
EU-backed financial instruments and EFSI still in some regards differ. For example, the fact that
the CEF DI is delivered via products, some of which were tested under the previous instruments
(LGTT and PBI) has meant that the CEF DI support took the form of subordinated products in
the case of a high proportion of projects, or targeted instruments to address specific market
failures (e.g. the Green Shipping Guarantee)
115
.
These complementary elements: targeted instruments and general support to investments are
both important and should be maintained in the InvestEU fund.
C. InvestEU Fund support: Type of final beneficiaries and target groups (large corporates,
small beneficiaries, public or private sector entities, SPVs)
The type of final beneficiaries and target groups relating to sustainable infrastructure window of
the future InvestEU fund will vary significant depending on the sector under consideration, is
dependent on a number of factors including their creditworthiness and project financing
structure, in addition to the European level net benefits (e.g. market integration, industrial
scaling, environmental/GHG benefits).
In the utility sectors, notably in the energy sector, project promoters would mostly come from a
mix of public (cities, municipalities), semi-public and private sector, such as transmission and
distribution system network operators, electricity suppliers and retailers, energy, water and waste
service companies (potentially including IT companies), generation companies, energy
communities, large property owners etc. These entities may be public sector by tradition
operating on commercial or non-commercial basis, privatised with or without public service
objective, or recently created public entities in nascent markets (e.g. for energy services). The
InvestEU Fund is well placed to realise cross-sectoral synergies, e.g. between energy, transport
and digitalisation.
115
For example, In line with the findings of the evaluation of the Europe 2020 Project Bond Initiative, it should be noted that the
LGTT and PBI were specific tools designed in particular for use following the financial crisis. As the financial markets have
improved, their applicability today is to an extent diminished. However, this does not mean that they have lost their utility. Were
there to be another tightening of credit or other stresses on private finance, such tools would again be more relevant and would
likely be in significant demand.
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Likewise in transport and mobility sector, promoters range from public and semi-public
corporates operating on rail infrastructures to SMEs providing infrastructure and mobility
services for instance in the areas of alternative fuels and inland navigation. Large and medium
private or public entities or SPVs also operate under concession or PPP such as in ports, airports
and motorways projects, and as well to deliver water and waste water services. Large, midcap
companies and SMEs operate mobile assets in all modes of transport, notably in shipping and
rail freight operations.
In the sector of telecommunications, project promoters can be private and public and vary
significantly in size. It is of particular importance that smaller promoters have adequate access to
such instruments. On the other hand, strict eligibility criteria should be imposed in relation to the
projects deployed (contribution to EU's connectivity targets/increasing coverage, state of the art
technology, innovative business model, etc.).
In the sector of telecommunications, project promoters can be private and public and vary
significantly in size. It is of particular importance that smaller promoters have adequate access to
such instruments. On the other hand, strict eligibility criteria should be imposed in relation to the
projects deployed (contribution to EU's connectivity targets/increasing coverage, state of the art
technology, innovative business model, etc.).
In the blue economy, project promotors cover the whole value chain, ranging from public, to
semi-public and private entities varying from multinational, medium size maritime businesses to
SMEs.
The major public stakeholders to be involved include national space agencies, the European
Space Agency (ESA) and public authorities involved in the implementation of European space
programmes, space manufacturing and services industry trade associations at European and
national level, and intergovernmental organisations active in climate monitoring (EUMETSAT,
ECMWF).
Innovative approaches driven by EU policies or new and emerging market trends are likely to
lead to the involvement of new categories of beneficiaries
116
, lacking in same case track records
in these new business, which affects access to finance. Therefore flexible arrangements will be
needed in terms of blending and bundling of different means of support. This will allow building
EU experience and best practice with effective and efficient cost-sharing.
116
Examples include cost-effective nature-based solutions/green infrastructure, for example where instead of building dams and
other infrastructure to combat flooding, solutions involve mechanisms allowing to flood land upstream rivers or canals to manage
water levels whilst simultaneously providing recreational and other co-benefits whilst possibly saving investment and operating
costs compared with traditional solutions. Other examples include investments in green urban areas (a.k.a. Urban Green
Infrastructure) where restored ecosystems and new green areas help tackle environmental problems including climate change and
deliver wider socio-economic benefits; sustainable urban infrastructure relating to low emissions and/or noise levels, e-charging
networks etc.
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D. Sectors to be targeted by the support provided under this window
For transport and energy, relevant large infrastructure projects are typically single transactions
supported through debt. However for small(er) projects and category of promoters, the use of
intermediation is appropriate. EFSI and the CEF DI have developed a number of investment
platforms
117
. Other models successfully used Fund of Fund Approaches with specialized
investment teams capable of structuring and bundling smaller and/or complex or riskier pipeline.
InvestEU Fund should build on these initiatives and contribute to investing in developing such
and similar platforms more widely across the different markets whilst focusing more on quality-
related instead of volume based additionality. In particular, there is widespread successful
practice amongst NPBs and several IFIs. There is thus a clear benefit to draw on greater range of
experience and expertise than available in the EIB.
While maturing renewable technologies would require less support (provided currently mainly at
national level), the changing EU regulatory environment may need to be complemented by
financial incentives to ensure that the 2030 RES target is met. Energy efficiency will remain
among key challenges, where investment needs are highest while significant barriers to
investments persist.
The Fund should also cover all environmental investment sectors (waste, water, air, circular
economy), including innovative sectors such as green infrastructure and other natural-capital
related projects.
118
Furthermore, new priorities for investment are emerging in areas such as urban mobility, energy
storage, electrification, digital service/broadband infrastructures. Achieving such priorities
requires efficient allocation and an adequate level of resources.
The Fund and different instruments could be directly available to all eligible financial
institutions, as self-selection would lead each to concentrate on their areas of sectoral or financial
expertise.
E. Financial intermediaries and private sector stakeholders to be involved and their role
For transport and energy, relevant large infrastructure projects are typically single transactions
supported through debt. However for small projects and category of promoters, the use of
intermediation is appropriate. EFSI and the CEF DI have developed a number of investment
platforms. InvestEU Fund should build on these initiatives and contribute to investing in
developing such and similar platforms more widely across the different markets. In particular,
117
118
http://www.eib.org/projects/pipelines/pipeline/20150334
;
http://www.eib.org/projects/pipelines/pipeline/20150115
Note in this context also the increasing interest from the EU legislator to track finance and investments flows from the EU
budget aimed at promoting sustainable development goals. This is illustrated again in the Directive (EU) 2016/2284 on the
reduction of national emissions of certain atmospheric pollutants, where the legislator included two articles that relate to
tracking EU funds for improving air quality (i.e.
Article 7 on
Financial support and
Article 11on
Reports by the Commission to
the European Parliament and the Council on the progress made in the implementation of this Directive, including […] the
uptake of Union funds to support the measures taken with a view to comply with the objectives of this Directive […].
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there is widespread successful practice amongst NPBs and several IFIs. There is thus a clear
benefit to draw on greater range of experience and expertise than available in the EIB. The Fund
and different instruments could be directly available to all eligible financial institutions, as self-
selection would lead each to concentrate on their areas of sectoral or financial expertise.
Given the strategic dimension of space, there will always be a need for a strong engagement of
the public sector. However, private investment is expected to drive entrepreneurship in some
areas. Therefore, the role of the financial intermediaries would be to invest in equity or blended
finance with terms and conditions adequate to the space sector (e.g. high risk, long infrastructure
cycles); and to accompany the paradigm change in the European space sector.
Good articulation with support provided under the "SMEs window" and "RDI window" is also
needed, for instance to support SMEs, and projects aiming at deployment of new and mature
technologies (e-charging), which should typically be supported by the "Sustainable Infrastructure
" window. As for the space sector, improved access to finance for small-scale equity investments
to get the ideas off the ground (e.g. Euro 0.5-5 million) and for adequate equity investments for
scaling up (e.g. EUR 5-25 million); some venture capital funds also argued that injecting EUR 1
billion in equity would mark a big difference for the European space industry. This action can be
also addressed within the "SMEs window" and "RDI window".
As with the initial determination of the FI/grant/instruments election eligibility, a structured
project assessment approach based on project risk assessment and EU net socio-economic
benefits will need to be developed.
In the sector of digital infrastructures, current analyses indicate that there is a greater need for
equity and hybrid products for such deployments, and that smaller players continue to have more
difficult access to capital markets. In this respect, guarantees for "mainstream" broadband
investments under the Single Instrument would be needed to steer, de-risk and accelerate
investments in the newest technologies. Another category of support involve niche financial
products (SPVs), with a higher risk profile and more intensive capital use, where a direct
participation is foreseen, together with private capital to ensure leverage, in order to cover
specific areas where mild market failures exist (e.g. equity investment fund, project bonds, etc.).
Annex I
Lessons learned from EU-backed financial instruments in the current programme:
From 2015 to 2017, the EIB group approved EUR 51.3bn under EFSI, 20% in energy
119
(11% in digital, 9% in transport
120
and 4% on environment and resource efficiency
infrastructure. A substantial volume of finance is to be delivered through funds.
119
120
transmission and distribution infrastructure, RES, EE and smart grids
PPP road and rolling stock project absorbing the bulk of financing, and as well maritime ports and airport projects and
other projects in areas of urban development and alternative fuels
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CEF Debt Instrument (CEF DI) to date manages a portfolio exceeding EUR 14 billion
and 12 projects in the transport sector, ranging from PPP in the road and rail
infrastructure sectors to maritime and inland ports and green shipping. The up-take of the
CEF DI in the energy and broad band sectors has so far been more limited.
CEF DI
121
and EFSI have mobilised a comparable volume of investment so far, but have
to some extent addressed different market failures. The fact that the CEF DI is delivered
via products, some of which were tested under the previous instruments (LGTT and PBI)
has meant that the CEF DI support took the form of subordinated products in the case of
a high proportion of projects, or targeted instruments to address specific market failures
(e.g. the Green Shipping Guarantee)
122
.
In general, the take up of the EFSI and CEF DI in the TEN-T rail infrastructure and
cross-border infrastructure is still below expectations, mainly because the projects in the
rail infrastructure struggle to show bankable business cases and the promoters are in
general semi-public entities, and due to the complexities of projects to be implemented in
cross-border jurisdictions.
There has been some level of substitution effect by EFSI of projects that would have been
suitable for the CEF DI. EFSI has a wider scope than CEF DIs (and arguably less
emphasis on projects of highest EU added value) as it does not specifically focus on the
TEN networks or on infrastructure (for instance several operations relate to the purchase
of aircraft, trains, buses which cannot be supported by the CEF DIs).
However, most operations eligible under the CEF DI are also eligible under EFSI and
several important transport projects initially envisaged for the CEF DI were eventually
financed through EFSI123. The approach taken for EFSI, whereby EU budget is used to
provide a guarantee to the EIB or other financial institutions financing is the same
approach as was taken by the CEF legacy financial instruments (i.e. PBI and LGTT) and
the CEF FIs.
The use of the CEF financial instruments is expected to take up during the second half of
the programme when complementarity between the CEF specific financial instruments
and EFSI have been ensured by the agreement in July 2016 on a policy note refocusing
the sole of the CEF DI on clean transport, with an expected pipeline of 2.4bn. CEF DI
will be focused on piloting thematic products and platforms such as green shipping
124
to
121
In accordance with the CEF Regulation, the Commission, in cooperation with the Member States and the beneficiaries
concerned, was required to present a report on the mid-term evaluation of the CEF to the European Parliament and the Council.
This report COM(2018) 66 final and its accompanying Commission staff working document was adopted by the Commission on
14 February 2018
122
For example, In line with the findings of the evaluation of the Europe 2020 Project Bond Initiative, it should be noted that the
LGTT and PBI were specific tools designed in particular for use following the financial crisis. As the financial markets have
improved, their applicability today is to an extent diminished. However, this does not mean that they have lost their utility. Were
there to be another tightening of credit or other stresses on private finance, such tools would again be more relevant and would
likely be in significant demand.
123
Grand Contournement Ouest de Strasbourg (A355), A6 Wiesloch in transport and the Transgaz "BRUA" Gas Interconnection
Project, Italian-France electricity interconnector in energy.
124
In this respect the successful cooperation between the EIB and the Commission to design instruments addressing specific
market failures is illustrated for example in the case of the Green Shipping Guarantee (GSG) Programme in transport
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be scaled up by EFSI, within the scope of the Cleaner Transport facility
125
, and on
transaction involving third countries, notably in the energy sector.
In 2017 the CEF DI capacity to support the rolling out of renewable technologies in the
transport sector have been reinforced by the Commission Decision (C(2017) 7656 final)
to allow the use of up to 450M of NER300 funds thought the CEF DI and InnovFin EDP.
On energy efficiency, the PF4EE instrument targets projects which support the
implementation of National Energy Efficiency Action Plans or other energy efficiency
programmes of EU Member States. To date the EIB have signed operations in The Czech
Republic, Spain, France, Belgium, Italy, Portugal, Croatia, Greece and Cyprus,
generating a portfolio worth of EUR 713M of investment. The final recipient leverage
effect would be 14.5 against an initial target of 8. EEEF with EUR 130.3 million in 12
projects, in 7 Member states has worked with municipalities, as it is setup to finance EER
and RES projects for public entities at local government level. The Fund has faced is the
limited number of ongoing projects and the difficulty to attract a substantial number of
new ones. EEEF also helped the Commission learn that the closing of projects is
facilitated if technical support is tied to use of the fund.
Under the NCFF, LIFE provides 10M EUR of technical assistance, and a guarantee of 50M EUR
to support EIB investments (loans and equity) of up to 125M EUR that contribute to biodiversity
and/or climate change adaptation objectives.
It aims at establishing a pipeline of some 9 to 12 replicable, bankable operations that will serve
as a "proof of concept" and demonstrate to private and public investors the attractiveness of such
investments. This represents an innovation which, if successful, could drive the architecture of
natural capital financing. Although development of the pipeline has been slow, the pace is
picking up with three operations now signed, 5 additional ones in the pipeline, and 9 more
currently under scrutiny by EIB.
Recommendations from the LIFE mid-term review have been implemented including increasing
visibility and promotion, and operationalisation of the support facility. The implementation
period had been extended until 2021 and the 2018-2020 LIFE programme foresees a new
guarantee window. Experience so far with NCFF shows that there is a niche for investments in
ecosystem-based natural capital investments, though it is important to develop a pipeline to share
the experience and demonstrate the opportunities more widely. The LIFE mid-term evaluation
also recommended to consider options for blending.
On the equity side, the Marguerite Fund has invested 31% to the TEN-T eligible projects,
in the areas of road PPP and airport, 55% in the energy sector including renewable 14%
in ICT. Marguerite II will continue focusing on both new (“greenfield”) and expansion to
existing (“brownfield”) infrastructure investments in renewables, energy, transport and
125
A new thematic product is under consideration in support of projects or innovative companies pursuing projects fostering the
decarbonisation of transport and technological innovation in the transport sector and the deployment of alternative fuels
infrastructure along the Trans-European Networks-transport (TEN-T) corridors, such as electric charging infrastructure. High risk
debt helping these pre-bankable project promoters to overcome the high uncertainty faced during the ramp-up phase for the
demand in electric charging may be needed.
