Sustainability & Green Transformation - EIF Annual Report 2023 (2024)

Sustainability and economic resilience are inextricably linked. Investing in environmentally sustainable projects and businesses not only mitigates environmental risks but also enhances the resiliency of European economies, yielding more green jobs, greater financial stability and increased market competitiveness, amongst other things.

In the face of the severity of climate change, biodiversity loss and the need to hasten the green transition, and in support of EU climate policy, we have increased our investment activity in climate and environmental impact funds, committing close to €1bn in more than 25 VC, PE and PC funds, effectively doubling our 2022 investment volumes, and a further €1bn in climate and infrastructure funds. We have sought to address persistent funding shortfalls in key and underserved markets by supporting new funds in the energy, agri-food, circular and blue economy sectors as well as enhance coverage of geographies such as Italy, Portugal and Ireland, amongst others.

Energy efficiency and security have also assumed greater importance, with the REPowerEU initiative driving strategic investments that seek to change the way we power our lifestyles and the European economy as we shift to a more sustainable footing.

At the same time, the European Commission's InvestEU sustainability guarantee has been rolled out rapidly, responding to strong market demand and flanked by significant capacity-building efforts as we all collectively adapt to more sustainable business models.

The sustainability guarantee has been a major component of our InvestEU efforts and has met with huge demand from the markets—more than twice oversubscribed. Despite the novelties and challenges surrounding the eligibility criteria, the extremely high demand confirms the willingness of financial intermediaries to move in this direction, and it also reflects the needs of the markets. This has entailed significant effort on the EIF’s side, with this year seeing in-depth discussions with our partners to ensure that this product is well understood and effectively implemented.

One highlight was the transaction with our shareholder SID Banka in Slovenia. The EIF provided a €42m guarantee that is expected to unlock €72m of new loans for micro-, small and medium-sized enterprises. The agreement will enable businesses investing in innovation, digitalisation and the green transition to benefit from lower interest rates and lower collateral requirements when seeking access to financing.

Further north, with the backing of the sustainability guarantee, Denmark’s Export and Investment Fund will be able to further support Danish customers in their green transition with access to funding on preferential terms. Co-financed projects in the areas of renewable energy, energy savings and resource efficiency, representing an estimated DKK 575m (€77.3m) in new loans for Danish businesses, will bridge the gap between traditional bank financing and equity capital.

And in Sweden, we signed our first transaction targeting companies with a Product-as-a-Service (PaaS) model. In particular, a guarantee agreement with Lisa& will make available over SEK 278m (€24.8m) with reduced interest rates and longer maturities to support Swedish companies with a circular economy business moddel. PaaS is a service-based business model in which companies retain economic ownership over a product and offer it to customers who pay a time- or use-based subscription fee. This type of business model is core to the circular economy, as it facilitates reuse and more efficient use of products, and reduces emissions.

At the mandate level, the Finnish government proposed the EIF as the implementing partner for a sustainability guarantee instrument, which builds on the successful implementation of the SME Initiative. With a total budget of up to €100m, including €17m ESIF and €83m national (RRF) budgetary resources, this new instrument will target the fields of climate action, energy efficiency and renewable energy in order to support the Finnish government’s objective of reaching carbon neutrality by 2035. It will also support local enterprises, individuals and housing associations, accelerating their transition to carbon neutrality in accordance with Finland’s national strategy. The deployment will run through the InvestEU Member State Compartment.

A significant challenge when pursuing sustainability is crowding in other investors to pursue shared objectives, which is one reason why, in early 2023, we launched the Sustainability Development Umbrella Fund (SDUF) GreenTech, a fund-of-funds backing innovative new technologies aiming to combat climate change. SDUF GreenTech's goal is to act as a new tool for institutional investors and it will make a major contribution to the green tech sector, which has reached exponential market maturity in the last 15 years. With a target size of €250m, including a €20m EIF contribution and €40m from Italian Cassa Forense, the fund plans to provide institutional investors with direct access to the venture capital and private equity ecosystem. With over ten funds, more than 150 partner companies, and an expected mobilisation of over €1bn in green investments, the portfolio is expected to grow substantially.

