A recent evaluation found that the European Fund for Strategic Investments (EFSI) supported economic crisis investment

Réseau Canopée, a group of social housing operators in northern France, is busily building 1 200 new social and affordable housing units and rehabilitating 4 300 others. The new homes will meet strict new “near zero” energy guidelines in France, and the renovated units, many of which are around 40 years old, will make steep gains in energy efficiency.

It’s the kind of project that Europe needs to meet its ambitious climate targets. But the project might have been much smaller if it wasn’t for a funding mechanism set up after the financial crisis of 2008, the European Fund for Strategic Investments (EFSI). An financial guarantee from EFSI enabled the European Investment Bank to lend Réseau Canopée €107 million, almost a third of the €326 million project cost. Without the EIB’s help, the Réseau Canopée project may have been cut due to budget constraints.

EFSI has been a game changer, according to a recent report by the Evaluation division of the EIB Group. The guarantee provided by the fund helped the EIB Group mobilise more than €540 billion from 2015 to 2020, plugging investment gaps created by the 2008 financial crisis and, more recently, the COVID-19 crisis.

More specifically, the evaluation found that EFSI:

• Effectively harnessed public money and the EIB Group’s financing and expertise to unlock private investment throughout the European Union.
• Fostered cooperation between national promotional banks and the EIB Group, although the evaluation noted that this cooperation could be improved to take into account the needs and diversity of the different national banks.
• Transparently embedded the EIB Group’s activities into overarching EU policy.

Overall the report found that EFSI has matured into a mechanism that is generally acknowledged to be effective and valuable in addressing investment gaps in countries and sectors. “EFSI really delivered on its targets, and proved its relevance,” says Jochen von Kameke, team leader of the evaluation and the report, Evaluation of the European Fund for Strategic Investments 2021.

Forged in crisis  

EFSI was created as a key component of the Investment Plan for Europe, also known as the Juncker Plan. The European Commission launched the Investment Plan for Europe in 2014 as a response to the 2008 Financial Crisis and the subsequent European Sovereign Debt Crisis.

EFSI provides loan guarantees that enable the European Investment Bank to support higher risk projects. The Bank’s top-notch credit rating enables it to raise funds cheaply and then provide finance to businesses and domestic banks at low rates and with good terms. The Bank’s participation can also make projects more attractive to private-sector investors, helping to attract more funds.

EFSI is essentially an agreement between the European Commission and the Bank under which losses incurred from operations included in the EFSI portfolio are covered up to €33.54 billion, €26 billion of which is provided by the European Commission and €7.54 billion of which comes from the EIB’s own funds.

The fund has been operating since 2015. The Evaluation division in the EIB group has issued two previous reports on EFSI – in 2016 and 2018. The 2018 evaluation found that the EFSI guarantees had done a good job mobilising investment to address structural gaps, but that the fund had arrived too late to effectively help the European economy attract investment after the financial crisis.

By the time the pandemic hit, however, EFSI had matured. The fund’s guarantees proved to be instrumental in helping the EIB Group quickly provide support to businesses and markets, according to the latest evaluation, which focuses on 2018-2020.

EFSI’s flexibility also made it particularly useful. Money could flow to where it was most needed. For example, some funds earmarked for infrastructure projects were redirected to small businesses. That flexibility enabled the EIB and EIF to meet market needs as they arose, which was particularly useful during the COVID-19 crisis.

Economic arsenal

EFSI’s funding arsenal is being employed to further EU policy goals, like climate change. In 2018, the regulation governing EFSI was amended to include a soft target for climate finance – 40% of all supported finance provided to larger enterprises. EFSI quickly surpassed that goal. Climate funding reached 41.6% of the relevant EFSI-supported finance by the first half of 2020.

The 2018 amendments also placed more stringent transparency requirements on the fund. EFSI had to publicly disclose a scoreboard the EIB used to assess the fund’s operations and the rationale for using the guarantee. While the increased public oversight resulted in some additional costs, it helped foster trust with the European Parliament and civil society groups, the evaluation found.

Equally important, EFSI has also improved the EIB Group’s firepower in dealing with economic crises. The latest evaluation reiterates a point made in 2018: “The EIB could not have financed the entire portfolio of EFSI operations under its own risk without potentially having a negative impact on its overall lending capacity, risk profile, and, ultimately, the sustainability of its business model.