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digital infrastructure. At the end of the investment period of the Marguerite Fund, the
Fund invested EUR 745m in 13 Member States.
The Connecting Europe Broadband Fund is expected to set a good precedent as regards
the governance structure - where the lack of control by public shareholders over
individual investment decisions is set off against strict eligibility criteria. On the other
hand, the layered structure of the Fund, while maximising leverage, generated protracted
negotiations and a relatively unattractive remuneration for private investors. In general,
the experience of the current MFF shows that we need to be able to adjust the
instruments, throughout a programming period, to the overall economic environment and,
if possible, to market fluctuations.
Annex II
Whilst progress has been made in supporting sustainable infrastructures, including for example
low carbon network related investments in the framework of the CEF, EU support is expected to
be scaled up if significantly in line with its commitments under the Un Agenda 2030 and the
Paris Agreement as the related EU objectives embedded in the environmental acquis such as the
energy and climate objectives for 2030 are to be fulfilled.
In this regard, and whilst mainstreaming environmental and climate objectives are expected to
remain a standing of not reinforced requirement, the following areas are identified:
Transmission infrastructure, including interconnectors and distribution networks
Smart grids (with close links to digitalisation and cybersecurity)
Renewable energy (eg all forms of offshore energy, regionally important)
Energy efficiency projects (developing embryonic markets and integrating the sector into
the mainstream capital market)
Storage technologies (including power-to-gas,)
Hydrogen infrastructure (with ,links to alternative fuels)
CCS/U infrastructure
In transport specifically, the following areas are identified inter alia:
Mobile assets for the land, inland navigation, and maritime sector (e.g. scale up current
projects and schemes in the scope of Cleaner Transport Facility and green shipping
including zero emission for ships, e-navigation) and the rail sector (e.g. rolling stocks)
Deployment of alternative fuels infrastructures (e.g. e-charging, with close links to need
for reinforced and smart grid infrastructure)
New and upgrading of TEN-T infrastructure, including in rail, inland navigation and
maritime, and urban nodes, and traffic management systems (e.g. ERTMS, SESAR,
ITS), notably for investments that make use of private financing in their financial
structure.
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In specific "environment" sectors eligible investment should include support to investments that
are compatible with the circular economy such as:
Water infrastructure, including flood management
Waste, including recycling and re-use businesses
Construction (new circular economy business models also based on extended producer
responsibility, full re-use design and zero waste, non-toxic material)
Environmentally sustainable investment solution related to agriculture, forestry, and
fisheries.
New emerging assets: nature and nature-based solutions, and/or other than project
financing
126
Projects in the area of natural capital tend to have a largely public benefit dimension,
delivering public goods In this respect, offering a broad range of 'patient capital'
instruments at EU level can help. "Fund of Fund" type solutions may also be
considered
127
In blue economy specifically, the following areas are identified inter alia:
Multiple use infrastructure - e.g. newly build port infrastructure need to be climate proof,
Maritime equipment and technologies: smart infrastructure maintenance
–
e.g. UAV
Coastal protection & resilience, coastal and maritime engineering - e.g. building with
nature
Measures to tackle invasive species including related port facilities
Coastal and maritime tourism
–
e.g. sustainable and eco- tourism infrastructure,
sustainable cruise ships
In telecommunications specifically, the following areas are identified:
Deployment of very high capacity networks in areas with milder market failures (e.g.
low income urban areas, middle income peri-urban and rural areas)
Full coverage with 5G networks along major terrestrial transport paths.
In the Space sector:
126
Including corporate finance of new business models related to circular economy such as leasing and lending based models,
models based on extended producer liability that may (initially) come with less familiar risk profiles
127
Risk sharing platforms and vehicles for testing new business models: sustainable investment and innovation leadership role
requiring EU to make the first move with a view to scaling up also through replicating at Member States or sector level as market
matures; addressing barriers related to limited or lacking track record (e.g. for nature based solutions) for investments with a
status that went beyond technological proof of concept; long time lag between investment and impact (cf SPV related solutions
addressing shortcomings of grants, etc.).
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regarding the infrastructure the target sector would be the upstream part of the space
value chain (e.g. equipment/component supply, large-scale integration of
satellite/launchers).
regarding climate, the target sector would be the end-to-end system that is under
preparation in the context of the evolution of the Copernicus programme for the
monitoring of anthropogenic greenhouse gas emissions.
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2. Research, Innovation and Digitalisation Window
A. Rationale for investment instrument at EU level in your policy area(s); is subsidiarity
respected?
A decades-long shortfall of public investment
–
sharpened by the recent financial crisis
–
has
hampered investment in research and innovation in the EU, be it in variable ways across
Member-States. This continuous underinvestment from the public and the private sector has had
negative consequences on the leveraging of investment in research and innovation, weighing in
turn on productivity growth and the variable standards of living across the EU
128
.
Whereas the level of overall investment is now picking up, investment in higher-risk activities
such as Research and Innovation (R&I) remains below par; in spite of the EU's target to devote 3
% of the gross domestic product (GDP) to R&I activities
–
as stated in the Europe2020 strategy
(2010)
–
gross domestic expenditure on R&I in the EU is stagnating around 2%, while the
United States, Japan and South Korea invest 2.8 %, 3.3 % and 4.2 % respectively. China, at 2.1
%, has also recently overtaken the EU. Moreover, EU venture capital investments are only at
one-fifth of those in the United States and remain fragmented into relatively small-sized funds.
129
Business R&I intensity in the EU stands at 1.3 % compared to almost 2 % for the United States
and nearly triple that for South Korea, at almost 3.5 %
130
.
The resulting underinvestment in R&I is damaging to the industrial and economic
competitiveness of Europe and the quality of life of its citizens. Our societies face multiple,
complex and urgent challenges that affect the quality of life of our citizens: from energy
efficiency to security, climate change to ageing populations. R&I continues to play a crucial role
in anticipating on and responding to these needs, while underpinning broader EU policy
objectives
131
. Therefore public investments in R&I, through financial instruments that leverage
private capital, are to remain a key driver of productivity, competitiveness and economic growth,
in particular given that:
Two-thirds of economic growth in Europe from 1995 to 2007 derived from R&I.
R&I accounted for 15 % of all productivity gains in Europe between 2000 and 2013.
An increase in R&I investment of 0.2 % of GDP would result in an increase of 1.1 % of
GDP, i.e. an increase five times bigger in absolute terms.
132
Although ample evidence exists that economies achieve large and significant returns on R&I
investments, and that the latter create new and better jobs in an economy that is ever more
knowledge-based and intangible asset-intensive, R&I investments from the business enterprise
sector are considerably lower in the EU than in major competing economies
133
.
128
129
See
https://ec.europa.eu/info/sites/info/files/srip-report-full_2018_en.pdf,
page 37 .
See
http://ec.europa.eu/eurostat/statistics-explained/index.php/R_%26_D_expenditure
.
130
See
https://ec.europa.eu/info/sites/info/files/srip-report-full_2018_en.pdf
131
European Commission (2017), The Economic Rationale for Public R&I Funding and Its Impact, page 3.
132
Ibidem.
133
See
http://ec.europa.eu/eurostat/statistics-explained/index.php/R_%26_D_expenditure.
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In the current economic context, the barriers of increased global competition to the creation and
diffusion of R&I
–
including difficulties to access finance on reasonable terms
–
affect the whole
research and innovation cycle, ranging from fundamental research to commercialisation. As a
result, the role of public R&I investments delivered via financial instruments seems more
important than ever before, including the support of breakthrough innovations to transform
complicated or costly products, services, models or processes so radically that they create a new
market; this is an area where Europe is particularly lagging behind.
134
While the conditions for access to finance have on average recovered
135
, in part as a result of EU
initiatives on finance (InnovFin-EU Finance for Innovators and EFSI's Infrastructure and
Innovation Window), there remain considerable cross-country differences. Specifically, financial
markets in Member States have different degrees of development, in terms of diversity of
financial institutions, product offerings and risk appetite to support R&I. As a result, a continued
focus on the design of appropriate support mechanisms which balance high risk and potentially
disruptive innovation with moderate or incremental innovation is necessary.
The fragmentation of European capital markets, regulatory issues (e.g. fiscal, insolvency,
Solvency II), deal flow quality and fund managers performance, alongside weak research and
innovation eco-systems in many Member States, hamper the overall potential of the EU
economy to systematically produce products, services, business models and companies that can
reshape existing and create entirely new markets. Although mitigation of these geographical
disparities
–
as documented as well in the "Interim Evaluation of Horizon 2020's Financial
Instruments"
136
–
is already partly underway with the help of capacity-building actions and the
introduction of a debt finance product tailored to "Modest and Moderate Innovators"
137
,
significant scope remains for intensifying and widening efforts to ensure more coherent levels of
investment across the EU, including possibly through better signposting and more decentralised
advisory structures
138
.
Finance providers remain rather averse towards providing financial support for R&I activities,
which results in low credit scores and high interest charges or sub-optimal repayment terms to
compensate for the risks perceived in the innovative technologies or ventures. In many instances,
private sector financiers and investors do not finance uncollateralised projects with unsecure
return prospects due to the early stage of their development, the capital intensiveness and the
long time to market. This is particularly relevant in the case of R&I activities with medium and
long-term innovation cycles such as deep tech
139
, including for instance in the health, new
advanced materials or low-carbon technologies in energy or industry sectors or in the space
technology sector. R&I-intensive companies that have outgrown the SME status and are not
134
135
European Commission (2017), The Economic Rationale for Public R&I Funding and Its Impact, page 5.
Survey on the Access to Finance of Enterprises in the euro area April to September 2017, section 3.1:
https://www.ecb.europa.eu/pub/pdf/other/ecb.accesstofinancesmallmediumsizedenterprises201711.en.pdf?beb1832df4af9efa945a
5a1f7b99eeb7
136
https://ec.europa.eu/research/evaluations/pdf/archive/other_reports_studies_and_documents/interim_evaluation_of_horizon_2
020's_financial_instruments.pdf.
137
See
http://www.eib.org/products/blending/innovfin/products/emerging-innovators.htm.
138
As suggested in the
"Interim
Evaluation of Horizon 2020's Financial Instruments".
139
"Deep tech" refers to companies of any sector that are "founded on a scientific discovery or meaningful engineering
innovation".
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catered for by measures at national/regional level or Structural Funds (under ESIF) would be the
relevant targets for finance for R&I support, in line with the EU's ambition to provide a finance
escalator from the very early-stage of company development over the scale-up, expansion,
renewal and consolidation stages to the extent that clear market failures are present.
The EU-added value of the financial instruments to be set-up under the R&I window of the
Single Investment Fund are therefore set to:
support high-risk investments in R&I,
i.a.
in thematic areas and first-of-a-kind
demonstration (e.g. the current InnovFin EDP) for which private investor interest is low;
crucial for these investments is their anticipated high level of relevance in support of
specific EU policy objectives, such as the deep decarbonisation of the energy system and
energy intensive industries; over-fragmentation or compartmentalisation of support due
to the creation of a plethora of thematic instruments should be avoided.
Leverage private investments through thematic investment platforms and other
innovative financial instruments (with due consideration of economies of scale);
address market gaps not addressed at regional or national level at all or not adequately in
terms of volumes or risk appetite;
de-risk investments in innovative technologies and transfer established solutions to new
markets;
address investment gaps through supporting new financial instruments and innovative
financing solutions such as crowd-lending or hybrid instruments
140
and cross-border
financing options;
foster the transfer of best practices between financial intermediaries with a view to
encourage the emergence of a broad product offering supporting R&I activities and R&I-
intensive entities;
provide economies of scale (i.e. Member States may be reluctant to create support
schemes on their own because of cost efficiency considerations);
gather EU-wide data on the R&I financing gap and make it publicly available; and
provide technical assistance to and improve bankability of R&I-projects across different
sectors.
EU investment in R&I pulls additional investment by the public/private sectors and leverages
and complements national and regional-level investments in R&I. Horizon 2020 leveraged EUR
13bn of private funds and mobilised via its debt financing solutions EUR 29.6bn in the first three
years of its implementation
141
, based on a budget for access to risk finance under Horizon 2020
of EUR 2.7bn.
The R&I window will support the Commission's policy priorities by complementing the funding
provided under the 9
th
Framework Programme for Research & Innovation and other EU and
national programmes and funds, such as the Innovation Fund established under the Emission
140
141
These can be forms of convertible debt, mezzanine debt, quasi equity, or other innovative financing options.
European Commission (2017), Interim Evaluation of Horizon 2020, book, p. 141.
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Trading System (ETS). Final investments may be combined with debt/equity finance and EU
grants.
Therefore, given the overall importance of research and innovation for the European Union
objectives and policies, appropriate financing instruments are needed to cover different stages in
the innovation cycle and the wide range of stakeholders, in particular to upscale and deploy
solutions at a commercial scale in Europe and for those to be competitive on world markets.
B. Policy drivers and public sector stakeholders to be involved and their role
The objective of the instruments is to support the Commission's policy priorities, addressing key
EU objectives to boost competitiveness, thereby creating jobs, boosting growth and investments.
The instrument is also expected to contribute to:
Sustainable Development Goals, address global challenges linked to health, energy,
security, climate change mitigation and adaptation, decarbonisation of the economy, low-
carbon mobility and transport, water and food crisis, environmental disasters, migration,
digitalisation, oceans, and biodiversity loss.
The EU’s overall industrial and economic competitiveness, including by fostering more
and new technologies, able to stand out in the global marketplace142.
The EU’s scientific excellence.
Facilitation, broadening and simplified access to finance of R&I projects/companies
exposed to an important level of risk.
Sustainable supply of raw materials.
The circular economy.
Public sector stakeholders:
Multilateral development banks, such as the EIB Group and the EBRD; international
organisations such as OECD, IMF, WB, and the UN.
National Governments and Regional authorities.
National promotional banks, national promotional institutions and investment agencies.
Public research organisations and innovation agencies.
Asset Management Companies funded by state budget resources.
Executive agencies of the European Commission.
Public networks supported by the European Commission.
Their roles might include the following:
142
For example the Space Strategy for Europe has a strategic objective on fostering entrepreneurship and new business
opportunities, and it is also in line with the recently adopted EU industrial policy objectives.
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Providing inputs on the design of the R&I window.
Taking part in the governance of the R&I window.
Implementing the R&I window.
Matching and co-investing with the EU/MS-level equity/debt instrument in funds or final
beneficiaries
Provision of technical assistance.
C. Financial intermediaries to be involved and their role
Financial intermediaries must be public and private entities that aim to provide finance and
technical assistance.
Such entities may include national promotional banks and other national promotional
institutions, public authorities, commercial banks, counter-guarantee associations, private equity
funds, VC funds, Corporate Ventures, philanthropic institutions, investment firms, Special-
Purpose-Vehicles (SPVs), co-investment schemes and other alternative suppliers of finance.
The role of the financial intermediaries will be to:
Provide debt, equity and hybrid finance to final beneficiaries.
Take on (part of) the risk and co-invest in the products.
Report on the effects (jobs, growth data, and success stories).
Providing inputs on the design of specific products.
