Commission Delegated Regulation (EU) 2021/1078 of 14 April 2021 supplementing Regulation (EU) 2021/523 of the European Parliament and of the Council by setting out the investment guidelines for the InvestEU Fund

Support in this areas must contribute to the generation of offshore electricity to meet the future energy demand. It must also alleviate the multiple demands on the EU’s land resources by improving the productivity of aquatic and marine resources like for instance, the production and use of algae, and other new sources of protein that have the potential to relieve the pressure on agricultural land.

Support must focus on the deployment of:

(a) floating wind farms;

(b) developments to convert ports from transport nodes to hubs for servicing offshore industry;

(c) cabling for an offshore grid with a particular focus on AC connections from turbines to hubs which then use DC interconnectors to shore;

(d) devices for wave and tide energy;

(e) offshore aquaculture.

Strategic investment under the Sustainable Infrastructure window may target projects contributing to the stability, operational security and resilience of the critical infrastructure parts, whether physical or virtual, or supply chains to the critical infrastructure, or directly to the critical elements of infrastructure, in particular in view of the Union’s green and digital transitions.

Supported operations may also target companies, including SMEs, producing goods and services instrumental for the operation and maintenance of any of the critical infrastructure priorities as listed in this Section 6.1.1.8.

Investment operations concerning critical infrastructure may target operations defined as European Critical Infrastructures pursuant to Council Directive 2008/114/EC (⁸⁸), as selected by Member States pursuant to its Article 3. Support may target supply chains for clean energy, namely the manufacturing capacity of equipment for renewable energy technologies (such as solar PV, wind energy, hydropower, renewable hydrogen, etc.).

Operations supported may also target supply chains for the European aviation, rail, road, inland waterways transport and maritime shipping, including supporting investment in the integration of modes and production capacities.

For digital infrastructure, strategic investments are those closely linked to the objectives of resilient and secure provision of digital communication services, including critical elements of very-high capacity connectivity and 5G networks, quantum communication, the internet of things, media, online service platforms, secure cloud computing, data processing and storage, and to the underlying value chains behind these infrastructures and services. Given the various architectures and constantly evolving technological solutions, including those relevant for cybersecurity (⁸⁹), it is necessary to screen the evolving needs of the digital transition and relevant security and technological autonomy and resilience dimensions of such transition related to the data transfers, use and storage. Support to projects related to digital electoral infrastructure and sensitive facilities shall have as the main objective their reinforced security, resilience and protection against malicious and disruptive action, including in particular disinformation, data theft, and cyberattacks.

Investments in communication and media infrastructure are also considered strategic to the extent that they contribute to independent European content production in line with the objective to protect the Union’s democratic values and Member States’ sovereignty in the digital age, and the production, intellectual property protection and monetisation of European content globally.

Projects related to critical infrastructure for space must support the update of existing Union space programme components and the development of new Union space infrastructure and services. In particular, it shall target: (i) autonomous, reliable and cost-effective access to and use of space enabled by European launchers, including innovative concepts such as re-usability, advanced manufacturing, new space transportation systems; (ii) space surveillance and protection of assets, (iii) satellite communication and connectivity, (iv) other evolving needs.

Operations supported may also target the resilience and competitiveness of space systems and technologies, addressing the vulnerability of the value chains.

Support to defence industry infrastructure may include the upgrade of existing or the installation of new infrastructures needed to support from a technological and industrial perspective the life cycle of defence technologies and products or training facilities. These infrastructures refer not only to the traditional air, land and sea domains, but also to emerging ones such as information, space and cyber. They may also be used also for the R & D, demonstration, testing and certification of defence systems or technologies, including developed in the context of the European Defence Fund, as well as dual-use systems and technologies. Multinational projects open to users from other Member States should be supported. Support may also target projects oriented to implement pan-European digital and cyber capacities and infrastructure related, for instance, to virtual engineering development environments, digital test beds and labs, new collaborative combat environment, supercomputing, artificial intelligence (AI) and related advance digital skills for defence (e.g. digital shipyard; digital model, or twin, of military systems).

In the area of critical raw materials (CRMs) supported investments may include projects and beneficiaries contributing to increased Union autonomy and resilience in industrial ecosystems for e-mobility, batteries, renewable energies, pharmaceuticals, digital applications and defence. CRM-linked priority investment areas may include magnet development, recovery of rare earths from used magnets, rare earth refining, primary ores and recycled mining waste (bauxite, iron ore, coal waste). Other CRM needs may emerge in the future.

In order to ensure a safe and sustainable food supply, relevant investments for example into transport, logistics, decentralised food chain infrastructure and the setting up of clusters in the area of food supply may be supported.

The support under the Sustainable Infrastructure window will offer senior and subordinated financing in the form of debt, guarantees, any other forms of funding or credit enhancement, quasi-equity and equity financing. It will aim at facilitating access to eligible project and corporate finance. The financial products must be available horizontally to the various areas covered by this policy window or can be dedicated to specific policy priorities including under thematic financial products.

Financial products must be developed according to policy prioritisation and market needs.

Any type of financial intermediary, including national promotional banks or institutions and other publicly owned intermediaries, commercial banks, guarantee societies, diversified debt funds providing senior and subordinated financing, and leasing companies, which is able to provide financing in the areas covered by the Sustainable Infrastructure window in full compliance with applicable national and Union legislation and with the relevant requirements of the Financial Regulation, may apply.

Public or private financial intermediaries, or entities to be incorporated, funds-of-funds, private equity funds, venture capital funds, co-investment vehicles, venture debt funds, which are able to provide equity financing in the areas covered by the Sustainable Infrastructure window in full compliance with applicable national and EU-legislation and with the relevant requirement of the Financial Regulation, may apply.

The managers, advisors or other similar persons associated with such intermediaries (including first time managers or advisors) must demonstrate the capacity and skills to undertake such investments in the areas in which they intend to invest under the Sustainable Infrastructure window, the ability to fundraise and attract private capital, and the ability to produce returns, which would attract more private investments into this asset class.

The focus of the Sustainable Infrastructure window is to support investment in infrastructure and related equipment promoted, among others, by:

(a) stand-alone promoters;

(b) private, public and semi-public enterprises;

(c) SPVs.

General financial products must aim at improving access to finance for standalone projects or grouped smaller projects, through finance provided directly or indirectly (for example though investment vehicles) by the implementing partners.

General financial products may support a diversified range of final recipients with different risk profiles such as the following:

(a) projects from regulated entities on a corporate or non-recourse basis, including PPPs (e.g. energy, transport, waste, water and wastewater utilities and large infrastructure managers) or from public or semi-public enterprises, which typically present a low risk.

(b) projects from non-regulated entities on a corporate or non-recourse basis, including PPPs (e.g. energy generation, energy storage, energy efficiency for energy intensive industries, motorways concessionaries, airports/ports terminal and railways operators, green shipping, broadband and space infrastructure) which typically present a medium to high risk.