Impact investing has experienced significant growth in recent years, generating positive social and environmental impact alongside financial returns. Relying on our extensive experience in the field, we have continued to back generalist fund managers with strong track records as well as specialised fund managers, who in turn will back the next generation of technological innovators looking to make their mark on environmental sustainability and the battle against climate change, whether in the fields of plastic recycling and battery storage or agritech and energy efficiency.

In the Netherlands, we signed a €50m participation in Infinity Recycling’s Circular Plastics Fund I, a European impact fund that invests in companies developing new processes for advanced plastics recycling. The fund supports companies with scalable technologies that need financing for the industrial and commercial scaling of their operations and has a target size of €150m.

Up north, we made a €35m investment in Finland’s Voima Ventures Fund III, a technology transfer fund targeting proof of concept, (pre-)seed, start-up and other early-stage investments. With a target fund size of €90m, Helsinki-based Voima have made it their mission to support Nordic and Baltic early-stage deep tech companies with globally scalable solutions. The manager is also meeting the InvestEU gender criteria.

A large part of this year’s activity has been dedicated to tackling the energy crisis, which necessitated a multipronged approach, including improving energy efficiency, generating energy from renewable sources, and setting up the necessary infrastructure to power it all. We have gone about this by using a variety of different mandates, including InvestEU and REPowerEU, and a range of different financial tools, such as equity, guarantees and, most notably, securitisation.

In May, the EIB Group purchased €240m of the ABS cash transaction issued by Union de Créditos Inmobiliarios (UCI) on a portfolio of Spanish residential mortgages. UCI is a specialized lender on the residential mortgage market in Spain and Portugal. The transaction was structured by the EIF in such a way that the EIF could invest in the senior tranche and the EIB in both a senior and an upper mezzanine tranche. Thanks to the additional funding received, UCI committed to building a new €319m portfolio, composed of 100% green residential mortgages in Spain and potentially Portugal. The new financing will be compliant with the CA&ES criteria related mainly to energy efficiency improvements in the renovation of existing buildings as well as the construction of new near-zero energy buildings.

In Germany, we signed the third synthetic securitisation transaction with Landesbank Baden- Württemberg (LBBW) since 2020. Our guarantee will enable LBBW to lend €350m for clean power projects, thus contributing to the decarbonisation of the German economy and to Europe’s energy independence. The amount allocated under this transaction is expected to result in the development of about 340MW of new electricity-generation capacity from renewable sources, enough to serve one million homes.

In Portugal, we signed €80m worth of protection on behalf of the EIB in the upper mezzanine tranche of a synthetic securitisation of a residential mortgage portfolio originated by Santander Totta, marking only the second synthetic securitisation in Portugal in the last decade. Private investors (reinsurers) cover the lower mezzanine tranche, while the EIB Group covers the upper mezzanine risk. The additional portfolio, amounting to approximately €161m, will be 100% green residential mortgages compliant with the CA&ES criteria related to the construction of new buildings along with energy efficiency renovations for existing buildings.

Looking at our activity in the growth stages of private equity, we invested SEK 600m (€51m) into Alder III, a private equity fund focusing on sustainable industries in the northern European lower mid-market, with a strong focus on the Nordic countries. The fund continues its strategy of promoting the care of natural resources, building efficiency, intelligent infrastructure and sustainable industries.

From last year’s €625m to more than €1bn in 2023, our work in climate and infrastructure has almost doubled, and will continue apace next year with a projected €1.8bn in commitments.

By the end of 2023, the EIF portfolio consisted of 22 funds with close to €2bn of total commitments, with our efforts centred on the higher risk niche of the infrastructure market targeting small-cap managers focusing on greenfield investments. Crucially, these investments are closely tied to EU policies such as Fit for 55, REPowerEU and the EU’s energy security policy.