Ultimately, diversification in the range of possible financial intermediaries and financing
products is important to deliver the financing to target audiences depressed by a financing gap
that cannot be addressed by the market alone. It is important, however, that these intermediaries
are established in the EU-EEA or in countries associated to EU programmes, to ensure cohesion,
cost efficiency and minimise red tape.
D. Private-sector stakeholder organisations, associations or business groups to be involved
and their role
Any pan-EU private stakeholder in the field of equity or representing final beneficiaries will be
involved, including:
The European Federation of Financial Advisers and Financial Intermediaries (FECIF)
Association for Financial Markets in Europe (AFME)
European Federation of Ethical and Alternative Banks (FEBEA)
The European Association of Public Banks (EAPB)
European Banking Federation (EBA)
European Association of Co-operative Banks (EACB)
AECM - European Association of Guarantee Institutions
InvestEurope (private equity and VC)
European Crowdfunding Network (ECN) and European Equity Crowdfunding
Association (EECA)
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ASTP-Proton (knowledge and technology transfer offices and professionals) and FICPI
(International Federation of Intellectual Property Attorneys)
EBN (incubators, accelerators, innovation centres)
EARTO (research and technology organisations)
EUROTECH and LERU (research-performing universities)
Sectoral Associations.
Their roles might include:
Providing market input and knowledge on the R&I window;
Taking part in the governance of the R&I window under specific platforms.
Provision of technical assistance.
Consultations will be undertaken in the context of setting up the legal base, in the context of
evaluations and in the context of market testing instruments.
E. Final beneficiaries and target groups
The R&I window will facilitate access to finance to R&I promoters or implementers such as
European Innovation Council beneficiaries
143
, European Research Council grantees, Marie
Skłodowska-Curie
beneficiaries, middle market companies, large companies, stand-alone
projects, SPVs, Universities, Research Centres, Research and Innovation Infrastructures,
Innovation Agencies, and other R&I driven promoters such as research funding foundations.
SMEs and
–
where duly justified
–
small midcaps will be provided for under the SME window.
Market segmentation and identifications of target groups will be done on a sectoral basis (linked
to the fields in which the policy priorities will be implemented) and project/company life-cycle
basis (on the basis of funding gap analyses).
143
EIC is expected to cover the financing gap for breakthrough innovations (valley of death) between traditional grant financing
and stage where InvestEU could intervene. According to the Expert Group assessing the investment potential of SMEs emerging
from the SME instrument 70% of the Phase 1 beneficiaries are not investor ready.
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3. SME Window
A. Rationale for investment instrument at EU level in your policy area(s); is
subsidiarity respected?
SMEs are the engine of the European economy. There are 23.8 million enterprises in the EU.
Without SMEs the EU economy would consist of only 45 000 firms. The EU´s SMEs employed
93 million people in 2016, accounted for 67% of total private-sector employment and generated
57% of value added in the EU-28 non-financial business sector
144
. About 85% of newly created
jobs in the EU are accounted for by SMEs. However, obtaining financing in the form of debt or
equity is a major hurdle for company creation and growth, to benefit from new markets and
opportunities outside the EU and fully exploit opportunities of Free Trade Agreements with third
countries. European SMEs rely heavily on debt finance in the form of bank overdrafts, bank
loans or leasing. Market-based instruments (e.g. equity) are only considered relevant by 12% of
SMEs
145
although in many cases equity (risk-capital) is more suitable, as small companies often
lack collateral or have irregular cash-flows (equity does not impose specific repayment schedule,
and hence can be less of a burden during times of economic stress).
Providing more diversified sources of funding is necessary for increasing the ability of SMEs to
withstand economic downturns and for making the financial system more resilient during
economic shocks. This is the key objectives pursuit under the Capital Markets Union flagship
priority.
SME debt finance market:
Following the financial crisis, higher capital requirements [as exemplified in the Capital
Requirements Directives
(CRD)] and the need for banks’ deleveraging, negatively impacted
bank's willingness and ability to lend and to accept risk.
This had a major negative effect on available SME bank finance across the EU. Credit standards
tightened considerably and SMEs as a consequence experienced a credit crunch. The ECB's
monetary policy has significantly improved the liquidity situation and positive economic
developments have helped as well.
To alleviate the negative impacts of stricter capital rules by the Capital Requirements Regulation
(CRR) and CRD IV on the SME lending market, and in the context of credit tightening after the
financial crisis, a capital reduction factor for loans to SMEs - the so-called SME Supporting
Factor (SF) - was introduced by the CRR to allow credit institutions to counterbalance the rise in
capital requirements resulting from the Countercyclical Capital Buffer (CCB), and to provide an
adequate flow of credit to this particular group of companies. The SME SF was implemented as
early as 2014, thus reducing the capital requirements for exposures to SMEs in comparison with
the pre-CRR/CRD
IV framework”).
144
2
Annual Report on European SMEs 2016/2017, European Commission November 2017.
Survey on the Access to Finance of Enterprises in the euro area April to September 2017, section 3.1:
https://www.ecb.europa.eu/pub/pdf/other/ecb.accesstofinancesmallmediumsizedenterprises201711.en.pdf?beb1832df4af9efa945a
5a1f7b99eeb7
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All of these activities have led to an improvement in the conditions for access to finance, and
they have on average recovered
2
, but the euro area aggregate masks considerable cross-country
differences. Moreover, financial markets in the Member States show different degrees of
development, in terms of diversity of financial institutions, product offerings and risk appetite.
SMEs have no means to overcome these national differences because they rely on local/national
providers of finance; SME financing is predominantly provided within national boundaries due
to regulatory constraints. Cross border lending is only at a nascent stage, predominantly fuelled
by the emergence of Fintech companies.
The financing problem is acute for firms that are undertaking activities with significant financial,
technological, organisational or business-model risk and those wanting to finance growth
projects which do not necessarily result in the acquisition of fixed assets which could be
collateralised (e.g. in the area of culture and creativity, digitisation, internationalisation
146
, etc.).
Furthermore, undertaking innovative and other high-risk activities which are poorly understood
by finance providers result in low credit scores and lead to high interest charges to compensate
for the perceived risk.
What is more, especially younger and smaller companies (including start-ups and spin-offs) or
those requiring rather small financing amounts are faced with a structural financing gap due to
information asymmetries, lack of financial track records and disproportionate dossier costs,
which is independent of the economic cycle or the country they are located in. If financing is
offered at all, it is offered at unreasonable conditions in terms of interest rates applied,
maturities, repayment terms and collateral required. This also applies to SMEs wishing to
internationalise.
These market failures
–
prevalent cross the EU
–
hinder the start-up and growth of companies.
Companies do not always have the internal funds they need, and consequently seek external
financing.
This market environment results in an access to finance gap for SMEs which have a higher risk
profile or insufficient collateral, and such access to finance gap differs from country to country.
Member States, either at national or at regional level, are trying to address the market gaps
within their boundaries to differing degrees, either through national budgets or through ESIF
funding through a mix of loans and guarantees.
The EU-added value of debt financial instruments to be set-up under the SME window of the
Single Investment Fund will be to:
-
address market gaps not addressed or not adequately addressed (in terms of volumes,
coverage or risk appetite) at regional or national level;
-
address market gaps through supporting cross-border financing solutions;
-
address market gaps in clearly defined underserved economic sectors and in those
contributing to the achievement of EU policy priorities;
146
The financing problem is still perceived as the n°1 barrier for the internationalisation of SMEs outside the EU. See: Flash
Eurobarometer 421, European Commission, October 2015.
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-
foster the transfer of best practices between financial intermediaries with a view to
encourage the emergence of a broad product offering for higher risk SMEs suitable for
their specific financing needs;
-
provide economies of scale (i.e. Member States may be reluctant to create support
schemes on their own because of cost efficiency considerations
–
hence a EU response is
essential to avoid even bigger market fragmentation and disparities).
The debt financial instruments to be set-up may be accompanied by technical assistance or
capacity building projects where such activities are crucial to achieve a smooth implementation
of the financial instruments.
Equity financing market:
Despite the fact that only 12% of SMEs currently consider equity financing relevant for their
business, it is an important financing component, specifically for high-risk start-ups and high
growth companies that require significant long-term investments which do not produce
immediate free cash-flows which would allow servicing debt payments nor do require the need
for a collateral.
Alternative sources of finance, complementary to bank-financing - including public equity
markets
–
private equity and venture capital - are more widely used in other parts of the world,
and should play a bigger role in providing financing to companies that struggle to get funding
especially SMEs. Having more diversified sources of financing is not only good for investment
but is essential for making the EU financial system more resilient in the economic cycle.
But Europe's capital markets are still very fragmented and underdeveloped (EU SMEs receive
five times less funding from the capital markets compared to US) while capital markets can
provide large amounts of funding to corporates (including SMEs).
For high-risk start-ups and high growth of companies obtaining equity finance on reasonable
terms is difficult for different reasons: one is the asymmetry between the information held by the
firm and that known to the investor; and conflicts of interest between a firm's managers and its
shareholders (the principal-agent conflict).
Asymmetry of information happens because the company knows more about their activities and
the likelihood of their success than potential investors do. Such investors find it more difficult to
work out which investments are likely to give them an adequate rate of return, and so must make
funds available on more onerous terms to compensate for the risk of a poor outcome or failure.
The principal-agent conflict arises when managers are risk-averse and so avoid starting or
continuing activities that, in their eyes, put the firm in jeopardy. On the other hand, an
entrepreneur may wish to start or continue a project that shareholders would like to stifle or
terminate. Together, these situations can lead to the perception by investors of higher risk and
hence high costs of external finance.
While private capital for pre-IPOs and IPOs is in principle available, it is not sufficiently made
available for this particular asset class of risk capital investments. Investors consider the
risk/return profile for venture and growth capital investments inappropriate and the cost of
undertaking research too high. Moreover, investors find it inefficient to invest because the funds
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are very often too small. These framework conditions create a market gap for equity risk capital
finance.
Furthermore, the EU's fragmented internal market is a major obstacle to companies' growth.
Different rules, taxes and standards across the Member States hamper businesses seeking to scale
up across borders. Member States and the EIF/EIB have stepped in and provide a significant part
of the equity funding support for high-risk SMEs
–
mostly for the different stages of
development until the IPOs stages. Many Member States have expressed the need to help SMEs
scaling up beyond the private equity markets, notably when going public
–
on a SME multi-
lateral trading facilities (MTF) (which is not the regulated market). Well-developed and vibrant
equity markets are key for the functioning of the entire funding escalator. Indeed, when well-
developed, IPO markets stimulate private equity and venture capital activity by providing fast
and profitable exit opportunities or venues for further rounds of capital raising. Deep junior
markets (SME dedicated MTFs) can also act as a stepping stone for promising companies which
may graduate one day to the main regulated markets.
On the supply side, the types of public policy instruments deployed include public VC funds
investing directly into companies, and public funds-of-funds investing into private VC and other
risk-capital funds; public funds investing in private VC and other risk-capital funds; government
loans to private financial intermediaries to finance VC investments; government guarantees for
such investments; and tax incentives.
Demand-side interventions include human capital development, notably training for
entrepreneurs and investors, and social capital development, in particular facilitating links
between entrepreneurs and investors. Regulatory interventions have focused on exit markets,
bankruptcy regulations and other framework conditions.
However, there are several challenges across the funding escalator best tackled at EU level:
-
Private investors are reluctant to invest into the VC market because of lack of adequate
returns and because of a lack of exit opportunities;
-
VC funds are not large enough, therefore are forced to exit portfolio companies before
these companies have developed their full potential (lack of capital to scale-up these
companies);
-
Many firms are unaware of the benefits of using equity finance;
-
Business angel capacity is underdeveloped, and exit opportunities insufficient;
-
Many firms are unaware of the benefits of venture debt finance;
-
Cooperation between start-ups and corporates (including use of corporate VC) is
suboptimal;
-
Start-up and scale-up markets are fragmented;
-
Equity crowdfunding capacity is underdeveloped, and exit opportunities insufficient;
-
Guidance on the use of Initial Coin Offerings and their relevance for the escalator is
unknown;
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-
IPOs on a SMEs dedicated MTFs have become less and less accessible to smaller firms
and the prospect of Europe's largest financial centre leaving the EU makes the task of
reviving public markets even more challenging (IPOs on a SME MTFs are predominantly
concentrated on AIM
–
the London Stock Exchange's junior market)
-
The environment for firms accessing public markets is inhospitable.
The financial instruments to be set-up may be accompanied by technical assistance or capacity
building projects where such activities are crucial to achieve a smooth implementation of the
financial instruments.
The European added value of an EU-level equity instrument (with appropriate accompanying
measures) has five main components which will lead to higher absolute investment amounts and
an acceleration of private investment:
-
Helping achieve EU policy objectives (see section 2);
-
Facilitating the financing of more cross-border fund investments which helps to diversify
risk and attract and crowd-in private capital;
-
Economies of scale by setting up EU-wide harmonised schemes which consequently
lower transactions costs, such as fees for entrusted entities, but also for investors and
potentially investees;
-
Demonstration and catalytic effects for new interventions not undertaken by Member
States;
-
Market building and development and sharing best practices across the EU.
The EU-level equity instrument will complement national and regional programmes supporting
equity investors and investees.
B. Policy drivers and public sector stakeholders to be involved and their role
The objective of the instruments is to support the Commission's policy priorities of creating jobs
and boosting growth and to support the Capital Markets Union flagship priority, as well as
supporting the overall competitiveness of the European economy. Indirectly, the instruments are
also expected to contribute to
-
Easing the transition to a circular economy
-
Promoting EU economic diplomacy, the internationalisation of European businesses and the
maximum implementation of FTAs
-
Fostering a stronger digital single market
-
Strengthening the financial capacity of the cultural and creative sectors
-
Supporting farm investments for restructuration and modernisation, as well as rural
entrepreneurship
-
Improving energy efficiency
-
Decarbonising the economy
-
Supporting breakthroughs in low-carbon and clean energy technologies
-
Space technology development
and to support any new policy priorities which may emerge in the future.
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Public sector stakeholders, such as
National/regional promotional banks and other national promotional institutions.
National/regional innovation and environmental (sustainable investments) agencies
are expected to play a role in the implementation of regional and national financial instruments
as well as financial instruments established under EU polices delivered through ESIF
147
, and as
such they may be consulted when EU-level financial instruments are being set up.
European and International development banks such as EIB and EBRD may take the role of an
implementing partner for the implementation of the financial instruments and Executive
Agencies of the European Commission and other public sector institutions (e.g. Council of
Europe Bank), public and private financial intermediaries and other third party service providers
may play a role in the implementation of accompanying actions.
C. Financial intermediaries to be involved and their role
For SME debt financing:
In principle any type of financial intermediary which in full compliance with applicable national
and EU-legislation and is able to generate new portfolios of higher risk SME financing
transactions and is able to comply with the applicable requirements of the Financial Regulation.
However, National Promotional Institutes and other publicly owned intermediaries may play a
prominent role in the implementation of the EU instruments because of the natural alignment of
interest to support public policy objectives.
148
For equity finance:
Established financial intermediaries, or entities to be incorporated, that undertake risk-capital
investments by providing investments in equity, quasi-equity, hybrid debt-equity and other forms
of mezzanine finance to projects, start-ups and established companies.