(c) deployment of projects supporting public goods, including projects deployed by SMEs in the fields of e-mobility, energy efficiency, natural capital or nature based solutions by local authorities or philanthropic investors, and space, which typically present a high risk.

(d) portfolios of transactions in areas such as energy efficiency and renewable energy for households or SMEs, greening of mobile assets.

For debt financing provided by the implementing partner:

(a) senior loans, bonds, leasing contracts and credit lines, including senior debt to limited recourse projects;

(b) subordinated loans, including in a form of a mezzanine financing;

(c) guarantees (funded or unfunded) to third-party financiers and other risk sharing arrangements with financial intermediaries;

(d) credit enhancement for new investments (to project bonds, bank loans or a combination of the two), including in the form of subordinated products.

Subordinated financing can also be used in order to leverage private finance and diversification from banking to capital market finance.

The EU guarantee may be used for the development of financial products supporting the use of green bonds.

Support from thematic financial products will, among others, target:

(a) in the transport area, high-risk projects in the field of sustainable mobility, smart and safer transport.

(b) in the renewables area, specific high risk activities such as: (i) customised innovative guarantees under the Member State compartment aiming to reduce the cost of capital of renewables investment in such Member State; (ii) high-risk guarantee products to foster the Renewables Corporate Power Purchase Agreement market, helping ensure increased levels of long-term private financing for renewable energy investments;

(c) in the energy efficiency area, specific high risk activities such as: (i) residential Buildings: the guarantee instrument can be combined with grants to unlock private financing and prompt households to address the significant financing gap in the renovation and refurbishment of residential buildings, especially deep renovations; (ii) energy performance contracting and Energy Services Companies (ESCOs): guarantee instrument and revolving fund for ESCOs to address the barriers and unlock financing for the development of energy performance contracts for energy efficiency projects; (iii) irrespective of the final recipient, credit enhancement in relation to green bonds to crowd in institutional investors into new energy efficiency financing, at the same time promoting the expansion of the currently limited size of the green bond market;

(d) in the smartening and modernisation of electricity infrastructure, projects promoting: (i) new business models for the deployment of flexibility sources such as demand response and energy storage; (ii) decentralised and small-scale energy sources developed by new entrants and energy communities in new markets.

(e) projects promoting the market deployment of low-carbon emission technologies: projects that include carbon capture, transport, storage and/or use (CCUS) related to the production of electricity, heating or cooling, low-carbon gases (such as hydrogen) or industrial processes, energy storage, as well as bio-energy plants and manufacturing facilities enabling the energy transition and substitution of carbon intensive products;

(f) high-risk sustainable green investment projects or programme promoting a comprehensive natural capital-based approach relating to the protection and restoration of the environment and the management of the transition towards a circular, resource efficient and low-emission bio-economy and enhancing the carbon removals;

(g) in the digital sector, projects with a high financial risk, notably connectivity deployments in white and grey areas (i.e. with no immediate commercial viability) or which present a significant technological advancement (e.g. not incremental upgrades but deployment of latest generation technologies, including deployment of sustainable networks and data infrastructures);

(h) high-risk portfolios in the areas of energy efficiency, renewable energy and the greening of mobile assets;

(i) in the space sector, high-risk or capital intensive projects linked to space infrastructure and related services, as well as new concepts for space infrastructure and solutions in space and on ground.

6.2.   Research, Innovation and Digitisation window

Support under the Research, Innovation and Digitisation (RID) window shall facilitate and accelerate access to finance for research and innovation (R&I) projects, promoters, businesses and other innovative entities and stimulate the digital transformation of businesses, markets and Member States in accordance with Articles 3(2)(b) and 8(1)(b) of the InvestEU Regulation. In line with the InvestEU objective of promoting Union’s competitiveness, the RID window will deliver scientific, technological, economic and societal impact by strengthening the Union’s scientific and technological base with the ultimate aim of delivering on the Union’s strategic priorities and provide support to the upscaling of innovative companies and the market roll-out of technologies. Investments under the RID window will provide the means for Europe to develop resilience in key industrial sectors.

The eligible areas for financing and investment operations under the RID window are listed in Annex II to the InvestEU Regulation, and in particular in points 5 and 6 thereof. Any other relevant areas for financing and investment operations listed in Annex II to the InvestEU Regulation, such as points 13 and 14, and falling under RID activities are also eligible for financing under the RID window. Those areas may include research, product development, demonstration, innovation and digitisation activities in the sectors covering energy, energy-intensive industry, environment, blue economy, maritime, transport, health, life sciences, bio-technology, agro-food, defence, space and cultural and creative sectors, among others. The eligible areas may be prioritised in line with Section 2.3.2.1 of these investment guidelines.

The investment scope of the window covers research, innovation, demonstration and digitisation activities, including investments related to launching new products and technologies in the market, which have passed the research and development (R & D) stage, as well as organisational and process innovation, including new and innovative business models. It also includes financing and investment operations in the field of fundamental and applied research to actual system proven in an operational environment (⁹⁰).

R & D is defined as systematic work undertaken to increase the stock of knowledge and to devise new applications of available knowledge. The activity must be novel, creative, uncertain in its outcome, and follow systematic, transferable and reproducible methods (⁹¹).

Innovation refers to product, process and organisational innovation, encompassing the development, demonstration, implementation, commercialisation, and adoption of a new or significantly improved product or process (including business model) or service, which creates consumer and/or societal value.

Digitisation refers to the R&I, demonstration, testing, deployment and adoption of digital technologies and services and to investments that contribute to the digital transformation of the Union’s enterprises, industries and areas of public interest.

Moreover, support under the RID window will aim to contribute substantially to the European Green Deal, targeting projects with climate and environmental benefits. Among others, this window may target projects aimed at avoiding or reducing greenhouse gas emissions and pollution from energy-intensive industries, and from the digital economy and their material efficiency. It will target projects using digital technologies, services and solutions to achieve the avoidance or reduction of greenhouse gas emissions, pollution and waste in other sectors of the economy, including (but not limited to) industry, transport, energy and agriculture. Support will also be provided for investments with a substantial contribution to circular economy, particularly in key sectors that use the most resources and where the potential for circularity is high.

Investments in the space ecosystem may support the ‘space strategy for Europe’ objectives to maximise the benefits for the Union society and economy by targeting project that: (i) accelerate the deployment of digital applications and services based on space data; (ii) integrate space data and services into innovative products in other market segments, e.g. autonomous vehicles or connectivity networks; and (iii) scale up the commercial deployment and manufacturing of space technology, including access to space (⁹²).

The RID window may also contribute to the development of the defence industry, in particular through support for companies participating in innovation projects in the defence sector and closely related dual-use technologies and through support for the defence sector supply chain.

The RID window will also support the Union’s policy priorities as set out in other programmes such as Horizon Europe, Digital Europe programme, Creative Europe programme, European space programme, European Defence Fund, European Maritime, Fisheries and Aquaculture Fund, European Agricultural Fund for Rural Development, etc.