In November, we made an investment of €75m (targeted fund size €650m) in Dublin-based SDCL Green Energy Solutions Fund, a pan-European investment fund specialising in greenfield development and construction projects with an emphasis on energy efficiency, on-site generation and renewable energy solutions. Sectors include digital infrastructure, healthcare, commercial buildings, and transport.

In Lithuania, we invested a similar amount in the Clean Energy Infrastructure Fund, which intends to be SFDR Article 9 compliant. It targets greenfield solar photovoltaic and onshore wind assets, mainly in Poland, the Baltics and the CEE region. Furthermore, it is expected to focus entirely on climate action while simultaneously having at least an 80% focus on Cohesion regions.

€100m were also invested in Finnish infrastructure fund Taaleri Solar Wind, which pursues greenfield renewable energy generation and battery storage opportunities in the EU, with a strong focus on CEE. The fund is expected to comply with SFDR Article 9, aligning strongly with the EU’s decarbonisation and climate targets. Considering the target size of €600m and the approximate 50% target allocation to CEE, this commitment represents the EIF’s largest exposure to the CEE in a single investment.

Furthermore, we invested €60m in Andera Smart Infra fund (target fund size €200m), which focuses on energy transition and green mobility projects in France and the EU more generally. The fund intends to obtain the GreenFin label and become SFDR Article 9 compliant, and their investment strategy covers the clean energy transition—climate, environment and resources, sustainable transport and digital connectivity, and data infrastructure.

This year also witnessed a landmark new investment partnership with KBC Insurance, one that will see the Belgium-based banking and insurance group support up to €200m worth of equity investments in sustainable infrastructure projects. KBC’s capital will be invested alongside the EIB’s existing cornerstone commitment, which is also managed by the EIF. We will select a number of top-tier fund managers, who will target investments in climate infrastructure projects that are aligned with the climate goals of both the EIB Group and KBC and in line with the EU taxonomy for sustainable activities. This partnership with KBC is considered to be a pathfinder operation for the EIF, one that will allow KBC to expand its investor base to the private market in line with the objectives of the EIB Group strategy. By closing the infrastructure gap, these additional resources will support the EU’s green transition objectives, thereby proving that private capital and public policy objectives can be aligned for a sustainable future.

This year we supported Trocadero Environment et Performance I with €30m. The Paris-based fund has a target size of €120m and is developing its sustainability offering via a new private equity decarbonisation strategy, with the long-term goal of reinforcing its sustainability angle across all of its activities. The fund will target French SMEs, helping them to decarbonise.

In Germany, we supported Vidia Climate Fund I with a €75.8m commitment. This private equity fund, with a target size of €400m, focuses on thematic segments of the circular economy, electrification and industrial materials, primarily in Germany and Northern Europe, with the aim of driving the decarbonisation of the highest emitting industries in Western Europe and scaling climate solutions.

In Italy, we invested €30m in Arcadia Sustainable Capital III, which has a target fund size of €120m. The private equity fund focuses on decarbonisation and sustainable investments in the Italian lower mid-market. Target companies will have to be connected with or contributing to sustainable macro trends, such as the circular economy, energy efficiency, the digital transition or decarbonisation.

Turning to the agri-food sector, the EIF invested €35m in Amsterdam-based agri-food growth fund Convent Capital, which supports innovative and sustainable food and agriculture businesses across Europe. The fund's mission is to generate both financial returns and positive environmental impact, and it accomplishes this by supporting companies that are committed to improving the sustainability and efficiency of the food system. About 20% of the fund will be invested within the blue economy, with a focus on improved local marine biodiversity, ecosystem resilience, and avoidance of freshwater fishing through the production of alternative fish feed.

Also in the Netherlands, we made a €20m commitment to Future Food Fund II. The Fund will invest along the agricultural and food tech value chain, with a focus on smart farming, bio-based ingredients, novel food production, sustainable consumption and intelligent supply chains. Managed by an emerging team, the fund will focus on early-stage investments and mainly target B2B models.