They shall demonstrate the capacity and experience to undertake equity/quasi-equity
investments, the ability to fundraise and attract private capital, and the capability to produce
returns which would attract more private investments into this asset class. Such intermediaries
must also be able to comply with the applicable requirements of the Financial Regulation.
For debt and equity finance:
Financial intermediaries may include national promotional banks and other national promotional
institutions, guarantee societies, leasing companies, funds-of-funds, private equity funds, VC
funds, business angel funds, technology transfer funds, crowd-equity platforms, social
147
Cohesion policy and the other EU policies contributing to regional development (i.e. rural development and fisheries and
maritime policy) under shared management between the EU and the Member States
148
Communication from the Commission: Working together for jobs and growth: The role of National Promotional Banks
(NPBs) in supporting the Investment Plan for Europe (http://europa.eu/rapid/press-release_IP-15-5420_en.htm)
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intermediaries or social sector intermediaries, special-purpose vehicles, co-investment funds or
schemes, and tokenised funds.
Entities targeting buy-out or replacement capital intended for asset-stripping are excluded.
The potential public financial intermediaries referred to above may also play a role in combining
central EU financial instruments with funding under cohesion policy.
D. Private sector stakeholder organisations, associations or business groups to be
involved and their role
For debt financial instruments any pan-EU private stakeholder organisation which has an interest
in the support of SME finance such as
-
-
-
-
-
AECM
NEFI
EAPB
UEAPME
COPA-COGECA (agriculture)
and for equity instruments, any pan-EU private stakeholder in the field of equity or representing
final beneficiaries will be consulted, including:
-
InvestEurope (private equity and VC)
-
Business Angels Europe (BAE) and European Business Angels Network (EBAN)
-
European Crowdfunding Network (ECN) and European Equity Crowdfunding
Association (EECA)
-
ASTP-Proton (knowledge and technology transfer offices and professionals) and FICPI
(International Federation of Intellectual Property Attorneys)
-
EBN (incubators, accelerators, innovation centres)
-
UEAPME (SMEs)
-
EARTO (research and technology organisations)
-
EUROTECH and LERU (research-performing universities)
-
PensionEurope
-
FESE, EuropeanIssuers, InsuranceEurope, InvestEurope for VC and PE,
-
Organisations representing institutional investors (e.g. ILPA)
Consultations will be undertaken in the context of setting up the legal base, in the context of
evaluations and in the context of market testing instruments.
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E. Final beneficiaries and target groups
The EU-level debt instruments will focus on SMEs according to applicable EU definition, more
specifically those which would not receive support from the market due to the perceived higher
risk or the lack of collateral. Where justified, more dedicated support may be provided for SMEs
or organisations, or were justified to small mid-caps, for a specific sector or a specific policy
orientation.
The EU-level equity instruments will focus investments in SMEs according to applicable EU
definitions (including the definition of SME according to MiFID II) more specifically those
which activities would help achieve the EU policy priorities referred to in section 2. Where duly
justified, investments may also be made into small midcaps.
Targeting will be done on a sectoral basis (linked to the fields in which the policy priorities will
be implemented) and a company life-cycle basis (on the basis of funding gap analyses).
Equity investments may be combined (blended) with debt finance and grant funding.
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4. Social Investment and Skills Window
A. Rationale for EU action; is subsidiarity respected?
Social investments for a fairer and more inclusive society
Building a more inclusive and fairer Union is a key priority for this European Commission. The
reflection paper on the social dimension of Europe
149
, published alongside the package on the
European Pillar of Social Rights
150
, focuses on the profound transformations European societies
and the labour market will undergo in the coming decade. It sets out a number of options on how
the Union and its Member States can collectively respond, by building a Europe that protects,
empowers and defends its citizens. The Rome Declaration adopted by EU leaders on 25 March
2017 outlined the importance of a social Europe. The Social Summit for Fair Jobs and Growth,
held in Gothenburg on 17 November 2017, further reinforced this message and introduced a
social scoreboard to measure how fair and well-functioning labour markets and welfare systems
are in the Member States
151
.
In line with these developments a specific Social, Skills & Human Capital window is being set
up within the InvestEU Fund to support investments in tangibles and intangibles assets to foster
inclusive growth, well-being and fairer income distribution in the EU. Social cohesion and social
capital are important assets for an inclusive society that protects and empowers. Citizens’
willingness to invest in society and ‘the common good’ finds its expression in many forms,
including philanthropy
152
. The role of the Social, Skills & Human Capital window under
InvestEU will therefore be complementary to the actions undertaken under other EU
programmes such as the European Structural and Investment Funds that cover this policy area.
In macroeconomic terms, despite the ongoing economic recovery in the EU, poverty and
inequality indicators are not showing strong signs of improvement, especially in the
periphery
153154,
, in a context of an ageing population and accelerating transformative technology.
During the recent economic and financial crisis, policy making put less emphasis on inequality
and social inclusion policies. Some Member States reduced their 'smart' future-oriented
investments in areas such as education, training and lifelong learning. While income inequality
149
153
154
https://ec.europa.eu/commission/publications/reflection-paper-social-dimension-europe_en
The Communication COM (2017) 250 states that
"
In spite of recent improvements in economic and social conditions across
Europe, the legacy of the crisis of the last decade is still far-reaching, from long-term unemployment and youth unemployment to
risks of poverty in many parts of Europe. At the same time, every Member State is facing the rapid changes taking place in our
societies and the world of work."
The 20 principles and right of the pillar are available here:
https://ec.europa.eu/commission/sites/beta-political/files/social-summit-european-pillar-social-rights-factsheet_en.pdf
https://ec.europa.eu/commission/priorities/deeper-and-fairer-economic-and-monetary-union/european-pillar-social-rights_en
http://data.consilium.europa.eu/doc/document/ST-8637-2017-INIT/en/pdf
151
See: https://ec.europa.eu/commission/sites/beta-political/files/social-summit-social-scoreboard_en.pdf
152
Philanthropy is a heterogeneous sector of actors, ranging from large family offices linked to prominent enterprises, to historic
donations that established universities or hospitals, to foundations established from privatisation of public companies and new
‘citizens foundations’ acting locally.
150
See for instance: EU-wide income inequality in the era of the Great Recession
http://publications.jrc.ec.europa.eu/repository/bitstream/JRC109805/bp-csgzs-hp_euinequality_jrc_wp.pdf
(2018)
See for instance: "In It Together: Why Less Inequality Benefits All", OECD report on inequalities (2015)
http://www.tarki.hu/download/OECD2015-In-It-Together-Chapter1-Overview-Inequality.pdf
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has a measurable monetary dimension, inequality of opportunities is non-monetary and often
determined by one's social background: education and health are areas which are particularly
affected by this
155
. The conception of the present policy window will take into account the
benefits that society as a whole may obtain from those two concepts of inequality.
Social considerations are increasingly concurring to shape today's political agenda of the
European Commission and EU Member States. Investment in the social inclusion, skills and
human capital related economy can enhance economic opportunities, building a bridge between
the present and the future, especially if coordinated at EU level. The social dimension within the
InvestEU Fund has to be understood in a broad sense, with intangible investments in people,
ideas and services being as important as tangible investments in assets or capital goods that
characterise the typical projects financed under the European Fund for Strategic Investments
(EFSI). Investment in this area will facilitate citizens' well-being, labour market participation and
thus social cohesion. Financial products as the ones triggered by the InvestEU guarantee are
repayable instruments that can complement the established role that grants at the European level
have playing for years and help mobilise private capital.
A Social, Skills & Human Capital window under InvestEU can therefore serve as a crucial
foundation of pan-European social innovation and productivity growth for the EU economy. It
can also support EU actions contributing to the Sustainable Development Goals (SDGs), noting
that contributing to the SDGs helps the EU fulfil its social agenda.
156
Action at the EU level adds
value for the development of inclusive and social financial markets. This action provides
enhanced access to both non-financial support and finance to micro-enterprises, including
vulnerable groups, social enterprises, social economy organisations, social innovators, public
authorities and social impact investors as well as it creates a space for the Social, Skills &
Human Capital
–related
economy to flourish in the EU internal market. It also fosters
interlinkages between relevant stakeholders through the creation of European networks
–
between social economy enterprises, investors and institutions. This can, in turn, make accessible
a range of enhanced social services to citizens - for instance, in healthcare, long-term care and
education - in an inclusive and equitable way.
The establishment of a distinct Social, Skills & Human Capital window under the InvestEU Fund
sends an important and visible political signal that "social issues" continue to matter to the
European Commission in the next MFF. This is especially important against the backdrop of the
recently adopted European Pillar of Social Rights, for which the InvestEU Fund should serve as
one of the delivery mechanisms. EU-level action in the social enterprise and social economy will
have to be multifaceted in order to cover the heterogeneous range of activities and types of
investment that characterise the sector, but can be grouped into common policy drivers and
common financial products. In this context, the several sub-sectors forming the wider Social,
Skills & Human Capital economy can be interlinked by a common intervention rationale and
tend to complement each other.
155
See JRC report: What makes a fair society? Insights and evidence (2017). Available at:
http://publications.jrc.ec.europa.eu/repository/bitstream/JRC106087/kj0716182enn.pdf
156
COM(2016)739 final
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Well-designed support from the Social, Skills & Human Capital window should be an
opportunity to complement existing EU support by providing beneficiaries and target groups
with the right financial products to start up, grow and develop activities in a truly pan-European
dimension, where the size of the home market does not constrain the beneficiaries' development
and access to capital paths. It will also provide more opportunities for stakeholders that have a
social mission and that select investments in a logic that goes beyond the traditional financial
rate of return. The design of instruments should take account of the needs of civil society
organisations or foundations to access funding for innovative approaches related to social work
and youth work and, more in general to provide support to disadvantaged groups.
Social investment as a pillar for the knowledge society and economic growth
Social, Skills & Human Capital investments contribute substantially to the competitiveness and
growth of the European economy in several ways. They help to develop a better skills, well-
being and competence base of its citizens, who need to be better equipped in meeting new
challenges in a context of transitional labour markets impacted by digitalisation, regional
industrial transition and a changing technological landscape
157
. These are also the cornerstones
for the later investments in research, innovation, digitalisation and SMEs under other windows of
the InvestEU initiative.
The substantial returns on investment from this type of financing (short-term as well as long-
term) are yielded on the
private
level (individual &
institutional)
as well as on the
public
level
158
.
Such shared public-private benefits should also provide a sound basis for public-private
investment. For instance, to date public investments are made primarily for primary and
secondary education, with private contributions (mostly at individual level - financial or in kind)
for early childcare or for higher & more specialised education representing the largest share.
Generally, actions should take account of the flagship initiative of the New Skills Agenda
159
There is broad societal agreement of their relevance, but few private actors willing to invest in
this area without public intervention. The return from these investments will also support public
authorities to deliver better services in a complementary manner and not to divest from social
services.
Subsidiarity and value added from EU-level action
Investments in social infrastructure and social enterprises producing goods ('tangibles') as well as
social services, ideas and people ('intangibles') are crucially lacking in the EU, yet these are
critical for the EU and its Member States to develop into a fair, inclusive and knowledge-based
society. An InvestEU Fund that is built on a guarantee covering losses under a specific Social,
Skills & Human Capital window and provides debt and equity products can offer an opportunity
The link between digitalisation and labour market is explored by the recent JRC report: What makes a fair society? Insights
and evidence (2017). Available at:
http://publications.jrc.ec.europa.eu/repository/bitstream/JRC106087/kj0716182enn.pdf
158
private
benefits (individual
–
more employment opportunities, higher wages, faster promotion, healthier lives & better job
satisfaction - as well as
institutional
benefits - better service delivery; innovation of infrastructure & content; governance
autonomy) as well as
public
benefits (higher fiscal revenues, better health status & lower social security costs, later retirement
age, etc.).
159
Blueprint for Sectoral Cooperation of Skills, which is a very good example of public support measure involving private
industrial stakeholders.
157
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for the public and private sectors to come together. The fund will finance large long-term
investments in social infrastructure and services (health, housing, education, innovation) that
cannot be covered by resources from government/regional/local budgets, as well as smaller
investments in smart, responsible, and environmentally sustainable cities.
The InvestEU Fund would aim at creating a supportive European ecosystem in which social
enterprises and social innovation may flourish and deliver. It can also help Social, Skills &
Human Capital economy actors such as social start-ups and social enterprises as well as skills
investment markets to contribute to enhancing the social dimension of the Internal Market and
trigger a signalling effect, aligning and complementing Member States' efforts in these different
fields and allow new business models to develop and tackle societal concerns. The
demonstration effect can be a powerful means of achieving a pan-European market in the areas
covered by this window. Overall, the social investment and skills window will seek to ensure
sufficient supply of working capital to social enterprises, social innovators and other
stakeholders including SMEs and micro-enterprises.
According to the report of the “High-Level
Task-Force on Investing in Social Infrastructure in
Europe”
160
, public investment in social infrastructure, including for education, health and
housing, has been and remains low over the past decade, despite EIB/EFSI support. The EU-
level intervention should in particular help to achieve to fill this market gap and crowd in
financial intermediaries and/or project promoters for investments, thus multiplying the actual
value of the public funding by leveraging more real investment in social infrastructure and
services. The EU value-added will be achieved through the creation of a more level playing field
for social finance and investment markets in the EU, contributing to a more performing Capital
Markets Union (vehicles addressing social enterprises investment needs) and supporting EU
policy objectives in terms of job creation and inclusive growth. Therefore, these enterprises must
make the best use of the internal market via (capacity building support, cross boarder
cooperation and finance access points). Finally, the InvestEU will strive to develop synergies
with the Digital Agenda given the documented successes of Digital Social Innovation. Hence,
the Fund will help tackling market failures that exist at the European level and that can be
addressed at varying degrees at the national level.
The InvestEU Fund would complement the social cohesion and integration action of European
Structural and Investment Funds and of their managing authorities willing to contribute to the
InvestEU Fund on a voluntary basis. The window's EU-level compartment would help develop a
pan-European market in a systemic way, capitalizing on the pooled expertise of intermediaries
such as the EIB group. Depending solely on the cohesion compartment to achieve the EU goals
of boosting access to finance for microfinance recipients and social enterprises, however, would
be counter-productive. It would entail a risk of losing the impetus and benefits gained from
centrally-managed financial products, including the greater geographical agility to support
intermediaries in locations where they are really needed. For example, certain cities with high
160
The report of the "High-Level Task-Force on Investing in Social Infrastructure in Europe" (commissioned by ELTI and
chaired by former European Commission President Romano Prodi) estimated the minimal investment gap for Education, health
& long-term care, and affordable housing at EUR 100-150 bn annually.
See:
http://ec.europa.eu/info/publications/economy-finance/boosting-investment-social-infrastructure-europe_en
111
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unemployment in non-Cohesion Member States do not necessarily benefit from sufficient
Structural Funds support. In the medium term, this type of support will contribute to generate a
true EU social investment market, where global capital would flow into the European market
irrespective of the location of the final beneficiaries and of the maturity/capacity of their local
capital markets.