The RID window may also channel funds from sectoral programmes, such as the Innovation Fund established under the Emission Trading System (ETS) and other Union and national programmes and funds. Such investments may be combined with financing provided under EU programmes or those established under cohesion policy (shared management) or national programmes.

Support under the RID window is set to add policy value by providing access to finance to RID in any of the following instances:

(a) promote investment in R&I to strengthen the Union’s scientific and technological base, accelerate industrial transformation, including investments in key technologies, and deliver on Horizon Europe objectives and missions;

(b) support the digital transformation of SMEs and mid-caps;

(c) support digitisation and innovation projects that increase interoperability and address disparities in the level of digitisation and innovation across Member States, companies and sectors;

(d) promote the development and deployment of strategic digital capacities and technologies, including cyber-secure digital solutions that result in innovative and unproven business models that tackle societal challenges (e.g. digital solutions for sustainability) and contribute to resilience, circularity and autonomy;

(e) support investments into products, technologies, solutions or business models that deliver environmental and climate benefits compared to alternative solutions, contributing to climate mitigation and reduction of environmental impact;

(f) support risk investments, including cross-border, linked to the technology, market, demonstration, implementation and business, that entail higher risk due to the uncertainty of the success of their outcome, or of the final financial benefit for the entity concerned;

(g) promote early demonstration operations for which private investors are risk-averse, face unpredictable returns or market volatility;

(h) promote operations that leverage private investment in RID to achieve EU policy objectives;

(i) promote transfer and scale up of R&I results as well as technologies to the market and support their industrial deployment, supporting market enablers and cooperation between enterprises;

(j) support R&I investments by research institutes, universities and research organisations, contributing to Horizon Europe and Erasmus+ objectives and enhancing connections between R & D service providers (academic institutions, research centres, etc.) and enterprises;

(k) support fast-growing innovative companies seeking finance to commercialise innovations past technical and economic feasibility;

(l) provide economies of scale and complement national, interregional and regional-level investments in RID, including the uptake of novel products, technologies or business models across regions within Member States;

(m) support thematic investment platforms and other innovative financial products (with due consideration of economies of scale); or

(n) promote alternative finance and innovative financing solutions such as crowdfunding, business angels, and venture philanthropy, fostering the transfer of best practices between financial intermediaries with a view to encouraging the emergence of a broad product offering for RID activities.

The actions set out in points (a) to (n) of the twelfth paragraph of this Section 6.2.1 may be complemented by:

(a) gathering EU-wide data on the RID market failures or suboptimal investment situations, tracking technological and industrial changes, identifying future emerging strategic value chains, and making such intelligence publicly available; and

(b) providing technical assistance to and improving the bankability of RID projects across different sectors.

Strategic investments under the RID window may support the industrial deployment of demonstrated EU made technologies, foster their markets and promote the EU industry as a global frontrunner in line with the objectives of the ‘new industrial strategy for Europe’ (⁹³) and underlying sector specific strategies, including the digital strategy (‘shaping Europe’s digitalfuture’ (⁹⁴)), the ‘white paper on AI’ (⁹⁵), the ‘European data strategy’ (⁹⁶) (including common European data spaces for example for health and finance) and the ‘European vaccines strategy’ (⁹⁷). They must target the industrial upscaling and manufacturing of these enabling, transformative, green and digital technologies and innovations in the sectors covered by the RID window past the stage of research, innovation and demonstration.

Support may be provided to investment in recycling and manufacturing facilities for production of ICT components and devices in the Union that contribute to the innovation, sustainability, resilience and autonomy of European ICT industry and its sub-sectors and value chains. Such projects may relate to any of the following ICT manufacturing domains: electronic components (semiconductors and microprocessors), computers and peripheral equipment, communication equipment, consumer electronics, magnetic and optical media, electronic and telecommunications equipment and parts, software, programming, data processing, hosting and related activities and others.

In the area of healthcare, supported operations must target new effective and accessible healthcare products, including RID and manufacturing of pharmaceuticals, vaccines, medical devices, diagnostics and advanced therapy medicinal products, new antimicrobials and innovative development process that do not involve animal testing, and competitiveness of the Union pharmaceutical industry as a whole, including production of chemicals and active pharmaceutical ingredients.

In the area of defence, technology related and/or productive investment (e.g. modernisation, digitisation and extension of existing or the establishment of new production capacities), projects may be related to strategic areas, where investments will contribute to the technological and industrial autonomy of the Union’s defence industry thereby contributing to the its strategic autonomy and resilience. Support may be given for innovative companies’ development of critical and disruptive defence technologies. Investments may also help successfully bringing key projects for which the R & D phase has already been supported for instance under the EDF and its pre-cursor programmes in the post-R & D phases or support the supply chains involved in such projects.

Projects may also involve safeguarding and developing critical capabilities in the Union defence supply chains in relation to strategic areas and reducing of dependence on third countries.

Any type of financial intermediary, including national promotional banks or institutions and other publicly owned intermediaries, commercial banks, guarantee societies, diversified debt funds providing senior and subordinated financing, and leasing companies, which is able to provide financing in the areas covered by the RID window in full compliance with applicable national and Union legislation and with the relevant requirements of the Financial Regulation, may apply.

Public or private financial intermediaries, or entities to be incorporated, funds-of-funds, private equity funds, venture capital funds, co-investment vehicles, venture debt funds, business angel funds, technology transfer funds, that are able to provide equity financing in the areas covered by the RID window in full compliance with applicable national and Union legislation and with the relevant requirements of the Financial Regulation, may apply.

The managers, advisors or other similar persons associated with such intermediaries (including first time managers or advisors) must demonstrate the capacity and skills to undertake such investments in the areas in which they intend to invest under the RID window, the ability to fundraise and attract private capital, and the capability to produce returns, which would attract more private investments into this asset class.

The focus of the RID window is to support research, innovation and digitisation activities promoted by:

(a) stand-alone promoters;

(b) private, public and semi-public enterprises, including SMEs and mid-caps;

(c) SPVs;

(d) universities, technology transfer offices and higher education centres;

(e) research centres;

(f) research and technology infrastructures;

(g) innovation and digitisation agencies, accelerators, incubators, hubs, clusters;

(h) other RID-driven promoters (e.g. natural persons, research-funding foundations).

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 on project or company life-cycle basis (based on market assessment).

Operations under InvestEU Fund that are supported through a contribution of the ETS Innovation Fund shall respect the eligibility rules and selection criteria contained in Article 10a(8) of Directive 2003/87/EC (⁹⁸) and the delegated acts adopted on that provision.

Support granted under the RID window will offer senior and subordinated financing in the form of debt or guarantees, any other forms of funding including venture debt and leasing or credit enhancement, quasi-equity and equity financing, to facilitate access to finance for RID projects and companies. The financial products may be made available horizontally to the various areas covered by the policy window or can be dedicated to specific priorities under thematic financial products.