We also invested €40m into Paris-based Tikehau Regenerative Agricultural Fund, a private equity fund focusing on regenerative agriculture investments related to soil health (e.g. feed, seeds), equipment and operations (e.g. robotics, water management), regenerative ingredients (e.g. plant based meat/ diary, fermentation, insect-based alternatives) and technological and digital enablers (e.g. supply chain optimisation, carbon value chain services). With a targeted size of €1bn, the fund will have global reach: 60% is expected to be invested in the EU and 40% abroad.

Finally, in December we invested €20m into HeavyFinance Fund 1, the first private credit fund launched by HeavyFinance, an independent Lithuanian marketplace lender operating a crowdlending platform providing alternative financing to farmers, managed by a first-time manager. The fund, which will be 100% compliant with the CA&ES criteria, also complies with the InvestEU gender criteria, as 40% of its investment committee will be comprised of female members. Its investment strategy primarily targets companies with sustainable agriculture practices in Lithuania, Latvia, Poland, Portugal and Bulgaria.

One of the key elements in the green transition is improving energy efficiency, which affects households as much as corporate environments. In an effort to generate more financing for homeowners and households looking to invest in greater energy efficiency, we have expanded, and will continue to expand, our activities in this space.

In October, the Irish government entrusted €48m of its national resources to the EIF to cover the first loss piece of the Energy Upgrade Loan Scheme, an 80% uncapped counter-guarantee by the EIB Group to the Irish NPI and EIF shareholder, the Strategic Banking Cooperation of Ireland (SBCI). The Energy Upgrade Loan Scheme aims to disburse €500m of new loans to private homeowners who are willing to invest in retrofitting their properties for energy efficiency purposes.

In Malta, the Energy Efficiency and Renewable Energy guarantee product has seen a striking increase in demand, mainly due to several market awareness sessions and promotional campaigns run by the financial intermediaries and the managing authority, in conjunction with the support of the EIF and EIB Advisory Services. Initially funded with a budget of €15m to support households and corporates in the green transitioning of the economy, the instrument was increased in December by €10m to support the strong appetite of the Maltese market, especially in the financing of electric vehicles. Based on this increase, the underlying portfolio of green loans will surpass €65m.

In Spain, a synthetic securitisation transaction between the EIF and Santander will facilitate €217m in new financing for energy efficiency projects. Through a €163m unfunded guarantee to boost green lending in the housing market, this operation will support energy efficiency and climate action projects in the Spanish residential property market, including the construction of new nearly-zero-emissions buildings and the renovation of existing residential properties in line with sustainable standards. Around 70% of the EIF’s exposure is counter-guaranteed by the EIB.

We also expanded our collaboration with Hypo Vorarlberg in Austria by signing the third synthetic securitisation transaction since 2017. The transaction works similarly to the preceding ones: the EIF (backed by the EIB) assumes the risk of a mezzanine tranche of an SME and mid-cap loan portfolio originated by Hypo Vorarlberg Bank AG. Thanks to EIB Group’s risk cover, Hypo Vorarlberg is able to release part of the regulatory capital that is tied up in the underlying loan portfolio and will re-invest the freed-up capital into fresh lending amounting to €120m for new highly energy-efficient residential buildings.

Finally, in France, we signed our first true sale securitisation transaction with BNP Paribas Personal Finance that will ultimately support the transition to climate neutrality by financing home energy efficiency investments in existing buildings. In total, the EIB Group has invested €450m — €400m from the EIB and €50m from the EIF — in senior and mezzanine tranches of asset-backed securities backed by a consumer portfolio originated by BNP Paribas Personal Finance. Under the arrangement, BNP Paribas Personal Finance pledges to supply fresh lending of around €627m to private individuals over a three-year period. Financing will exclusively support energy-efficient housing equipment, notably high-energy performance boilers, insulation windows, and the installation of solar panels.

One.five: looking for the right solution

Location: Holm, Schleswig-Holstein, Germany

Financial Intermediary: Green Generation Fund

SME: one.five

Sector: packaging & biomaterials development

Number of employees: 46

Financing purpose: R&D and scale-up

EIF financing: InvestEU; ERP