A single fund for a heterogeneous sector with a common purpose
The InvestEU support can be used in multiple sectors under the scope of this window. While all
the projects will have to be ultimately economically viable and generate a revenues for the
investors, the financial products in use, their investment guidelines, pricing and return conditions
will change according to the specific policy sector, the market gap to be addressed and the
specific project structure. In the area of education, training and non-formal learning for young
and adults to improve educational attainment and skills, provide easier access to labour market
and minimize the risk of poverty/social exclusion. For education and training providers, projects
in this field help to upgrade their infrastructure and develop and deploy innovative business
models, teaching methods and engaging technologies. Supporting investment projects in this
field will result in more vibrant education and training systems and markets, enabling easier
professional transitions for people and being responsive to the lifelong need for upskilling and
reskilling. It may complement and enhance the investment opportunities for SMEs
161
and
organisations from cultural and creative sectors: while the access to debt finance (guarantees)
remains the main objective, there is a potential for strengthening EU Investment on micro-
financing or other financial products orientated towards social enterprises involved in the Culture
and Creative sectors.
For knowledge-intensive institutions (such as universities, research & innovation centres) the
combined support under several of the InvestEU windows may provide a welcome boost towards
a knowledge-intensive society. Support can be extended also to the area of (social) innovation to
develop community-based solutions to social problems. For several of the areas mentioned above
the financial support by the window will be complemented by the offer of technical assistance
and capacity building to “grow” the respective market players, including social innovators, social
entrepreneurs, social impact investors, and philanthropists and create a pan-European network of
social impact and social innovation relay and coaching centres. See the section below on
capacity building for more details. In order to maximize its impact, the InvestEU fund may also
be complemented by other measures such as, e.g. exploring the possibility to create markets for
social outcomes. The establishment of an EU Outcome Payments Fund to pay out on outcomes
achieved by schemes such as Social Impact Bonds (SIB), while taking in account experience and
evidence to leverage capital from markets into underserved areas by offering a tranche of junior
capital to social impact investors or setting up mechanisms to ensure sufficient supply of
working capital to social enterprises including socially innovative SMEs.
While the use of EU-level financial intervention is not totally new in some of the areas covered
by this InvestEU window, a dedicated Social, Skills & Human Capital window supported by
targeted project-related technical assistance could help build scale and integration of existing
161
Also covered under the SME window of the InvestEU Fund
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markets while creating new markets in adjacent sectors. As an example, around EUR 1.2 bn of
EFSI financing was channelled to health and life-science projects between mid-2015 and 2017,
but this support has mostly covered hospital infrastructure and medical/life science technologies
(such as medicines, imaging and diagnostic technologies and medical devices). However today's
health systems are embarking on reforms to adapt to the challenges they face: an increasing
demand for healthcare due to population ageing and the rising burden of chronic conditions, and
an environment of constrained public resources for health.
162
Up-front investments are required
to set-up the new care models, followed by sustained investments over a period of time to
facilitate the complete implementation of the reforms
163
. Return on investment may only come in
the medium-long term; and consequently, investments in reformed care models are of high risk.
Moreover, InvestEU in the post-2020 MFF would also pursue efforts made under the financial
instruments of the EaSI programme. It would bridge financing gaps through the provision of a
complementary toolbox of financial products (guarantees, debt and equity) tailored for
microfinance and social enterprise and innovation finance and support new systemic
developments in an emerging social investment ecosystem which takes time to develop. This
specific window would also support the development of all kind of business models which have
the primacy of the individual and the social objective over capital (cooperatives, mutual societies
or associations), while ensuring the viability of the underlying investments.
An EU-level investment fund with a Social, Skills & Human Capital window would further
contribute to develop and share best practices in terms of financial structuring for these sectors
where there is less experience or scale in using financial products. As an example, in the area of
education and training a substantial track record of financial products being used is available
164
.
Furthermore, a recent study has identified the potential for new avenues using (i) payment-by-
results projects in which the service provider receives payments only if the education and
training service achieves pre-agreed outputs/outcomes, paid by a commissioner (usually,
government), (ii) loan funds to students and adult learners to increase participation and skill level
or (iii) public-private partnerships (PPP) to leverage investment into the supply and
refurbishment of education buildings or fixed assets.
165
Another advantage stemming from EU-
level action is that it would stimulate the pan-European recognition of different business models,
for instance supporting the financial community to boost financial products dedicated to them.
166
162
These health reforms require significant investments on various fronts, such as: (i) new primary care and community care
centres; (ii) IT systems to support back-end organisation, implementation of integrated care pathways and decision support
systems; (iii) new service models and new tools, e.g. eHealth and mHealth, to facilitate remote management of chronically ill
people at their homes; (iv) new organisational models, education of the health workforce in new roles and skills.
163
See also: The case for investing in Public Health, World Health Organization, Regional Office for Europe ( 2015)
http://www.euro.who.int/__data/assets/pdf_file/0009/278073/Case-Investing-Public-Health.pdf
164
As an example, the EIB had a 2.5 billion project pipeline in Education and Training in 2017
http://www.eib.org/projects/sectors/education-and-training/index.htm
165 Study on the feasibility of an education and training investment platform (2017) ICF study contracted by DG EAC -
Executive
summary:
https://publications.europa.eu/en/publication-detail/-/publication/2b3f33c9-b21c-11e7-837e-
01aa75ed71a1/language-en
166
As an example (it could help create pan-European co-operative capital funds that are socially responsible investment fund
that invests
in cooperative businesses in the form of "patient capital,” or equity-like
financing. Such funds could assist the
cooperative industry to grow and flourish by providing capital that acts like equity without requiring co-ops to give up control
over their own management and destiny, as traditional venture capital might).
113
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Finally, a dedicated Social, Skills & Human Capital window may be relevant to cover new and
emerging policy challenges where action at Member State level is difficult to achieve. As an
example, significant support is also needed in the area of migration. Reception of asylum seekers
and integration of refugees and other regular migrants require considerable investments in the
short and long-term perspectives. A wide range of interventions foreseen in the scope of
InvestEU can be envisaged in this respect. As examples, social infrastructure and financing
schemes to upskilling actions or qualifying training for migrants
167
could be replicated, bundled
and upscale in the framework of the Fund, in synergies with investments under other EU
frameworks.
Capacity building and monitoring
For a successful implementation of the InvestEU Fund in the policy areas covered by this
window, a strong grant-based capacity building programme will be indispensable given the
varying degrees of market maturity in the social sector. The capacity building programme will
need to take into account the different needs of financial intermediaries and procuring authorities
in accordance with their investment portfolio and the long-term needs of market development as
well as the geographical coverage of financial intermediaries throughout the EU. Access to these
measures may be extended beyond a specific project and being bundled into a portfolio.
Technical assistance supporting the preparation of Social, Skills & Human Capital investment
shall ensure full support for sustainability proofing of investment projects from the grant or pre-
investment stage onwards, and can also be based on self-assessment diagnostic methods
supported by advisory services helping beneficiaries in structuring their project and tailoring it to
the target group in question. Also a solid monitoring framework, based on output, outcome and
impact indicators will be needed to track the project and programme progress and to report to the
investors that will join InvestEU sponsored projects and platforms. The framework may be
based, among others, on the Pillar's social scoreboard
168
for the social dimension of the window,
and on the monitoring system of current programmes in cultural and creative sector
169
or under
the ESF
170
.
B. Policy drivers and public sector stakeholders to be involved and their role
The important change in the economic and social landscape across the Union since the late 2000s
has been the main driver for major policy redirection as regards labour market, social inclusion
and education policies at both the EU and Member State levels. Policy focus has shifted from
labour security aspects and flexibility to limiting social disparities and social exclusion. Looking
ahead, a number of factors will most likely limit the capacity of Member States to increase their
social expenditures, such as large fiscal consolidation plans under way in most Member States,
167
For example, the UK or Sweden offers humanitarian migrants' loan programmes for vocational training and for work-based
learning leading to a qualification. EU financial or organisational support for such schemes is not available today.
168
https://composite-indicators.jrc.ec.europa.eu/social-scoreboard/#
169
https://composite-indicators.jrc.ec.europa.eu/cultural-creative-cities-monitor/about
170
Annex 1 “Common output and result indicators for ESF investments”:
https://ec.europa.eu/digital-single-market/en/news/regulation-eu-no-13042013-european-parliament-and-council
114
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strong deleveraging needs in highly-indebted Member States and increasing population ageing-
related expenditures. It is more important than ever to co-create social (integration, individual
skills etc.) and societal impact (a healthy environment; knowledge creation etc.) within one
project. The EU can play an important role in ensuring a coordinating approach to support the
requisite reforms at Member State level.
A distinctive feature of the social window is the support to investment projects that, although
socially and economically viable, do not generate the level of returns that an investor looking
after profit maximization would accept. The window should act as a catalyst for investors willing
to finance well-structured projects with measurable, positive impacts, considered as of high
added-value for their contribution to the Social Dimension of the EU. The logic of the window is
to support nascent social economy market structures in addition to addressing market failures.
The support provided under the Social, Skills & Human Capital window of the InvestEU Fund
shall address the multi-focal needs of social policy stakeholders and multiple cross-sector issues
covering the domain of health, ageing, education, culture, employment, innovation etc., while
maintaining a certain degree of flexibility necessary to respond to new investment needs that
may emerge in time.
The following areas have been identified as the focus of intervention for the Fund support:
Skills, integration and education: investment in all levels of education, including digital
skills, necessary for building a knowledge-based society, support to increase vocational
training and lifelong learning, including non-formal learning investment in human
capital (inter alia focused on improving the integration of young people in society, of
refugees and asylum seekers who are undertaking upskilling actions or qualifying
training);
Supporting social economy and social enterprises and microfinance recipients: support
to promote inclusive entrepreneurship, improve access to employment (including self-
employment), job creation, labour market integration, social inclusion by increasing the
availability of and access to micro-finance
171
, and access to finance for social
enterprises. It also includes support for the upscale or development of new business
models focusing on social return on investment.
Social infrastructure and services: investments in the construction, expansion or
refurbishment of buildings and in the provision of related services for
-
Education and training (i.e. educational facilities and digital equipment)
-
Social housing
-
Healthcare (i.e. clinics, hospitals, primary care centres, health promotion
programmes, integrated care services, etc.)
-
The circular economy and nature protection where certain activities of high
public interest are not yet commercially viable but offer opportunities for job
market integration and education.
171
With specific regard to vulnerable groups including refugees micro-enterprises and young adults.
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Support to physical infrastructure developments could be complemented with funding for social
economy and social service provision, including through outcomes-based projects, in an
integrated way.
Social innovation, creation of markets for social outcomes, expertise and capacity
building: tools may be developed to help national/regional/local authorities develop
skills for configuring investment strategies, blending financing and bundling projects; to
grow social innovators, social entrepreneurs, social impact investors and philanthropists;
to facilitate agreement on operational definitions, etc. Capacity building also include
promoting innovation by and for the European society, in particular, targeting new
products, services and organizational models that meet social needs, foster new social
relationships or collaborations, and empower citizens.
With regard to the public sector stakeholders, the involvement of national and regional level
authorities, municipalities, associations of public education and training providers will be needed
to establish a permanent dialogue between different levels of government and thus bring the
priorities of the Union closer to the citizens. Regional and local authorities have different
competences across the Member States; local health units or regional educational authorities
often act as contracting bodies and work in close contact with financial intermediaries.
C. Financial intermediaries to be involved and their role
The EIB Group
The EIB Group (i.e. EIB and EIF) currently acts as the main implementing partner for the EU
budgetary funds in the current MFF. The EIB group has a remarkable experience in the social
sector; it has financed health care, healthy ageing, affordable housing and higher education
infrastructure projects, while the EIF has been involved in microfinance and social
entrepreneurship under the EaSI programme and the EFSI SMEW. The EIB institute has been
active in the field of social innovation projects. The EIB group also provides access to financing
through its financial intermediaries which are often the first port of call for smaller organisations.
It is therefore likely that the EIB Group would continue to be one of the main Implementing
Partners in the Social, Skills & Human Capital window, but the Commission should also keep its
options open whereby access to the EU guarantee should also be envisaged for other financial
institutions. In addition, the social sector may see an offspring of ad-hoc investment platforms,
where the EIB group joins forces with other NPBs, MDBs and local financial intermediaries.
The National Promotional Banks (NPBs)
NPBs may play a dual role under the InvestEU Fund insofar as the social sector is concerned. On
the one hand, they can be a direct beneficiary of the budgetary guarantee (also jointly with the
EIB for areas where the risk exposure is higher such as financing social enterprises and social
economy), improving the conditions of their financing in terms of cost and maturity.
On the other hand the NPB could also play a bridging role with Member States in blending
grants to support projects with high socio-economic benefits, the costs of which are higher than
their potential financial revenues. Any such contribution would represent additional resources for
the Fund, creating specific Member State-focused (or even region-specific) guarantees with an
116
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increased impact. This could be helpful for tackling country-specific social problems and exploit
the local knowledge and presence of the NPBs to the largest possible extent. Such
complementarity of InvestEU with national investments could also help increase leverage and
justify EU added value.
Other potential implementing partners
The Council of Europe Development Bank (CEB) and the European Bank for Reconstruction
and Development (EBRD) could also be included as one of the InvestEU Fund implementing
partners for the Social, Skills & Human Capital
window. CEB’s investments already contribute
to delivering affordable and sustainable essential services and social infrastructure. Furthermore,
the Bank responds to emergency situations (such as refugee/migrant crises and natural/ecological
disaster events) and helps improve the living conditions of the most vulnerable. The EBRD is
already active in the field of microfinance through thematic bond issues.
Last, but not least, dedicated investment platforms, which may be financed by the EIB Group,
NPBs and other investors, including foundations and donors, could be also an option for
implementing partners of the Social, Skills & Human Capital window. These implementing
partners may potentially play double role in the window: as both the entrusted entities and the
intermediaries. Their potential role as an implementing partner will however need to be reviewed
in consideration of the decision on the implementation strategy defined for the overall InvestEU
structure.
Other intermediaries
Other intermediaries which will be playing an important role in the Social, Skills & Human
Capital window are:
-
private banks including those operating in the social economy and social enterprise
sector (such as ethical or alternative banks, cooperative banks);
-
non-banking financial institutions including loan funds, patient capital providers such
as a cooperatives, microfinance institutions, credit unions, guarantee institutions,
insurance companies, pension funds, Private Equity/Business Angel funds, funds-of-
funds and co-investment funds or schemes;
-
social investment market enablers including investment readiness and capacity-
building intermediaries active in the micro-finance and social enterprise finance
sectors;
-
FinTech companies
172
;
-
Universities, research centres and Knowledge and Innovation Communities;
-
foundations;
-
equity crowdfunding platforms; and
-
various groups of investors including corporate investors, social impact investors,
(social) business angels, educational entrepreneurs (e.g. MOOCs), venture
philanthropists and philanthropists.
172
See the EC consultation on the potential role of FinTech companies.
https://ec.europa.eu/info/sites/info/files/2017-fintech-consultation-document_en_0.pdf
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In order to ensure a successful implementation of the Window, every effort should be made to
ensure complete EU coverage by financial intermediaries, including by securing cross-border
cooperation in the absence of competent, local, national financial intermediaries. The degree of
maturity of financial intermediaries varies across Europe, creating sometimes a bottleneck to the
take-up of financial instruments at the local level. Capacity building programmes have addressed
this problem, but the costs have proven significant.