Support from general financial products may, among others, be directed at:

(a) research and technology infrastructure: promoted by public or private research organisations (e.g. research institutes and universities), including facilities directly related to R&I and digital activity, such as laboratories or high performance computing centres.

(b) large RID projects: improving access to risk finance for large size RID projects emanating from larger firms; PPPs; and SPVs or stand-alone projects.

(c) innovative SMEs, small midcaps and mid-caps in order to support RID activities feeding into growth.

(d) fast-growing or RID-driven enterprises, research and technology infrastructures, R&I investments by public or private research organisations (such as research institutes and universities) located in Member States, which are labelled as ‘moderate innovators’ and ‘modest innovators’ in the European Innovation Scoreboard.

The EU guarantee may be provided for the financing and investment operations including in the form of:

(a) direct debt (including subordinated loans), unsecured lending, uncollateralised loans, mezzanine financing, senior loans and credit lines;

(b) (counter)-guarantees, on-lending guarantees, funded guarantees and other risk sharing arrangements for guarantee schemes implemented by financial intermediaries or implementing partners;

(c) direct guarantees to and other risk sharing arrangements for financial intermediaries or implementing partners;

(d) credit enhancement for new investments (to project bonds, bank loans or a combination of the two);

(e) a direct investment in or alongside a financial intermediary, being it an investment fund, a (co-)investment scheme or a special purpose vehicle that invests directly or indirectly in senior or subordinated debt or hybrid debt-equity.

The EU guarantee will aim at reducing the particular difficulties that viable entities face in accessing finance mainly because of their perceived higher risk or lack of sufficient collateral or a limited ability of commercial finance providers to assess the underlying project or business model.

Equity and quasi-equity investments shall in particular be made in the form of:

(a) direct equity in final recipients;

(b) co-investments and co-investment schemes (including investment platforms);

(c) equity and guarantees to financial intermediaries which invest directly into entities at any stage of their development or guarantees to investors in such financial intermediaries;

(d) investment and/or risk sharing arrangement in debt fund structures;

(e) investment in fund-of-funds structures.

Support from thematic financial products may target:

(a) thematic finance facilities providing debt and/or equity financing for areas such as: (i) innovative early demonstration projects and digitisation projects of high-risk thematic areas such as low-carbon industry, transport, energy and space; (ii) clinical development, validation and market entry in the area of infectious diseases, rare and complex diseases, neurodegenerative diseases and others; (iii) sustainable blue economy and the sustainable use of marine resources, e.g. aquaculture and blue bio-technology; (iv) food systems, bio-based systems, and wider bio-economy; (v) circular economy, nature-based solutions and natural capital; (vi) climate technologies, services and adaptation.

Thematic areas will be selected on the basis of policy priorities and the assessment referred to in Section 2.3.2.2 of these investment guidelines.

(b) other risk sharing arrangements such as investment platforms to catalyse third-party financing into specific fields of strategic importance of RID policy in complementarity to and in synergy with investment from the existing national, local and public financing systems. Those platforms shall fulfil the following conditions: (i) provide access to finance via debt and/or equity products to projects in specific thematic areas and shall be managed by financial intermediaries or fund managers selected through procedures as described in Section 2.3.1; (ii) provide support to the overall digitisation of Union industry and technologies as set out in Annex II to the InvestEU Regulation, point 6, and other eligible areas; (iii) support technologies, products or business models that face greater risk due to their technological innovativeness or because they pursue new markets or significant market disruption; (iv) target setting-up of early demonstration and industrial production facilities that aim at the implementation of breakthrough, market-creating and highly innovative processes or the production of new products with high market-creating innovation content in the specific area.

6.3.   SME window

Support under the SME window must facilitate access to and availability of finance primarily for SMEs, but also to small midcaps, and enhance their global competitiveness, at any stage of their development, in particular to those that are perceived as high risk and lack sufficient collateral, especially in their early development stages.

The support under the SME window must also aim to provide more diversified sources of funding, including subordinated debt, equity and quasi-equity financing, in order to increase the ability of SMEs and small mid-caps to finance their creation, growth, development, and transfer, withstand economic downturns, and contribute to the resilience of the economy and the financial system during economic downturn or shocks. It may provide support for investment and working capital, as well as for risk financing from seed to expansion stages to ensure technological leadership in innovative and sustainable sectors, in particular by targeting SMEs whose activities focus on intangible assets because of RID activities or because of sector specificities such as cultural and creative sector (⁹⁹). Where necessary, it may provide financing for the acquisition of a business or a participation in a business by employees. The eligible areas may be prioritised as described in Section 2.3.2.1 of these investment guidelines. Products under the SME window will be developed in accordance with the priorities and areas outlined in the ‘SME Strategy for a sustainable and digital Europe’ (¹⁰⁰).

The support under the SME window will be complementary to the Union initiatives undertaken in the context of the capital markets union.

Support under the SME window is set to add value by supporting debt financing primarily to SMEs (as well as small midcaps) in any of the following instances:

(a) market failures or suboptimal investments situations are not adequately addressed (in terms of volumes, coverage or risk appetite or timeframe) through financial instruments set up at regional or national level; this may include setting up schemes providing greater effectiveness, efficiency or economies of scale as Member States may be reluctant to create support schemes on their own because of cost efficiency considerations;

(b) enterprises operating in clearly defined underserved economic sectors (e.g. in some cases the cultural and creative sectors, including the media sector), thus contributing to the achievement of EU policy priorities;

(c) need to speed up adjustment of enterprises to clearly identified structural changes thus contributing to the achievement of EU policy priorities;

(d) financing solutions that help achieve the objectives of the capital markets union, including those which are provided on a cross-border basis;

(e) transfer of best practices throughout the Union (which may also include the provision of technical assistance) taking place between financial intermediaries with a view to encourage the emergence of a broad product offering for higher risk SME financing transactions suitable for their specific financing needs.

In addition, support under the SME window is set to add policy value by supporting funds providing tailor-made debt financing solutions and equity or quasi-equity financing for SMEs and for small midcaps in any of the following instances:

(a) financial intermediaries raise funds or invest or provide finance on a cross-border basis, which supports risk diversification and attracts and crowds in private capital;

(b) the investment supports the creation of larger funds that have the capacity to realise sufficient returns in order to attract private investors;

(c) market failures or suboptimal investments situations are not adequately addressed (in terms of volumes, coverage of the development stage or timeframe) through financial instruments set up at regional or national level. This may include setting up schemes providing enhanced effectiveness, efficiency or economies of scale, as Member States may be reluctant to create support schemes on their own because of cost efficiency considerations;

(d) the intervention has demonstration and/or catalytic effects and contributes to Union policy objectives, including those of the capital markets union;

(e) the intervention increases the availability of market-based and tailor-made funding solutions for SMEs and small mid-caps;

(f) transfer of best practices throughout the Union, with a view to encouraging the emergence of new fund managers/management teams to broaden and deepen the venture capital market in the EU. This may include support to alternative finance and innovative financing solutions such as crowdfunding, business angels and venture philanthropy.

