As the European economy begins on the long path to recovery, particularly with the introduction of COVID-19 vaccination programmes and the loosening of restrictions, the EIF intends to leverage off its strong performance in 2020 to continue mobilising resources in support of SMEs across Europe, quickly, effectively and in record volumes.
This will be achieved primarily through the deployment of the EGF across participating Member States but also, in the short-term, through an expansion of our emergency COVID-19 measures to support European businesses most impacted by this difficult year. In parallel, we shall be building on two generations of very successful financial instruments deployed in cooperation with national and regional authorities, and using a multitude of new tools to intensify our investment activity in and on behalf of EU Member States.
We are all acutely aware that lifting out of the crisis also entails diving into a digital and green transition. Recovery efforts cannot jeopardise these strategic objectives. This will be reflected in the refocusing of the EIF’s activity around thematic policy objectives that will support this transition. We also expect our efforts in aligning to the Paris Agreement to start taking shape.
On the horizon, we also have the InvestEU programme. Its design phase will be ramped up in 2021 on the back of the agreement on the EU Multi-annual Financial Framework, leveraging on the successful initiatives of the previous programming period.
Completing the spectrum of EIF investors, we expect to see an important expansion of our private fundraising initiatives as investor activity picks up again in a low-interest climate.
EGF: Responding to the emergency
The EIB Group launched the EGF as a complement to other actions undertaken at EU level in response to the crisis triggered by the COVID-19 pandemic.
The objective of the EGF is to respond to the economic impact of the COVID-19 pandemic by ensuring that companies in participating Member States have sufficient short-term liquidity available to weather the crisis, and are able to continue their growth and development in the medium to long-term by expanding the availability of risk capital.
Through the EGF, the EIF will deploy a number of guarantee, debt fund and equity products in cooperation with selected financial intermediaries for the benefit mainly of SMEs and small mid-caps but also mid-caps. In this effort, we will rely on our strong pan–European network of financial intermediaries who are already familiar with the advantages of such products and the relevant processes and requirements, in order to deploy quickly and effectively.
By pooling credit risk across all of the participating EU Member States – the first time this is happening at European level - the overall impact of the fund can be maximised whilst the average cost of the fund will be significantly reduced compared to national schemes.
The EIF will ramp up the implementation of the EGF initiative in 2021, which will be the year in which the majority of the deployment will be concentrated. The plan is to approve all commitments by the end of 2021, committing in total around EUR 12-13bn in support of European SMEs and mid-caps.
Deploying COVID-19 measures & regional mandates
During 2021, the EIF will primarily deploy national mandates signed in 2020, as well as legacy regional mandates (e.g. Western Balkans Guarantee Facility, Cyprus Entrepreneurship Fund (CYPEF), JEREMIE Romania), aimed at supporting SMEs affected by the COVID-19 crisis. In addition, the EIF will aim to sign new tailor-made initiatives - possibly combining them with the EGF.
The EIF will focus on the development of its regional activity through cooperation models with Member States and national promotional institutions. This will be achieved with the gradual introduction of country strategies to develop targeted interventions that optimise the EIF’s additionality and respond to national priorities.
Focussing on Public Policy Goals
The EIF itself will be embarking on a journey of digital transformation while re-centring its activity around relevant thematics and Public Policy Goals (PPGs). Our efforts in support of EU priorities will take the form of thematic interventions with clear policy targets. For the first time, the EIF's activity will be planned and monitored against the newly defined PPGs. These goals are closely aligned to the EIB’s PPGs, enabling a Group-wide tracking of policy-based delivery. The focus on policy will be cascaded throughout the EIF from mandate acquisition strategy to deployment, reporting and monitoring. The EIF PPG framework has been designed in alignment with that of the EIB and will be characterised by four key pillars:
- Competitiveness & Growth
- Social Impact, Skills & Human Capital
- Sustainability & Green Transformation Additionally, two transversal categories will cut across these four pillars and capture their contribution to concrete PPGs:
- Climate Action and Environmental Sustainability
- Economic and Social Cohesion
A big part of our shift to focus more on thematic and policy priorities will be reflected in our efforts towards climate action and environmental sustainability. The ongoing work developing definitions, criteria and thresholds to ensure alignment with the Paris Agreement and EU Taxonomy for sustainable finance principles will continue and begin to bear fruit, including closer tracking of green financing and improved climate risk screening tools.