Private sector stakeholder organisations, associations or business groups to be involved and
their role
Pan-EU private stakeholder organisations which are active in the social sector have basically an
interest in the support and use of financial products. A large number of specialised organisations
are active in different sectors; for instance:
Education:
representatives of education and training providers, Student Unions (e.g. ESU);
Teachers Unions (e.g. ETUCE); non-profit (e.g. Education International) & international
organisations (e.g. UNICEF);
Health:
Stakeholder collaboration networks and NGOs (e.g. EIT Health, European
Innovation Partnership on Active and Healthy Ageing, AEIP (European Association of
Paritarian Institutions), GIRP (European Healthcare Distribution Association), EPHA
(European Public Health Alliance), EHMA (European Health Management Association),
HOPE (European Hospital and Healthcare Federation), UEPH (European Union of Private
Hospitals), EPF (European Patients' Forum), EUROCARERS, etc.
Affordable and social housing:
Housing Europe (dealing with the setup of inclusive
communities, fostering urban regeneration, reviving rural communities) as well as private
associations or cooperatives at national level and other stakeholders whose mission is to
build inclusive communities such as NGOs or public administrations.
Cross sector:
networks of social enterprises and/or joint social projects undertakings with a
European dimension, active in cross-border fund-raising, innovation and implementing
activities, etc. Also European level organisations with a cross-sector approach like EASPD
(representing service providers for people with disabilities) or ENSI (European network of
social integration enterprises) are topical. Also given recent technological developments with
impact on the social sector (e.g. e-learning, e-health and the need for more energy efficient
buildings) also organisations from these fields can be relevant.
Regarding financing, organisations dealing with specific financial areas are relevant. Among
them are:
-
for the loan and guarantees segment, AECM, NEFI, EAPB, UEAPME, FEBEA and
EMN/MFC (microfinance),
-
for equity instruments, organisations like InvestEurope (private equity and VC), the
European Venture Philanthropy Association (EVPA), Business Angels Europe (BAE)
and European Business Angels Network (EBAN), FEBEA.
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Also institutional investors (as insurance companies) including umbrella organisations like ILPA
or LTIIA could play an important role in financing of social projects. It is also considered to
reach out to non-European potential investors, e.g. those from Asia.
Project promoters that already gained experience in the social field might bring forward their
expertise also regarding feasible financing solutions.
Further, foundations and philanthropic organisations could play a catalytic role in capacity
building and market development in the social sector to achieve the critical mass needed to
justify action at the EU level, further they could also act as investors in the social field. They are
represented by organisations like DAFNE (European Network of Foundations’ and Donors’
Associations) and the European Foundation Centre (EFC) or EVPA.
In addition, crowdfunding might become more important to provide financing in the social field;
topical organisations are the European Crowdfunding Network (ECN) and European Equity
Crowdfunding Association.
Summary of role of stakeholders: Consultations can be undertaken in the context of idea
development, data collection and financial product development including market testing, in
terms of impact assessment, evaluations and setting up the legal base, for raising awareness and
–
importantly -as investors in projects and funds. They could also help in establishing of
dedicated investment vehicles, capacity building and technical assistance.
D. Final beneficiaries and target groups
As the Social, Skills & Human Capital window will encompass interventions in various sectors,
a wide range of beneficiaries will be targeted. Firstly, the success of the EaSI instruments has
demonstrated a strong need to continue supporting its target group:
-
Disadvantaged and vulnerable persons e.g. unemployed, youth, elderly, homeless,
migrants;
-
Micro-enterprises, in particular those employing disadvantaged and vulnerable persons;
-
Social enterprises,
-
Associations, foundations, mutual and cooperatives.
In this way, continuity will be provided and the Commission will build on the achievements of
Progress Microfinance and EaSI. In order to implement the EU policy objectives in the social
field, an extension to the scope of targeted beneficiaries beyond the EaSI groups, such as
innovators, can be explored for the InvestEU legal base. For example, education and
development of skills should be targeted since investment in education and training over the life
course is crucial to ensure Europeans have the skills they need to find and maintain their place in
the job market and society as a whole and to deliver essential social services (as is the case of
healthcare workforce). The achievements and lessons learnt from the Erasmus+ Master loan
scheme should be taken on board. In addition, the need for patient capital for these kinds of
investments should be recognised.
Given the integrated functioning of skills development and labour markets, the support via
financial products (potentially complemented by grants or other types of support) could be
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provided for three main target groups: (i) companies; (ii) learners; (iii) the providers of education
and training, with a role also for regional and national authorities in case where specific
framework conditions would be required to effectively deploy education support or in cases
where public authorities stand to benefit directly from a workforce with the right skill-mix.
Therefore, it is proposed that a sufficiently integrated/coordinated approach is taken in designing
the measures.
This could be achieved through improved access to up-to-date educational and training offer (i.e.
labour-market oriented education and training programmes) for students, apprentices, young and
adult learners; through the support for education and training providers to upgrade their training
offer and facilities as well as through the support for companies to provide training and
apprenticeships placements as well as improve skills utilisation.
In addition to the areas listed above, the Social, Skills & Human Capital window will also
encompass EU support in the different branches of the education sector where the potential
targeted beneficiaries would be children, parents, teachers and school administrators as well as
such as schools and childcare facilities.
Investments in health will also be supported. The targeted beneficiaries will typically be: health
authorities, health service providers, technology providers, healthcare professionals, patients,
citizens. In the field of social infrastructure, the targeted beneficiaries could be project
promoters, operators of buildings/facility managers, affordable housing providers, public-private
partnerships.
As a crosscutting issue an advantage from EU-level action would be to stimulate the pan-
European recognition of different business models by providing access to funding and proper
capacity building with respect for their variety and characteristics. Consequently, InvestEU
should be in a good position to connect existing social innovation and social economy networks
and initiatives such as the social innovation platform and competition. This allows the InvestEU
fund to create and channel its own access and enlarge its reach.
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1909982_0128.png
A
NNEX
5: L
IST OF
F
INANCIAL
I
NSTRUMENTS AND
EFSI
UNDER THE CURRENT
MFF
Investment
focus
Infrastructure
and Innovation
& SME -
demand driven
support
Budgetary
Guarantee/Financial
instrument
Infrastructure and Innovation
Window
EFSI 2.0
SME Window
Equity facility for Growth
under COSME-EFG
Loan Guarantee Facility under
COSME
InnovFin Equity - risk finance
for investing R&I
InnovFin Equity - leadership in
ICT
InnovFin
Equity
-
microfinance
and
social
entrepreneurship
InnovFin SME and Small Mid-
caps R&I Loans service
(InnovFin SME guarantee)
InnovFin Loan Services for
R&I Facility
Contributions
from
Horizon2020 and COSME
GROW
GROW
ECFIN
EIF
EIF
EIF
2.275
490,00
970,00
172,90
375,50
DG in
charge
Overall budget
envelope
(EUR m)
6.825
6.113,00
125.000
2.450
24.250
Total
commitments (as
of end 2016) (EUR
m)*
Target
Investment to
be mobilised
in EUR m)*
375.000
Programme
Manager
EIB
COSME
Competitiveness,
innovation, and,
support for
SMEs
RTD
EIF
495,00
256,10
2.970
Horizon 2020
RTD
RTD
EIF
EIB
1.060,00
1.060,00
534,50
796,00
9.540
13.250
875
SME Initiative
NA
EIF
175,00
23.3
121
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1909982_0129.png
Investment
focus
Programme
Budgetary
Guarantee/Financial
instrument
CEF Equity instrument
CEF Risk
Instrument
PF4EE
NCFF
EaSI
Capacity
Building
Investments
EaSI Microfinance and Social
Enterprise Guarantees
Student
Facility
Loan
Guarantee
Sharing
Debt
DG in
charge
Manager
Overall budget
envelope
(EUR m)
Total
commitments (as
of end 2016) (EUR
m)*
100,00
Target
Investment to
be mobilised
in EUR m)*
750,00
Infrastructure,
energy, and
climate action
Connecting
Europe Facility
(CEF)
CNECT
MOVE,
ENER,
CNECT
CLIMA
ENV
EMPL
EMPL
Direct
Management
500
EIB
400
4.200
Environment
and Climate
Action (LIFE)
Employment and
Social
Innovation
("EaSI")
Erasmus+:
education,
training, youth
and sport
Creative Europe
Programme
EIB
EIB
EIF
EIF
155,00
60,00
16,00
96,00
70,00
50,00
12,70
68,80
1.240
180
32
528
Employment and
social innovation
EAC
EIF
221,00
115,70
1.260
Education and
culture
Cultural and creative sectors CNECT,
Guarantee Facility CCSG
EAC
EIF
Total
123,00
14.521
14,80
9.080
701
562.226
* Total commitments are based on Article 140.8 Report as of 31 December 2016. Investment mobilised for Financial Instruments is calculated based
on the target multiplier indicated in Article 140.8 Report.
122
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A
NNEX
6: T
ECHNICAL
A
SSISTANCE
Existing TA initiatives: Commonalities and differences
Most EU advisory services focused on investment are currently delivered through the EIB and
cover a wide range of EU policy objectives. In some cases, the Commission builds synergies in
order to optimise the use of existing TA services for different policy objectives. For example,
ELENA expanded from energy efficiency to cover also innovative urban mobility. Likewise,
JASPERS was used not only to cover the preparation of projects under ESIF but also to support
the preparation of CEF transport projects. Most of the Technical Assistance is targeting final
beneficiaries in all Member States, in particular but not exclusively supporting public project
developers.
Initiatives for Investment support available at EU level differs in terms of size, coverage,
provider of the assistance, delivery mode, application of the FAFA provisions and the pricing to
final beneficiaries. The size of the initiatives ranges from very small initiatives (pilots) to well
established ones. Some of the TA available has been put in place to underpin the deployment of
innovative financing instruments and test the market's response. Some other TA services are
already at a mature stage and clearly known by the beneficiaries. Some TA services provided are
very specific (e.g. PF4EE, NCFF), based on targeted needs while others are providing broader
services (e.g. EIAH, JASPERS). In general, these specific TA actions are in place to reinforce a
regional or sector coverage. A better coordination between those two types of TA has to be
developed.
TA providers:
EIB is the main provider of centrally-managed TA. In some cases, the EIB is the TA
provider (e.g. JASPERS), whereas in other cases, the EIB is indirectly managing a TA
facility on behalf of the European Commission (e.g. ELENA).
Executive agencies have a specialised role in some sectors such as the SMEs or TA provided
to support medium-size energy efficiency projects (e.g. H2020 EE11 PDA, EASME)
Other IFIs have developed specific initiatives/ sector knowledge (e.g. EBRD Small Business
Support)
The Commission services can also provide, upon request from the Member States, legal
assistance on the public procurement aspects, through the voluntary ex ante assessment
mechanism for large infrastructure projects.
There are currently no initiatives undertaken through NPBs/NPIs (in the past, KfW provided
EU-supported TA; in the future, cooperation with NPBs is sought under the EIAH).
TA delivery mechanism:
The initiatives currently implemented are using several delivery mechanisms: executive
agencies, the EIB and other implementing partners which are directly (own staff or external
consultants under service contracts) providing the advisory services to the beneficiaries or
providing grant support for the beneficiary's technical assistance needs. Moreover, the EIB is
also using indirect delivery mechanisms through other implementing partners.
The pricing for beneficiaries is also different from one initiative to the other. A significant
part of the EU supported TA is free of charge for the final beneficiaries (especially if these
123
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are public project promoters). Experience shows that beneficiaries who cover at least part of
the costs of the services obtained, as for example for ELENA technical assistance, often
demonstrate a greater sense of ownership, leading to clearer roles and responsibilities,
increased involvement/ enhanced collaboration and better focus on tangible results.
The request for TA can be triggered (at individual project level) on a different basis: for
specific policy priorities (e.g. PF4EE, ELENA, H2020 PDA) or demand driven (e.g. EIAH,
JASPERS).
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Table: Technical Assistance Costs across the Different Existing and Upcoming Initiatives in the current MFF
TA costs
Delivery
mode
TA manager
TA provider(s)
Fee basis
Cost sharing
EU/EIB
EU
EIB
coverage
80% 20%
Cost coverage by
beneficiary
EU budget
(EUR)
Period of
implementation
JASPERS
FPA/ SGAs
EIB
EIB
EIAH
FPA/SGAs
EIB
ELENA
InnovFin
Advisory
DA
FPA/SGA
EIB
EIB
EIB/other
financial
institutions
(EBRD/NPBs)/
External
consultants
External
consultants
EIB
cost
coverage
(FAFA
rates)
cost
coverage
(FAFA
rates)
0
233,650,000
2014-2020
75%
25%
only private; of
which SMEs up to
33%
110,000,000
2015-2020
6% of the
TA provided
cost
coverage
(FAFA
rates)
6.5% of the
TA provided
100%
100%
0
0
10% of the TA
provided
0
279,000,000
28,000,000
2014-2020
2014-2020
EEEF
European
Commission
Technical
Assistance
EEEF
Technical
Assistance
Facility
EEEF Issue EIB
sub-
Document
delegation
agreement with
EEEF
Fund
manager (DB)
DA
EEEF
Fund
manager
External
consultants
100%
0
10% of the allocated
TA
20,000,000
2012-2017
External
consultants
by EEEF
20% of the
hired TA
disbursed
-
-
0
subject on
availability of
funds (EEEF
income waterfall)
2017+
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TA costs
Delivery
mode
TA manager
TA provider(s)
Fee basis
CEF
FPA/SGA
EIB
CEF - MSs
Grant
agreement
EIB / External cost
consultants
coverage
(FAFA
rates)
Rail
infra External
real costs
manager/
consultants
Ministries
EASME
EIB
External
consultants
External
consultants
-
5% of the
EU
contribution
committed
Cost sharing
EU/EIB
EU
EIB
coverage
90% 10%
Cost coverage by
beneficiary
EU budget
(EUR)
Period of
implementation
0
1,262,170
2015-2017
100%
0
0
11,644,862
2014-2020
H2020
PDA)
NCFF
(EE11 Agency
DA
-
100%
-
0
0
0 (Beneficiary may
be asked for a
financial
contribution on case
by case basis)
0
H2020 grants
10,000,000
2011-2020
2015-2019 +
(extension under
consideration)
PF4EE
DA
EIB
Smart
Service
Specialisation
contract
Platform
for
industrial
modernisation
City Facility
Grants
Islands Facility
Grants
GROW
EIB/
Financial 6% of the
intermediaries
EU
contribution
committed
External
consultants
100%
0
3,200,000
2014-2019
100%
n/a
1,500,000
2018-2020
ENER/EASME
ENER
Executive Agency
External
n/a
n/a
11,000,000
10,000,000
2018-2020
2018-2020
126
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TA costs
Delivery
mode
TA manager
TA provider(s)
Fee basis
Cost sharing
EU/EIB
EU
EIB
coverage
n/a
0
Cost coverage by
beneficiary
EU budget
(EUR)
Period of
implementation
consultants
Internal Market Commission GROW
- Voluntary ex services
ante
mechanism
EaSI
Service
EMPL
contract
TOTAL
Commission staff
-
-
2017- onward
External
consultants
13,000,000
731,257,032
127
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A
NNEX
7: L
IST OF POTENTIAL INDICATORS FOR THE
I
NVEST
EU F
UND
1.