Any type of financial intermediary, including national promotional banks or institutions and other publicly owned intermediaries, commercial banks, guarantee societies, diversified debt funds providing senior and subordinated financing, and leasing companies, which is targeting to generate new portfolios of higher risk SMEs and/or small mid-caps financing transactions, including tailor-made debt financing transactions targeting underserved economic sectors, in full compliance with applicable national and Union legislation and with the relevant requirements of the Financial Regulation, may apply.

Established financial intermediaries, or entities to be set-up, including private equity and mezzanine funds, co-investment vehicles, venture debt funds, venture capital funds, business angel funds, fund-of-funds, crossover funds, that are able to provide equity and quasi-equity financing in areas covered by the SME window in full compliance with applicable national and Union legislation and with the relevant requirements of the Financial Regulation, may apply.

The managers, advisors or other similar entities associated with such intermediaries, which shall also include first-time managers or advisors, must demonstrate the capacity and skills to undertake such investments, the ability to fundraise and attract private capital, and the prospective ability to produce returns, including via a sound investment strategy, that would attract more private investments into this asset class.

Debt financing support will be made available through intermediaries or directly by the implementing partner to finance predominantly SMEs, as well as small midcaps, as defined in the InvestEU Regulation, which would not receive financing from the market or not receive support to the same extent due to, amongst others, the perceived higher risk, the lack of (sufficient) collateral or because the business is active in a clearly defined underserved economic area or engages in activities of the Union policy priorities.

Where justified, more dedicated support may be provided to businesses in a specific sector or engaging in an area of specific policy orientation, including the just transition. In such cases, clear and unambiguous eligibility criteria will be formulated in the respective financial products for innovative SMEs and small midcaps. Furthermore, the operational reporting requirements will make it possible to identify the support provided for such sector or policy orientation.

Under the EU compartment, equity finance support will be made available through intermediaries (including through co-investment vehicles) to SMEs and small midcaps according to the definitions contained in the InvestEU Regulation, and more specifically to those activities, which would help achieve the Union policy objectives referred to in Article 3 of the InvestEU Regulation.

Targeting may be done on the basis of the fund manager’s investment strategy focusing on sectors or activities of the Union policy priorities and a company life-cycle basis, based on market assessments.

Financial products will be complementary to the Member States’ use of financial instruments for SMEs at national and regional level in line with the additionality requirements in accordance with Annex V to the InvestEU Regulation.

The EU guarantee may be provided for financing and investment operations taking the form of:

(a) direct loans by the implementing partner;

(b) counter-guarantees, on-lending guarantees and other risk sharing arrangements for guarantee schemes implemented by financial intermediaries or implementing partner;

(c) direct guarantees and other risk sharing arrangements for financial intermediaries or implementing partners;

(d) direct investment in or alongside a financial intermediary, being an investment fund, a (co-)investment scheme or a special purpose vehicle which invests directly or indirectly in senior or subordinated debt.

Through such arrangements, the EU guarantee shall aim to reduce the particular difficulties that viable enterprises face in accessing finance because of their perceived higher risk or lack of (sufficient) collateral. This can be achieved through supporting, amongst others, the following transactions:

(a) start-up financing;

(b) financing transactions with significantly reduced (or no) collateral requirements (unsecured lending);

(c) subordinated financing;

(d) financing transactions with repayment conditions or tenures that are not typically provided by financial intermediaries.

The eligibility of a financial intermediary’s proposal for building a portfolio of financing transactions will be determined for each intermediary and, in case of direct financing, for each implementing partner, in relation to its existing business activities. In principle, the EU guarantee is meant to lead to the financial intermediary or the implementing partner broadening its business activity by financing transactions that it would not have financed in the absence of the EU guarantee due to the higher risk profile of such a portfolio. Where a financial intermediary already has a dedicated higher-risk SME financing product in place but its ability to serve market demand is restricted, the EU guarantee may be used to support a significant increase in the volumes of such higher risk SME financing product.

Financing transactions, that can be included in the portfolios will include, among others, investment loans, working capital facilities (including revolving ones), trade finance facilities, loans (including those embedded in or linked to a current account), bank guarantees, leasing transactions, sub-ordinated loans, and senior and subordinated debt issuance loans.

The EU guarantee will be used to guarantee investments into intermediary risk capital funds, including fund of funds and co-investment vehicles that provide equity-and quasi-equity to SMEs and small midcaps at any stage of their development and funds providing debt financing to SMEs and small midcaps.

Possible additional product developments:

The SME window will also be available for the creation of pilot financial products to address market failures and suboptimal investment situations or to crowd-in more private investment (e.g. through providing guarantees for investors). Such pilot schemes, if successful, may subsequently be rolled-out on a fully-fledged basis. In duly justified cases, based on market assessments, these pilot projects may deviate from the conditions set out in Sections 4 and 5 of these investment guidelines.

6.4.   Social Investment and Skills window

Support under the Social Investment and Skills window must facilitate the deployment of projects strengthening the social dimension of the Union as underscored in the European Pillar of Social Rights. The emphasis under the Social Investment and Skills window is to generate a positive social impact. In particular, actions under that window aim at upwards convergence, reducing inequalities, increasing resilience and inclusiveness through promoting employment and skills development including entrepreneurship and self-employment, social enterprises, social economy and social inclusion, improving citizens’ health, well-being and overall quality of life; boosting education outcomes and skill provisions and supporting a just transition to a low carbon economy. Actions also aim to increase access to and availability of microfinance and of finance to social enterprises, support financing and investment operations related to social investment, competences and skills and develop and consolidate social investment markets, in the areas referred to in Article 8(1)(d) and in accordance with Article 3(2)(d) of the InvestEU Regulation. The Social Investment and Skills window will facilitate development of skills and key competences, matching, deployment and higher skills utilisation through education, training, including on-the-job training and related activities with a view to achieve the policy objectives set out in the ‘European skills agenda’ (¹⁰¹), the ‘Council Recommendation on Vocational Education and Training’ (¹⁰²), the ‘European education area’ (¹⁰³) and the ‘digital education action plan 2021-2027’ (¹⁰⁴).

The eligible areas for financing and investment operations under the Social Investment and Skills window, are listed in Annex II to the InvestEU Regulation, in particular point 12. The eligible areas may be prioritised in line with Section 2.3.2.1 of these investment guidelines.

The Social Investment and Skills window will support microfinance and social enterprises. In the case of microfinance, a microloan (or microcredit) means a loan of up to EUR 50 000 . The provision of investment amounts of up to EUR 500 000 for social enterprises will in particular be encouraged, while larger amounts of up to EUR 2 000 000 will also be targeted to foster their expansion and scaling up.