As of 2021, the EIB Group’s Infrastructure and Climate funds activity will also be transferred from the EIB to the EIF. The EIF plans to make an important contribution to both EU and EIB Group climate targets by investing in infrastructure funds that target, amongst others, climate adaptation or mitigation, as well as environmental sustainability, in energy, transport, environment, digital connectivity, space and social infrastructure.
Overall, the EIF will contribute to the EIB Group's climate objectives and align its activities with the goals of the Paris Agreement. With InvestEU and dedicated mandates such as the Infra and Climate Funds, we expect to step up our efforts and gradually increase our target in terms of supporting climate action and environmental sustainability.
The EIF’s ambition is to target 10% of our activity to the areas of climate and environment in 2021, excluding EGF activity.
InvestEU: next generation financial instruments
The EIF, together with the EIB, will be the key implementing partner of the EU’s new financing programme, InvestEU, which will offer a EUR 26bn guarantee to its implementing partners. The EIB Group will be managing 75% of its overall guarantee capacity.
Under InvestEU, the EIF expects to deploy the full suite of intermediated products relying on its pan-European reach, effective intermediary network and financial expertise, while increasing our focus on key EU policy priorities.
Our intention is to step up efforts in scaling support to innovation-driven enterprises, adoption of digital technologies, transition to green energy, increasing investments in energy efficiency by both industrial and residential sectors, investments in and adoption of clean transport solutions, while ensuring a fair and inclusive transition towards sustainability-linked models.
We will also use InvestEU to boost support to the cultural and creative sectors, education and skills, microfinance and social enterprises, as well as provide continuation finance for impact-focused businesses. InvestEU will also aim to increase financing for women-led and diverse funds and companies.
The EIF will aim to continue to contribute to ecosystem building in the area of disruptive technologies, such as space technologies, artificial intelligence, blockchain, cybersecurity and quantum computing and seek to build momentum towards clean-tech investments by supporting energy, agri-tech, food-tech and circular economy strategies.
Scaling further the EIF's support to life sciences will remain an important priority, given significant underfunding of this sector in Europe. Similarly, building digital ecosystems to level geographic discrepancies, as well as providing significant funding to enable scaling of digital champions, would be high on the EIF's agenda.
Such scaling is needed across other sectors and must be facilitated also by developing the access to capital markets. In that context, the EIF aims to support cross-over strategies necessary for scaling companies pre- and post-IPO. In concert, these efforts will make an important contribution to further building up the European equity ecosystem, across all stages, and making tangible progress on completing the capital markets union.
At the same time, given the reduced budgetary envelope for InvestEU, we will continue to explore possibilities for collaboration on other sectoral programmes, such as Horizon Europe, Connecting Europe Facility (CEF), Innovation Fund, Digital Europe and the Creative Europe MEDIA Programme, as well as some other smaller programmes covering maritime, space and social areas.
“With InvestEU, we are bringing together the multitude of interventions that we have today into a financing platform that is more focussed, a one-stop shop for businesses - everything under one roof, with a single set of rules for the market, fit for purpose, while addressing different policy objectives.”
Boosting private fund-raising activity
The EIF wants to continue to attract private investment capital from institutional investors as a means to continue supporting its investment role in the European PE and VC markets and further EU policy objectives.
In September, the EIF Board approved the AMUF second generation, aimed at raising EUR 1.2bn to be invested into European PE & VC funds following its predecessor’s investment strategy of focusing on growth capital, VC tech and VC life science. We plan to launch it in early 2021.
In parallel, the Sustainable Development Umbrella Fund (SDUF) was established by the EIF to accommodate investment solutions that have a pre-defined target return, but also a strategic or sustainability impact. Its goal is to offer easy access for private and public investors to selected thematic areas of high strategic relevance.
After the initial focus on life sciences (SDUF-Health), this instrument will turn to social impact, seeking to build a diversified portfolio of underlying funds targeting investments in the field of employment, social inclusion, housing, healthcare and education, pooling resources from public and private investors, both return-seeking investors and investors seeking to improve the capital efficiency of their philanthropic resources. Given this emphasis on business models aiming to address different societal challenges, it will naturally contribute to the achievement of multiple SDGs. Looking ahead, the SDUF is also exploring climate and clean-tech investments.
In view of these ambitious targets and the significant expected increase in the EIF’s activity, discussions have begun among shareholders in relation to increasing the EIF’s authorised capital. The intention is to approve an increase in share capital by more than 60%, to approximately EUR 7.4bn in early 2021. This development will put the EIF in a stronger position to roll-out its various initiatives in support of European SMEs, most notably InvestEU.