Volume of InvestEU financing (broken down by policy window)
1.1 Volume of operations signed
1.2 Investment mobilised
1.3 Amount of private finance mobilised
1.4 Leverage and multiplier effect achieved
2.
Geographical coverage of InvestEU financing (broken down by policy window)
2.1 Number of countries covered by projects
3.
Impact of InvestEU financing
3.1 Number of jobs created or supported
3.2 Investment supporting climate objectives
3.3 Investment supporting digitalisation
4.
Sustainable Infrastructure
4.1 Energy: Additional renewable energy generation capacity installed (MW)
4.2 Energy: Number of households with improved energy consumption classification
4.3 Digital: Additional households with broadband access of at least 100 Mbps
upgradable to Gigabit speed
4.4 Transport: Investment mobilised in TEN-T of which: TEN-T core
4.5 Environment: Additional population served by improved water supply and/or
improved wastewater treatment
5.
Research, Innovation and Digitisation
5.1 Contribution to the objective of 3% of the Union's GDP invested in research,
development and innovation.
5.2 Number of enterprises supported carrying out research and innovation projects
6.
Reinforcement of SME (broken down by micro, small, medium sized and small
mid-caps and stage)
6.1 Number of enterprises supported
6.2 Number of enterprises supported by stage of supported enterprises (early,
growth/expansion)
7.
Social Investment and Skills
7.1 Social infrastructure: Capacity of supported social infrastructure by sector: housing,
education, health, other
7.2 Microfinance and social enterprise finance: Number of social economy enterprises
supported
7.5 Skills: Number of individuals acquiring new skills: formal education and training
qualification
128
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A
NNEX
8: E
XAMPLES OF INDICATORS FOR THE
SME W
INDOW
Initial two years of the
programme
1. Signature of agreement with
implementing partner
(As the SME guarantee facility
will be implemented through the
SME Window of the Single
Fund,
the agreement for the
single fund will have been singed
and the respective product annex
covering the SME guarantee
facility will have been included)
2.
Launch of calls
expression of interest
173
for
Target: within first year of
the programme
Medium-term
Long-term
N/A
N/A
How is this monitored:
Annual operational report
from implementing partner
How is this monitored:
Annual operational report
from implementing partner
3. Signature of agreements
with financial intermediaries
How is this monitored:
Annual operational report
from implementing partner
reports on transactions
signed
DG GROW to track
financing gap for SMEs per
Member States on a regular
basis (at least once per year)
through continuously
integrating latest available
data
174
Target: within first year of
the programme
N/A
N/A
Target: first agreement
signed within first year of
the programme
Target: within the first
three years guarantee
agreements signed in
at least half of the
countries identified to
have a significant
financing gap which is
not covered through
national/regional
interventions
(measured in % of
GDP)
Target: by the end of
the programme
period guarantee
agreements signed in
all of the countries
identified to have a
significant financing
gap which is not
covered through
national/regional
interventions
(measured in % of
GDP)
4. Additionality of transactions
/ no crowding-out of existing
Target: no complaints
national/regional
support
about clearly identifiable
schemes
crowding-out effects from
How is this monitored:
national/regional support
schemes
Annual operational report
173
174
Target: no complaints
about
clearly
identifiable crowding-
out
effects
from
national/regional
Target:
no
complaints
about
clearly identifiable
crowding-out effects
from
In accordance with Article 208 (4) of Financial Regulation 2018
In accordance with Article 209 (2) (h) of Financial Regulation 2018
129
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Initial two years of the
programme
from implementing partner
(implementing partner to
report how existing support
schemes have been taken
into consideration when
deciding on the scope of the
guarantee agreements
signed)
COM
to
monitor
official
complaints received by any of
the Commission services
175
5. Additionality of transactions
/ no support of activities
which
financial
intermediaries would have
undertaken also in the
absence of the guarantee
support according to its
business practices
176
How is this monitored:
COM to establish
mechanism which allows
monitoring of portfolio
criteria established in the
agreements with the
implementing partner,
compliance to be verified
before signature takes place
Regular monitoring visits to
financial intermediaries
(COM may accompany
implementing partner)
6. Additionality of transaction
at the level of the final
recipients (would the final
recipient have received the
financing for the same
amount and under the same
conditions in the absence of
the guarantee?)
175
176
Medium-term
Long-term
support schemes
national/regional
support schemes
Target: No guarantee
agreements
identified
which
would
allow
financial intermediaries to
finance activities within its
normal business practices
Target: No guarantee
agreements identified
which would allow
financial
intermediaries
to
finance
activities
within
its
normal
business practices
Target:
No
guarantee
agreements
identified
which
would
allow
financial
intermediaries
to
finance
activities
within its normal
business practices
Target:
Identified
Target: Identified
deadweight not more deadweight not more
than 35%
than 35%
In accordance with Article 209 (2) (b) of Financial Regulation 2018
In accordance with Article 209 (2) (b) of Financial Regulation 2018
130
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Initial two years of the
programme
How is this monitored:
On a survey/sample basis as
part of the mid-term and ex-
post evaluation
Please note that an ex-post
monitoring or a detailed ex-ante
assessment for each individual
transaction or for a very
significant
number
of
transactions is unrealistic and
would
create
significant
administrative
burden
for
financial intermediaries, final
recipients and the Commission
services involved.
7. Number of SMEs supported
How is this monitored:
Through regular operational
reports from the
implementing partner
8. Financing made available to
SMEs supported
How is this monitored:
Through regular operational
reports from the
implementing partner
(Assumptions made:
target range 1:10
–
1:20
Average size of financing
transaction: EUR 100,000)
9. Jobs
maintained/employment
created in supported SMEs
How is this monitored:
Annual
employment/growth
reports from the
implementing partner.
Report to be submitted for
N/A
Medium-term
Long-term
Target: to be set in Target: to be set in Target: to be set in
function of the available function
of
the function
of
the
budget
available budget
available budget
Target: to be set in
function of the available
budget
Target: to be set in
function of the
available budget
Target: to be set in
function of the
available budget
(Formula to be used:
Available budget * target
range * average size of
financing transactions)
(Formula to be used:
Available budget *
target range * average
size of financing
transactions)
(Formula to be used:
Available budget *
target range * average
size of financing
transactions)
Target: Employment
growth in supported
SMEs to exceed
employment growth of
the overall SME
population
Target: Employment
growth in supported
SMEs to exceed
employment growth
of the overall SME
population
131
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Initial two years of the
programme
the first time in the fourth
year of the programme with
data as per end of the third
year of the programme.
COM to monitor the general
employment growth in the
overall SME population
(currently Commission
established the annual report
on European SMEs)
As part of the
ex-post
evaluation:
econometric
study to determine how
employment has grown in
supported SMEs compared
to non-supported SMEs.
10.
Turnover
growth
supported SMEs
How is this monitored:
Annual employment/growth
reports from the
implementing partner.
Report to be submitted for
the first time in the fourth
year of the programme with
data as per end of the third
year of the programme.
COM to compare turnover
growth in supported SMEs
to general GDP growth
As part of the
ex-post
evaluation:
econometric
study to determine how
turnover has grown in
supported SMEs compared
to non-supported SMEs.
in
N/A
Medium-term
Long-term
Target: Turnover
growth in supported
SMEs to exceed overall
GDP growth
Target: Turnover
growth in supported
SMEs to exceed
overall GDP growth
132
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A
NNEX
9: E
XAMPLES OF INDICATORS FOR
S
OCIAL
I
NVESTMENT AND
S
KILLS
W
INDOW
The table below illustrates an example of monitoring indicators developed for the Student Loan
Guarantee, one of the products currently in place in the field of education. Specific indicators
will be developed at the product level under the Social Investment and Skills Window.
What
Where
does it
stem
from
How
collected
When
Detail
Target
Number
students
supported
of Legal
Financial
Quarterly
base
Intermediary
indicator
(headline)
Annex II (3) (a)
the number
200,000
of students in receipt of loans
backed by the Facility ,
including data on their
completion rates
- number of students with
loan
- number of students
finishing their programme
Volume
lending
of Legal
Financial
Quarterly
base
Intermediary
indicator
(headline)
EIF calculate
Annex II (3) (b)
the volume
EUR
of lending contracted by
3.2 bn
financial intermediaries
calculated from the volume x6.17
of lending committed and
EU contribution
calculated from the volume
and number of students
Number
of
financial 35
intermediaries, from which
countries
Article 20 legal base
EIF shall endeavour to select
a financial intermediary
from
each
Programme
country, in order to ensure
that students from all
Programme countries have
access to the Student Loan
Guarantee Facility in a
consistent
and
non-
discriminatory manner
+
Annex II (1) (c) + Annex II
Leverage
Average size of
loan
Geographic
coverage
Legal
base
EIF calculate
EIF
133
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What
Where
does it
stem
from
How
collected
When
Detail
Target
(3) (h)
Access to finance by all
residents of Programme
countries as referred to in
Article 24(1)
Amount
of Financial
guarantee drawn indicator
down
Level of interest Legal
base
rates
indicator
EIF calculate
Financial
Intermediary
Quarterly
Annex II (3) (c)
the level of
interest rates
Ave interest rate for their
portfolio
by
financial
intermediary
The call for expression of
interests to include a
requirement for banks to
demonstrate how they intend
to pass on the benefit of the
EU guarantee in terms of a
reduction on the interest rate.
Banks should monitor and
report on how they are doing
this
–
the actual level of
interest that they are offering
and the % reduction it
represents on the interest rate
they would otherwise charge
Outstanding debt Legal
and default
base
Financial
Intermediary
Quarterly
Annex II (3) (d)
Outstanding
debt and default levels,
including any measures
taken
by
financial
intermediaries against those
who default on their loans
Fraud prevention Legal
measures
base
Financial
Intermediary
Business
Plan
Annex II (3) (e)
fraud
(+ quarterly
prevention measures taken
update
if
by financial intermediaries
appropriate)
134
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What
Where
does it
stem
from
Legal
base
Annex
(3) (f)
Legal
base
Annex
(3) (f)
How
collected
When
Detail
Target
Student sex
Financial
Intermediary
II
Quarterly
Information to be collected
once at loan application
stage by student
Question: male/female
Student age
Financial
Intermediary
II
Quarterly
Information to be collected
once at loan application
stage by student
Question: date of birth
Student origin 1
Legal
Financial
base
Intermediary
Annex II
(3) (f) +
Eligibility
criterion
Quarterly
Information to be collected
once at loan application
stage by student
Question: What is your home
country or country of normal
residence?
Student origin 2
Legal
Financial
base
Intermediary
Annex II
(3) (f) +
Eligibility
criterion
Quarterly
Information to be collected
once at loan application
stage by student
Question: In which country
did you obtain your Bachelor
degree (or the equivalent
qualification) which qualifies
you to apply to the masters
programme that you want to
follow?
Student
destination
Legal
Financial
base
Intermediary
Annex II
(3) (f) +
Eligibility
criterion
Quarterly
Information to be collected
once at loan application
stage by student
Question: In which country
is the Master programme (or
equivalent) which you wish
to follow
Study field
Legal
base
Annex
(3) (f)
Financial
Intermediary
II
Quarterly
Information to be collected
once at loan application
stage by student
Which of the following study
fields corresponds most
closely to your chosen
programme:
1. Education
135
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What
Where
does it
stem
from
How
collected
When
Detail
Target
2. Arts and Humanities
3. Social Sciences,
Journalism and
information
4. Business, Administration
and Law
5. Natural sciences,
Mathematics and
statistics
6. Information and
Communication
Technologies
7. Engineering,
Manufacturing,
Construction
8. Agriculture, Forestry,
Fisheries and Veterinary
9. Health and Welfare
10. Other
To have no influence on the
loan decision
Student
details
contact
Financial
Intermediary
Quarterly
Information to be collected
once at loan application
stage by student
Address, contact
number, email
Needed by banks
Statement: By signing this
application you confirm that
you are content with your
contact details being passed
on to an independent
research body contracted by
the European do conduct an
evaluation of the loan
facility.
Socio-economic
background
Legal
base
Annex
(3) (f)
Financial
Intermediary
II
Quarterly
Question: Does either of
your parents have a higher
education
qualification
(yes/no/don’t know or prefer
not to say)
phone
136
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What
Where
does it
stem
from
How
collected
When
Detail
Target
Geographical
Legal
balance
of base
uptake
Annex
(3) (g)
EIF
II
Calculated
Legal Base Annex II (3) (f)
–
this is to be drawn from the
student
origin
and
destination data
137
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A
NNEX
10: D
EFINING AND ASSESSING ADDITIONALITY
Additionality is a key principle underpinning EU support whether provided as grants or in the
form of financial instruments. The general principle of additionality as set out in the EU
Financial Regulation
177
, stipulates that EU financial instruments should not crowd-out or
substitute existing sources of funding (whether EU, national or private). In other words, if a
project or investment can be financed with own means, private sources of finance or by
means of another public intervention (whether EU or national) at affordable conditions, the
support from EU financial instrument is not additional, but a substitution. Additionality
therefore represents the extent to which a project or investment can be carried out in
reasonable terms as a result of support from the EU financial instrument in consideration. A
similar concept is expected to be laid out in the amended Financial Regulation.
Empirical evidence on additionality of existing EU central financial instruments and EFSI is
mostly based on small sample sizes of beneficiaries and/or opinions of stakeholders.
Gathering data evidence for the purpose of assessing the additionality of EU support ex-ante
has proven difficult. Therefore when designing new financial interventions, it is critical that
attention is paid to the ex-ante assessment of potential substitution or cannibalising effect of
the new instrument on existing financing initiatives. Furthermore, evidence and analysis of
additionality should be systematically collected and reviewed ex-post, for the operations
under support.
Although additionality cannot be ‘proven’ or ‘exactly measured’, it is possible to enhance its
assessments in practical ways, with the aim to enable the relevant EU programme to improve
its effectiveness.
Suggested additionality criteria for the InvestEU Fund
General principles of additionality have been adopted by all key multilateral and bilateral
agencies working in the area of private sector development. In line with their collective
agreements on common concepts guiding their work with the private sector, and building
upon the lessons learned from past experience in implementing EU financial instruments and
EFSI, one can distinguish between financial and non-financial additionality. The particular
terms and structuring of a financing operation (including not only pricing but also other key
aspects such as tenor, grace period, repayment schedule), together with the risk mitigation
and mobilisation of private resources constitute the financial aspects of additionality. Non-
financial additionality is represented by all other features that the InvestEU Fund support
brings into the project, including economic additionality (i.e. whether the envisaged support
addresses market failures or sub-optimal investment situations), specialist advice or expertise,
etc.