Support will also include measures to promote gender equality and equality on other grounds, social inclusion, the supply of and demand for skills, education, training and related services including for the development of sustainable social infrastructure in urban and rural areas. The window will also support social infrastructure (including health and educational infrastructure as well as social and student housing), projects involving social innovation, health services, ageing and long-term care, access to prevention, innovative treatments and e-health options, inclusion and accessibility, and cultural and creative activities with a social goal.

The Social Investment and Skills window will also focus on the provision of sustainable and ethical finance for final recipients facing restrictions or barriers affecting their human rights and fundamental freedoms. It will, in particular, target projects that involve a reasonable degree of (prospective) financial viability, but are not delivered (or not to a sufficient extent) by the market due to higher risks, lack of collateral, not achieving optimal scale without public-sector support or other market barriers. The supported projects must contribute to crowd-in private investment to satisfy unmet needs.

Financing and investment operations will aim at the provision of social infrastructure and connected services that may pertain to:

(a) inclusive education and training, including early childhood education and care, and related educational infrastructure and services, alternative and inclusive childcare, student housing and digital equipment, that are accessible for all, promotion of digital proficiency from early education years, universal deployment of and access to ICTs in all education and training institutions and remote access and distance learning tools and platforms;

(b) affordable social housing;

(c) health and long-term care, including clinics, hospitals, primary care, home services and community-based care;

(d) health infrastructure projects that contribute to the development of a strategic and geographically balanced network of modernised, digitalised and resilient prevention and healthcare infrastructure, capable of ensuring universal access to critical healthcare infrastructure and services across the EU. Supported projects may also address specific urgent healthcare and emergency response (¹⁰⁵) needs through the development of mobile and field medical stations or medical transport;

(e) enabling social services delivered at community level and, where feasible, in an integrated way.

Social infrastructure, typically financed by public-sector entities or dependent entities, faces sizeable financing gaps. The fallout of the Covid-19 pandemic aggravated further those needs.

Investments in social infrastructure, in the meaning of point 12(d) of Annex II to the InvestEU Regulation, aimed at addressing market failures or suboptimal investment situations may include operations with public sector entities. In such a situation, a financial product dedicated to social infrastructure investment promoted by public sector entities under the Social Investment and Skills Window may be agreed in a guarantee agreement to address market failures referred to in point 2(f) of Section A of Annex V to the InvestEU Regulation. Financing and investment operations under such financial product satisfy the additionality requirements set out in point (b) of Article 209(2) of the Financial Regulation and in Annex V to the InvestEU Regulation.

Compliance with the relevant Union, national, or regional social legislation, as applicable, is a requisite for operations’ support under the InvestEU Fund. Interventions should fully respect the principle of subsidiarity, by complementing, where they exist, national and regional support schemes. Where applicable the services provided from the supported projects must be delivered at the community-based local level. Regarding infrastructure in the health area, the focus must be on developing models moving from institutional care to prevention, primary care and community-based care and services supporting integrated person-centred care and independent living, in line with the UN Convention on the Rights of Persons with Disabilities.

As regards investments in the affordable social housing, particular focus will be on delivering housing solutions that pursue the objective of lifting people from social exclusion in complementarity, where they exist, with national or regional support schemes. For the purpose of investments supported by the InvestEU Fund, affordable social housing (¹⁰⁶) should be understood as aimed at disadvantaged persons or socially less advantaged groups (¹⁰⁷) who, due to income or social constraints live in severe housing deprivation or are unable to obtain housing at market conditions. When targeting people falling under the ETHOS definition of homelessness and housing exclusion, social housing provision should, as much as possible, follow a housing-led approach. The infrastructure and services should respect the applicable quality standards and UN conventions and shall not lead to segregation or isolation of specific groups.

In addition to financing solutions provided by traditional financial intermediaries, the provision of in-kind services may also qualify organisations, such as education and training institutions, or health, social service and care providers, to benefit indirectly from the EU guarantee through an implementing partner.

The Social Investment and Skills window will put particular emphasis on the inclusiveness of persons in vulnerable situations and their access to quality services, also for inclusion, and accessibility for persons with disabilities and for ageing population.

Support under the Social Investment and Skills window will also support the provision of inclusive education and training, including vocational training, and related services, covering initial and continuing education and training, including for adults, and organisational and process innovation, including new and innovative business models. The Social Investment and Skills window will also support innovative health solutions, such as e-health services and new care models. Support will aim at promoting gender equality and equality on other grounds, broadening self-employment and social integration of persons in vulnerable situations including third-country nationals.

Special attention must be paid to social enterprises and their activities, such as scaling initiatives, fostering the development of digital and entrepreneurial skills for disadvantaged groups to address gender and other diversity gaps in these areas. Support under the Social Investment and Skills window will address Union-wide market failures in social enterprise and social impact financing, microfinance, health, ageing, education and housing funding gaps and innovation through bringing about stronger Union intervention and more efficient market testing aimed at enhancing the Union’s social dimension.

The Social Investment and Skills window will support the demand for and supply of skills, addressing final recipients’ skills deficiencies or improving the skills utilisation and fostering skills-investment markets.

Advisory support may also contribute to exploring new ways for the provision of social services and in general help to develop the supply of and demand for skills, in line with the InvestEU Regulation.

As regards microfinance, the policy objective is to promote quality, sustainable employment and social inclusion by supporting job creation and income-generating activities, in particular for persons in vulnerable situations who wish to start up or develop a micro-enterprise, including on a self-employed basis. In addition, financial intermediaries active in the microfinance space must ensure the provision, directly or indirectly, of non-financial services such as business development services (mentoring, coaching and training), which are an integral part of microfinance. Conditions such as the cost of borrowing (including the lending rate) and collateral requirements for microfinance directly or indirectly supported in the framework of InvestEU must reflect the benefit derived from the support and must be justifiable with regard to underlying risks and the actual cost of funding related to a credit.

As a pre-condition for InvestEU Fund support, financial intermediaries providing microfinance must sign up to (in the case of non-banks) or endorse (in the case of banks) the ‘European code of good conduct for microcredit provision’ (¹⁰⁸) to ensure high ethical lending standards in terms of, among others, governance, management and customer protection. Financial intermediaries shall seek to prevent individuals and undertakings from becoming over-indebted by, among others, taking into account their repayment capacity and ensuring an affordable cost of borrowing.

Support under the Social Investment and Skills window will be in line with the ESF+ objectives, including in its proposed operational objectives to support the development of the market ecosystem relating to the provision of finance for social enterprises and microfinance for micro-enterprises in start-up and development phases, in particular those that employ persons in vulnerable situations. Under the ESF+, the Commission will provide guidance for the development of the social infrastructure (including housing and for health, childcare, long-term care and education and training) needed for the implementation of the European Pillar of Social Rights. However, participation in ESF+ is not a pre-condition for accessing InvestEU Fund support.

Support under the Social Investment and Skills window will also be addressed at social innovation, which may include innovative social solutions and schemes aiming at promoting social impacts and outcomes in order to contribute to achieve the policy objectives of that window.

In pursuing those objectives, the combination of InvestEU Fund support with contributions from donors, philanthropists, foundations and other private sector actors shall be encouraged. InvestEU Fund will seek to strengthen private sector engagement to help deliver on the European Pillar of Social Rights, supporting, among others, quality employment, inclusive education and training, health, social inclusion and active participation in society as well as accessibility and disability inclusiveness. Private-sector actors will be able to contribute to the objectives of the Social Investment and Skills window either through direct contributions (donations, repayable and non-repayable forms of support) and/or co-investments in the projects or financial intermediaries supported indirectly by the InvestEU Fund.

Likewise, grouping of smaller projects is encouraged, as many projects in the social space are too small to attract interest from private investors or to make a more efficient use of public money. For example, social policy reforms area may entail implementation of social infrastructure and services, such as for new social, care and healthcare models, in several locations in the jurisdiction of a national or regional authority through a number of small-sized projects. It may be necessary to group small projects in a single investment proposition to raise interest from investors. Grouping may involve:

(a) grouping small social infrastructure or technology or social service projects into a single investment proposition that involves a number of sub-projects in different locations;

(b) grouping investments needs for social infrastructure, technology and social services in a single project or investment proposition. This may require blending of financing sources or instruments;

(c) grouping investments needs for social infrastructure and services in a larger investment vehicle for urban or rural renewal or development, aimed at social inclusion or under ‘civic match-funding’ schemes.

The actions described in points (a) to (c) of the previous paragraph may be complemented by accompanying measures which aim to (i) help project promoters and financial intermediaries develop skills for configuring investment strategies, blending or hybrid financing, planning and grouping projects; (ii) support the development of social innovators, social enterprises, social impact investors, and philanthropists, including venture philanthropists; and (iii) create a pan-European network of social impact and social innovation relay and coaching centres, innovative education and training services, such as providers of guidance, skills forecasting, skills assessments and validation services or services helping to match the demand for and supply of skills and education-business partnerships and centres of excellence, including centres of vocational excellence.

Those actions may also be complemented by gathering EU-wide data on market failures or suboptimal investment situations in the policy areas linked to the social investment and skills window and making it publicly available.

Support to education and training will in particular target projects contributing to the digitalisation of the European education and training systems, including promoting digital proficiency from early education years, universal deployment of and access to ICTs in the education and training institutions and remote access and distance-learning tools and platforms. Supported actions should also target other digitisation programmes, aimed at life-long and inclusive access and support in digital skills and solutions for all social groups and ages. Furthermore, support to education and training should facilitate the development of new skills and strengthening of established skills that would ensure the effective functioning of strategic and critical activities set out in Sections 6.1.1.8 and 6.2.1.1 of these investment guidelines.

Financial intermediaries, including national promotional banks and institutions, commercial banks, guarantee societies and institutions, diversified debt funds providing senior and subordinated financing, microfinance institutions, leasing companies, crowd-lending and crowd-equity platforms, SPVs, match-funding vehicles, co-investment funds or schemes, non-banking financial institutions including loan funds, patient capital providers such as cooperatives, credit unions, insurance companies, pension funds, Private Equity/Business Angel funds, funds of funds may apply.

Social investment market enablers (including investment readiness and capacity-building intermediaries active in the microfinance and social enterprise finance space, FinTech companies, higher education instiutions, universities, research centres and EIT Knowledge and Innovation Communities, foundations, crowdfunding platforms, and vocational education and training institutions, including centres of vocational excellence and education-business partnerships) are also eligible. Other groups of investors including corporate investors, social impact investors, (social) business angels, educational entrepreneurs (e.g. Massive Open Online Courses ‘MOOCs’), venture philanthropists and philanthropists may also apply.

Other publicly-owned intermediaries and those operating in social infrastructure, social enterprise finance and social economy space (such as ethical or alternative banks, cooperative banks), which are able to provide financing in the eligible areas covered by the Social Investment and Skills window in full compliance with applicable national and Union legislation and with the relevant requirements of the Financial Regulation, may apply.

The potential public financial intermediaries referred in these guidelines may also play a role in combining InvestEU Fund support with other central Union funding programmes and funds under shared management.

Financial intermediaries may include, amongst others, national promotional banks and institutions, commercial banks, guarantee societies and institutions, loan funds, debt funds, pension funds, microfinance institutions, leasing companies, crowd-lending and crowd-equity platforms, SPVs, match-funding vehicles, co-investment funds or schemes.

Eligible financial intermediaries for equity financing may also include non-banking financial institutions including patient capital providers such as cooperatives, credit unions, insurance companies and entities to be incorporated, funds-of-funds, private equity funds, venture capital funds, business angel funds, technology transfer funds, co-investment funds or schemes, venture debt funds, other arrangements or schemes that provide investments in equity, quasi-equity, hybrid debt-equity and other forms of mezzanine finance.

Social investment market enablers (including investment readiness and capacity-building intermediaries active in the micro-finance and social enterprise finance space, FinTech companies, higher education instiutions, universities, research centres and EIT Knowledge and Innovation Communities, foundations, crowdfunding platforms, and vocational education and training institutions, including centres of vocational excellence and education-business partnerships) may also be eligible. Other groups of investors including corporate investors, social impact investors, (social) business angels, educational entrepreneurs (e.g. MOOCs), venture philanthropists and philanthropists can act as financial intermediaries in full compliance with applicable national and Union legislation when they are able to generate projects or investment portfolios in the areas covered by the social investments and skills window.

The managers of financial intermediaries (including first time managers or advisors) must demonstrate the capacity and experience to undertake such investments in the area under the Social Investment and Skills window as well as the ability to fundraise and attract private capital, and the prospective ability to become financially viable (including via a sound investment strategy), in order to attract more private investments into the specific asset class.

The Social Investment and Skills window focuses on the support interventions in various policy areas, therefore targeting a wide range of final recipients, which may include:

(a) natural persons: (i) persons in vulnerable situations (such as those experiencing or at risk of social exclusion, including those who are homeless or who live in severe housing deprivation, those who have lost or are at risk of losing their job, or have difficulties entering or re-entering labour market, persons from minority groups, third country nationals, persons in a disadvantaged position with regards to access to the conventional credit market who wish to start up or develop their own micro-enterprises); (ii) children, parents, teachers and school administrators; (iii) potential or current students and learners (including adult learners).

(b) enterprises: (i) micro-enterprises, including self-employed, especially micro-enterprises which employ vulnerable persons; (ii) social enterprises; (iii) public enterprises; (iv) SMEs; (v) Other private-sector companies.