Given the above, the following non-exhaustive list of criteria can be drawn up potentially for
the assessment of the additionality of the InvestEU Fund support both at portfolio, and at
177
Regulation (EU, Euratom ) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the
financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002
138
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project level. These criteria and the underlying indicators could then be considered as
positive factors when assessing additionality. In all circumstances, however, the
implementing partner should demonstrate that the proposed operation tackles a market failure
or suboptimal investment situation.
The main criteria could be the following:
Identified market failures (for example information asymmetry or difficult access to
market or resources) which constrain the availability of finance or the terms on which
finance is available for projects;
The project or investment is expected to deliver a significant societal return, but the
financial return is not in line with the expectations of the market;
Underdeveloped capital markets restricting the volume and/ or type of finance available;
High levels of perceived or actual risk in certain sectors or countries, beyond levels that
private financial actors are able or willing to accept;
Support from the InvestEU Fund is provided through a subordinated position within the
funding structure or for long tenors, which allows for a high risk absorption capacity;
Regulatory constraints;
Public/private support will be made available as a result of the financing support provided
under the InvestEU Fund
EU intervention can significantly enhance the environmental benefit or will have a
positive impact on social integration
Cross-border projects or related services.
These criteria are further elaborated in the table below. Moreover, the table below also sets
out a series of proxy indicators which could be used to assess additionality of the activity
undertaken by the implementing entity receiving EU support. At a very basic level, EU
support should enable the implementing entity to take higher risks to address the above
conditions (for example, by creating new, riskier products or adjusting pricing levels of
existing products) and/ or create higher volumes of activity.
139
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Table1 : Indicative additionality criteria for support to be provided under the InvestEU Fund
Type of
Additionality
additionality criteria
Financial
Market failures
–
information failures
Explanation
Suggested indicators for verifying additionality of
InvestEU Fund support
Development of riskier financing products to cover
under-served market segments
Share of operations representing first time
counterparts
Share of investment going to first time VC teams
Although the project / business is viable, it encounters
difficulties to obtain financing from the market for the
requested volume on reasonable terms due to
information asymmetries e.g. in the case of SMEs,
specific transaction characteristics (e.g. first time
borrower, first time VC team)
The project or investment is expected to deliver a
significant societal return, but the financial return is not
in line with the expectations of the market
The benefits expected from the positive externalities of
the projects (such as emissions reductions, enhancing
biological diversity, research and development and
deployment of innovative technologies, or affordable
provision of basic infrastructure services) may not be
fully monetized by investors immediately. This could
make the private financial internal rate of return lower
than the true economic rate of return for society.
Financial players or products or certain features of
products (e.g. long tenors, loan amount) not being
available in certain countries
Market failures -
gap between private
and social returns
(public goods,
externalities)
Increase in volume of financing provided to sectors
with high positive externalities e.g.
-
Microfinance
-
Climate change
-
Environment
-
Research and innovation
Market
imperfections
–
under-developed
markets
Applies to implementing partner only
Increase in volume of financing to countries
with under-developed capital markets
Development of specific products (possibly with
140
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Table1 : Indicative additionality criteria for support to be provided under the InvestEU Fund
Type of
Additionality
additionality criteria
Explanation
Suggested indicators for verifying additionality of
InvestEU Fund support
higher levels of subordination) for under-
developed financial markets
High sector or
country risk
The project / activity would not be otherwise
undertaken because of their relative novelty, high
perceived risk, or high initial cost of an undemonstrated
market behaviour, currently adverse or as of yet still
untested regulatory framework, or untested technology
Although the project is considered viable, the political
risks in the country deter private investors.
Increase in volume of financing to specific high
risk sectors
Increase in volume of financing to high risk
countries
Development of specific products / product
features for high risk sectors
Development of specific products / product
features for high risk countries
Capacity to attract
further financing
The financing provided with support from the InvestEU
Fund allows to attract resources from long term
investors through its subordinated features
Deployment of subordinated products
Regulatory
constraints
Regulatory constraints limiting FIs’ capacity to lend to
Applies to implementing partner only
certain sectors / segments (e.g. exposure limits or
Increase in volume of financing to sectors /
capital requirements imposed by banking regulations) or
segments affected by regulatory constraints
undertake certain types of investment (e.g. cross-border
Increase in certain types of activity e.g. SME
investment)
securitisation, cross-border VC activity
141
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Table1 : Indicative additionality criteria for support to be provided under the InvestEU Fund
Type of
Additionality
additionality criteria
Non-
financial
Social or
environmental
impact additionality
Explanation
Suggested indicators for verifying additionality of
InvestEU Fund support
EU financing helps enhance the social or environmental Incremental societal or environmental impacts expected
impact of the project beyond what was originally in return
envisaged, for example by fostering higher
environmental or energy efficiency considerations in the
design and implementation of supported projects or
supporting the adoption of latest and more expensive
technology
The project / investment is of a strategic cross-border Increase in financing of cross border projects
nature e.g. energy or transport infrastructure connecting
several Member States
Cross border
dimension
142
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Table 2: Relevance of additionality criteria per policy window
Policy window
Type of additionality
Additionality criteria
Market failures
–
information
failures
Market imperfections
–
missing or under-developed
markets
Market failures - gap between
private and social returns
Capacity to attract/mobilise
further financing
Sector or country risk too high
Regulatory constraints
Non-financial
Social or environmental impact
√
√
√
√
SME
√
√
Research &
Innovation
√
√
Social, skills &
human capital
(partly, e.g.
Microfinance)
√
√
Sustainable
infrastructure
Financial
√
√
√
√
√
√
√
√
√
√
(partly e.g. Social
Housing)
√
√
√
Cross border dimension
143
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A
NNEX
11: A
CCESS OF NON
-EU M
EMBER
S
TATES TO
EU
FINANCIAL INSTRUMENTS
Creative
COSME Europe EaSI
Erasmus Horizon
+
2020
LIFE
Category
Country
Candidates, potential
candidates and
acceding countries
to the Union
Albania
EU Neighbourhood
EU Neighbourhood
EU Neighbourhood
EU Neighbourhood
Algeria
Armenia
Azerbaijan
Belarus
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Candidates, potential
candidates and
acceding countries
Bosnia and
to the Union
Herzegovina
EU Neighbourhood
EU Neighbourhood
Egypt
Georgia
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
EFTA which are part
of EEA, European
Environmental
Iceland
Agency
EU Neighbourhood
EU Neighbourhood
Israel
Jordan
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Candidates, potential
candidates and
acceding countries
to the Union
Kosovo
EU Neighbourhood
EU Neighbourhood
Lebanon
Libya
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
EFTA which are part
of EEA, European
Environmental
Agency
Liechtenstein
EU Neighbourhood
Moldova
x
x
x
x
x
x
x
x
x
x
Candidates, potential
candidates and
acceding countries
to the Union
Montenegro
EU Neighbourhood
Morocco
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
EFTA which are part
of EEA, European
Norway
144
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Category
Environmental
Agency
EU Neighbourhood
Country
Creative
COSME Europe EaSI
Erasmus Horizon
+
2020
LIFE
Palestine
x
x
x
x
x
Candidates, potential
candidates and
acceding countries
to the Union
Serbia
Swiss
Confederation,
EFTA
EU Neighbourhood
x
x
x
x
x
Switzerland
Syria
x
x
x
x
x
x
x
x
x
Candidates, potential
candidates and
acceding countries
FYR
to the Union
Macedonia
EU Neighbourhood
Tunisia
x
x
x
x
x
x
Candidates, potential
candidates and
acceding countries
to the Union,
European
Environmental
Turkey
Agency
EU Neighbourhood
Ukraine
x
x
26
23
9
23
x
x
27
x
x
27
145
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A
NNEX
12: A
SSESSMENT OF DUPLICATION
,
SYNERGIES AND OVERLAPS
Avoiding overlaps among programmes and exploring synergies requires careful attention
and coordination among a number of Commission DGs under the current MFF.
For example, in the area of SME financing, the current MFF has at least 14 different
instruments focusing on SMEs under internal, centrally managed EU financial instruments
and the EFSI, see the tables on potential overlaps below. They are implemented by 4
different Commission DGs and two implementing partners. Coordination taking place
through the FIIEG (Financial Instruments Independent Expert Group) and Steering
Committees for each of the instruments as well as Joint Steering Committees for equity
and guarantee instruments. Such setup is not perfect and there is indeed evidence of partial
overlap, e.g. between COSME Loan Guarantees and EaSI Guarantees.
Overlaps exist also in other areas, in particular having arisen following the establishment
of the EFSI, as recognised by the external EFSI evaluation and the EIB evaluation carried
out in 2016. For instance the target group of EFSI support to innovation financing by the
EIB could also be partially served by the InnovFin financial instruments under Horizon
2020. In the areas of infrastructure, projects potentially eligible under the Connecting
Europe Facility Debt Instrument could also be targeted by the EFSI.
While coordination among Commission DGs (through the FIIEG), inter-service
consultations and Steering Committees, as well as informal coordination among DGs, can
help avoiding overlaps and make instruments work in synergy, there are still however
partial overlaps among programmes. In addition, the coordination requires significant
effort.
The InvestEU Fund with its centralised approach, a single fund, a single Steering Board, a
single approval process of the operations by the Investment Committees, a single
agreement with each implementing partner and participative involvement of all relevant
policy DGs in the Policy Boards and the Inter-Service Coordination Committee would
ensure that EU financing is channelled in a coordinated and harmonised manner, without
overlaps.
146
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Potential overlaps - DEBT PRODUCTS SUPPORTING LENDING TO SMEs, 2014-2020
Product name
COSME LGF (Loan
Guarantee Facility)
InnovFin SMEG (SME
Guarantee)
96
EaSI Guarantee Instrument
CCS (Cultural and Creative
Sectors) Guarantee Facility
121
1.137
CNECT
REGIO
GROW
RTD
EIF
EIF
EMPL
EIF
Budget
(EUR mln)
840
1.060
DGs in
charge
GROW
RTD
Manag
er
EIF
EIF
Target
SMEs
SMEs and Small
Mid-Caps
Specific focus
SMEs with a high-risk
profile
Innovative and
research-intensive
SMEs and Small Mid-
Caps
Implemented through
microcredit providers
and social enterprise
investors
Cultural and creative
sectors
Developed as an anti-
crisis measure. No
specific target groups,
but focus on
participating
Countries.
Implemented through
microcredit providers
and social enterprise
investors
Cfr. COSME LGF
Cfr. InnovFin SMEG
Comment
Contributing to
SMEI
Contributing to
SMEI
Potential overlap
178
Joint governance and loan size
differentiation.
Possible overlap with the SMEI
Social enterprises,
micro-enterprises
and vulnerable
groups
SMEs
SMEs
Guarantee
EASI Sub-fund
Possibly with COSME LGF
-
Operational in BG,
FI, MT, RO, IT and
ES.
InnovFin and
COSME resources
form part of SMEI
resources.
Funded product
COSME LGF
InnovFin SMEG
InnovFin SMEG
COSME LGF
SME Initiative
EASI Sub-fund
(under
development)
COSME LGF Frontloading
Top-up
InnovFin SMEG
EFSI
67 EASI +
133 from
EIB/EIF
550
880
EMPL
EIF
Social enterprises,
micro-enterprises
and vulnerable
groups
EaSI Guarantee Instrument
ECFIN
ECFIN
178
In terms of targeted final beneficiaries and expected policy achievements.
147
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Frontloading
Top-up
EaSI Guarantee
Frontloading
Top-up
CCS Guarantee
Top-up
Securitisation instrument
(under development)
100
60
100 + 100
from
EIB/EIF
ECFIN
ECFIN
ECFIN
EIF
SMEs and Mid-Caps
(to be finalised)
Cfr. EaSI Guarantee
Cfr. CCS Guarantee
Development of the
securitisation market
-
COSME LGF securitisation
Potential overlaps - EQUITY PRODUCTS TO SUPPORT CAPITAL INVESTMENT IN SMEs, 2014-2020
Product name
COSME EFG (Equity
Facility for Growth)
Budget
(EUR mln)
490 (including
fees)
DGs in
charge
GROW
Manager
EIF
Target
SMEs
Specific focus
Companies in expansion
stage
Comment
Contributes to Pan-EU
VC FoF
Potential overlap
179
SMEW Eq. Instr.
Pan-EU VC FoF
ESCALAR
RCR
EaSI Capacity Building
Investments Window
ESCALAR
(under
development)
16 (including
fees)
tbd
EMPL
EIF
GROW
ECFIN
tbd
Micro-credit and
social finance
providers
SMEs and mid-
caps (to be further
specified)
Build up of the
institutional capacity of
financial intermediaries
Expansion & growth
phase, pre IPO
In exceptional cases
providing also loans
Innovative support to
VC funds through
guaranteed loans
COSME EFG
SMEW Eq. Instr.
Pan-EU VC FoF
EIB-EIF MFF
RCR
Potentially any other
product.
(see SMEW Equity
RCR
9.500 (of which
2.500 from EFSI)
495 (including
-
IFE (InnovFin Equity)
RTD
EIB
(mandate
to EIF)
EIF
SMEs and mid-
caps
SMEs and Small
Companies from pre-seed
to expansion.
Companies in their pre-
-
No longer stand alone,
179
In terms of targeted final beneficiaries and expected policy achievements.
148
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fees)
Mid-Caps
seed, seed, and start-up
phases in H2020 sectors
Companies from pre-seed
to expansion. Specific
envelopes foreseen for:
tech-transfer, business
angels, social investment
Companies from pre-seed
to expansion
SMEW Equity
Instrument
1.270 (including
fees) + 458 from
IFE + 290 from
EIF
Up to 300 from
SMEW Equity
Instr. + up to 100
from COSME
500
ECFI
N
RTD
EIF
SMEs and Small
Mid-Caps
being fully integrated
with SMEW Eq. Instr.
(see below)
EFSI resources are
combined with IFE and
EIF resources into a
single product
Falling under the
SMEW Equity
Instrument, it combines
COSME resources
Co-investment in funds
where EIF is already
present with non-EFSI
resources
-
Instr.)
Potentially any other
product.
Pan-European
Venture Capital Fund
of Funds
EIB-EIF SME FIF
(Funds Investment
Facility) (under EFSI
IIW)
EIB-EIF MFF
(Midcap Funds
Facility) (under EFSI
IIW)
EIB-EIF CIF (Co-
investment Facility
under IIW)
EFSI
ECFI
N
RTD
GRO
W
-
EIF
SMEs and Small
Mid-Caps
COSME EFG
ESCALAR
RCR
EIB
(mandate
to EIF)
EIB
(mandate
to EIF)
EIB
(mandate
to EIF)
SMEs
Companies from pre-seed
to expansion
COSME EFG
SMEW Eq. Instr.
RCR
500
-
Mid-caps
Expansion & growth
phase
100 + 100 EIB
-
SMEs and Mid-
Caps
Companies from pre-seed
to expansion
COSME EFG
SMEW Eq. Instr.
ESCALAR
RCR
Co-investment alongside COSME EFG
funds where EIF is
SMEW Eq. Instr.
already present
ESCALAR
RCR
149
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A
NNEX
13: I
NVEST
EU F
UND
–
G
OVERNANCE
Figure: Visual representation of the current governance arrangements for EFSI and centrally managed FIs
150
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Figure: Proposed InvestEU Programme Governance
151