(c) education, training and related service providers, including European Universities, schools, education and training institutions, including centres of vocational excellence and providers of early childhood education and care;

(d) SPVs;

(e) associations, foundations, mutuals and cooperatives;

(g) public authorities;

(h) health authorities, health service providers, social services providers, technology providers, healthcare professionals, patients, private individuals;

(i) in the field of social infrastructure, the targeted final recipients may be project promoters, public enterprises, operators of buildings/facility managers, social housing providers, PPPs.

Financing and investment operations will also support projects from private and public sector organizations active in the social investment space or in need of such investment.

Such organizations include, among others, SMEs, large corporations, cooperatives, foundations, venture philanthropists, impact-driven enterprises, education and training institutions and providers, triple bottom line ventures, local and municipal authorities.

Their activities cover various sectors and sub-sectors, including, among others, smart and inclusive mobility, urban renewal, rural socioeconomic revitalizing community building and intergenerational solidarity, inclusive communities, homelessness, integration of persons in vulnerable situations including people with disabilities, mental health difficulties and dementia, community development, the integration of third country nationals addressing demographic and migratory challenges and integrating new populations, digital inclusiveness and entrepreneurial skills.

Support from the InvestEU Fund will be underpinned by a single EU budgetary guarantee covering financial products that address a diversified portfolio of risks. This may include, among others bank guarantees, loans, equity, mezzanine debt, dedicated funds and investment platforms (which may have a layered structure of FLP, mezzanine tranche and senior debt), investment support into social outcomes contracting schemes and partnerships, working capital, support to the acquisition of tangible and intangible assets, and leasing transactions. Financing transactions shall have a minimum maturity of 12 months, however for specific segments with typical maturity shorter than average, e.g. microfinance, minimum maturity can be reduced to up to 3 months. Particular attention will be given to the provision of patient capital foregoing immediate returns with the expectation of long-term value creation.

That may be done, among others, through dedicated investment vehicles, which may provide loans, equity capital, hybrid capital and risk-sharing instruments for intermediaries or direct financing to final recipients.

Guarantees will enable the implementing partners and intermediaries to target final recipients identified in Section 6.4.2.2 at better financial and non-financial conditions than they would have without the guarantee, thereby passing on the benefit arising from the EU intervention. A reduction of the risk premium charged to the final recipients may be in particular considered for InvestEU Fund-supported operations under the Social Investment and Skills window. In addition, in line with the risk profile of the assets (often of intangible nature) under the Social Investment and Skills window FLP coverage by the guarantee will be possible.

Pilot social outcome contracting schemes may be supported, including investments in payment-by-result schemes and social impact bonds in specific areas, in which public procuring bodies (or also private bodies) pursue social impacts based on pre-defined social outcomes, if they result in additionality in accordance with Annex V to the InvestEU Regulation. They will entail private sector risk taking and shall not fall within the scope of essential social services for which public authorities would have to step in in the event of failure. As long as that is the case, possible areas of intervention may include access to education and training, health and care, migration and integration of third country nationals, employment services, skills upgrading and social services. When targeting social services, pilot social outcome contracting schemes may be launched to test whether an innovative intervention is effective and scalable. Such schemes should provide for transparency as to the set-up, functioning and monitoring of their effectiveness.

Debt instruments supported by the EU guarantee through implementing partners and financial intermediaries will predominantly target projects that are having difficulty obtaining debt finance on the market due to, among others, the lack of collateral, credit history or a high-risk profile or low expected returns.

The EU guarantee may be provided for the financing and investment operations in the form of:

(a) direct debt (including subordinated loans), bonds, unsecured lending, uncollateralised loans, corporate loans, mezzanine investments, senior loans and credit lines;

(b) credit enhancement for new investments (to project bonds, bank loans or a combination of the two) and loans for social and educational infrastructure projects, corporate loans, or senior debt and subordinated loans to SPVs and PPP structures (in project financing schemes);

(c) intermediate debt including framework loans disbursed through financial intermediaries and involving multiple final recipients;

(d) (counter)-guarantees, on-lending guarantees, funded guarantees and other risk sharing arrangements for schemes implemented by financial intermediaries and guarantees (funded and unfunded) to third party financiers;

(e) guarantee products covering newly originated loans that may, subject to applicable regulations and with the consent of the relevant national regulators if applicable, provide regulatory capital relief for financial intermediaries;

(f) targeted guarantee mechanisms that may be devised to enable and support social investments from the endowment base of foundations and philanthropic organisations, helping to reduce the risk of such investments and to pursue a certain level of returns. These will typically be linked to the commitment that returns generated on the side of investors from the use of the guarantee would be spent on grants and non-repayable assistance aligned with InvestEU priority funding areas.

Equity financing must be used to reach critical mass and give the flexibility in funding structures typically associated with bank lending. Equity operations can attract a range of patient capital, used in the pre-bankable- stages of business start-ups in all sectors, allow social enterprises to move gradually away from a grant-based funding approach and enhance their innovation and growth potential.

Potential equity products that may be covered by the EU guarantee include:

(a) (in)direct equity and quasi-equity investments, hybrid debt-equity and other forms of mezzanine finance in private or public equity funds, private debt funds, venture capital funds, financial intermediaries such as microfinance institutions and social finance providers (e.g. for capacity building purposes, for supporting funds linked to incubators, accelerators or providing incubation services to social enterprises and social innovators, including innovative education, training and related services providers, or for co-investing with social business and angels venture philanthropist and for supporting certain innovative financial solutions). In certain special circumstances, the departure from the traditional pari passu principle towards an asymmetric model of risk and return sharing distribution may also be considered;

(b) direct equity participations, shareholder equity, convertible shareholder loans and combinations of different types of equity participations issued to the investors. The possibility to allow for asymmetric returns and risk-sharing shall also be considered;

(c) open equity participations, dormant holdings, shareholder loans and combinations of different types of equity participations issued to the investors and donations, including advanced repayable and non-repayable forms of support. These products shall not involve voting or management rights for the investors (including co-investors).

The implementing partners benefiting from the EU guarantee should rank at least pari passu with other investors. However, under the Social Investment and Skills window, when duly justified, that pari passu principle may not apply, that is to say the investments of implementing partners which are benefiting from the EU guarantee may be in a sub-ordinated position as well as asymmetric with regard to risk and revenues in the waterfall.

The pool of investors willing to invest in the social instruments is currently limited given the return and risk perceptions. In particular, programme implementation will not aim to maximise returns, but rather to achieve a level of return that is sufficient to guarantee alignment of incentives and investor participation. Given that the emphasis will be on generating a social return rather than a financial return, the target portfolio return for an operation may be as low as 0 %.

Such products take the form of pilot financial products and platforms to address market failures and suboptimal investment situations, accelerate the development of the social investments market or crowd in more private investment and contribute to tailored finance solutions for social impact (¹⁰⁹).

In case of financing by the implementing partner to support microfinance institutions and social finance providers for their capacity building purposes, the requirement for the implementing partner to provide 5 % own resources contribution to the FLP as mentioned in Section 4.2.2 above does not apply.