EUROPEAN COMMISSION Brussels, 6.6.2018 SWD(2018) 314 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

establishing the InvestEU Programme

{COM(2018) 439 final}

{SEC(2018) 293 final}

{SWD(2018) 316 final}



Table of Contents 1Introduction: political and legal context 1.1Scope and context 1.2Investment in a post-crisis economic environment 1.3Lessons learned from previous programmes 1.4The way forward: a single investment support instrument 2The objectives 2.1General objectives of InvestEU Programme 2.2Specific objectives 2.3Simplification 2.4Enhanced flexibility 3Programme structure and priorities 3.1InvestEU Fund structure 3.2Member State compartments 3.3EU added value 3.4Governance 3.5Avoiding overlaps among policy windows 3.6Geographical distribution 4Target actions, financing products and beneficiaries

4.2Related programmes under preparation 4.3Blending and combinations 5Delivery mechanisms of the intended funding 5.1Single fund 5.2Single budgetary guarantee 5.3Implementing partners 5.4Technical assistance (InvestEU Advisory) 6How will performance be monitored and evaluated? Annex 1: Procedural information Annex 2: Stakeholder consultation Annex 3: Evaluation results Annex 4: Scoping papers Annex 5: List of Financial Instruments and EFSI under the current MFF Annex 6: Technical Assistance Annex 7: List of potential indicators for the InvestEU Fund Annex 8: Examples of indicators for the SME Window Annex 9: Examples of indicators for Social Investment and Skills Window Annex 10: Defining and assessing additionality Annex 11: Access of non-EU Member States to EU financial instruments

Annex 12: Assessment of duplication, synergies and overlaps Annex 13: InvestEU Fund – Governance List of Figures Figure 1 - GDP per capita at current prices, 2006 and 2016 (EU-28 = 100) Figure 2 - Investment (% GDP) in EU28 Figure 3 - Infrastructure investment by sector and by source, 2005-2016 (in % of GDP) Figure 4 - Annual Investment needs (current levels and gaps) for sustainable infrastructure Figure 5 - Total annual venture capital funding by continent (USD billion) Figure 6 - 448 emerging, current & exited tech companies valued at more than $500m Figure 7 - Correspondence between existing instruments & proposed InvestEU Windows Figure 8 - Current governance for EFSI and FIs vs the proposed governance under InvestEU Figure 9 - TA component (InvestEU Advisory) under InvestEU List of Tables Table 1 - Minimum estimate of the gap in social infrastructure investments Table 2 - Overview of budget allocations and estimated investments to be mobilised in the current MFF and under the InvestEU Fund Table 3 - From the EFSI and financial instruments (2014-2020) to the InvestEU Fund





Glossary Term Definition Blending facilities A cooperation framework established between the Commission and development or other public finance institutions with a view to combining non-repayable forms of support and/or financial instruments from the EU budget and financial instruments from development or other public finance institutions as well as from commercial finance institutions and investors. Contingent liability A potential financial obligation that may be incurred depending on the outcome of a future event. Equity investment Provision of capital to a firm, invested directly or indirectly in return for total or partial ownership of that firm and where the equity investor may assume some management control of the firm and may share the firm's profits. Budgetary guarantee Guarantee provided by the Union budget, pursuant to a legal commitment to support a programme of actions, representing a financial obligation that can be called upon if a specified event materialises during the programme implementation, and that remains valid for the duration of the programme. Financial instruments Union measures of financial support provided from the EU budget to address one or more specific policy objectives of the Union. Such instruments may take the form of equity or quasi-equity investments, loans or guarantees, or other risk-sharing instruments, and may, where appropriate, be combined with other forms of financial support or with funds under shared management or funds of the European Development Fund. Financial product Financial mechanism or arrangement agreed between the Commission and the implementing partner under the terms of which the implementing partner provides direct or intermediated financing to final recipients mainly in the forms of debt or equity. Financing and/or investment operations Operations to provide finance directly or indirectly to final recipients, carried out by an implementing partner in its own name, provided by it in accordance with its internal rules and accounted for in its own financial statements. Guarantee agreement Legal instrument whereby the Commission and an implementing partner specify the conditions for proposing financing or investment operations to be granted the benefit of the EU guarantee, for providing the budgetary guarantee for those operations and for implementing them. Implementing partner Eligible counterpart such as a financial institution or other intermediary with whom the Commission signs an agreement to implement the Union funds. Quasi-equity investment Type of financing that ranks between equity and debt, having a higher risk than senior debt and a lower risk than common equity and that can be structured as debt, typically unsecured and subordinated and in some cases convertible into equity, or into preferred equity. Mid cap companies Entities having up to 3 000 employees that are not SMEs or small midcap companies. Multiplier effect Investment by eligible final recipients divided by the amount of the Union contribution. National promotional banks or institutions Legal entities carrying out financial activities on a professional basis which are given mandate by a Member State or a Member State's entity at central, regional or local level, to carry out development or promotional activities. Risk-sharing instrument Financial instrument which allows for the sharing of a defined risk between two or more entities, where appropriate in exchange for an agreed remuneration. Small and mediumsized enterprises (SMEs) Micro, small and mediumsized enterprises as defined in Article 2 of the Annex to Commission Recommendation 2003/361/EC . Small midcap companies Entities having up to 499 employees that are not SMEs. Technical Assistance Advisory support for the identification, preparation, development, structuring, procuring and implementation of investment projects, or enhance the capacity of promoters and financial intermediaries to implement financing and investment operations. Its support may cover any stage of the life-cycle of a project or financing of a supported entity, as appropriate. Third country Country that is not member of the European Union.



Acronyms Acronym Meaning BG Budgetary Guarantee CCS Cultural and Creative Sectors CEF Connecting Europe Facility CEO Chief executive officer CMU Capital Markets Union COSME Competitiveness of Enterprises and Small and Medium-sized Enterprises COSME + Europe’s programme for small and medium-sized enterprises CRD IV Capital Requirements Directive IV CRR Capital Requirements Regulation EaSI Employment and Social Innovation EC European Commission ECB European Central Bank EDP InnovFin Thematic Products - Energy Demo Projects EFSI European Fund for Strategic Investments EIAH European Investment Advisory Hub EIB European Investment Bank EIF European Investment Fund EIPP European Investment Project Portal ERC European Research Council ESI Funds/ ESIF European Structural and Investment Funds FI Financial Instrument FR Financial Regulation IFI International Financial Institution INEA The Innovation and Networks Executive Agency IPE Investment Plan for Europe IPO Initial Public Offering MDB Multilateral Development Bank MFF Multiannual Financial Framework MS Member State NCFF Natural Capital Financing Facility NPB National Promotional Bank OPC Open Public Consultation PBI Project Bond Initiative PbR Payment-by-Results PF4EE Private Finance for Energy Efficiency PPP Public–private partnership R&D Research and Development R&I Research and Innovation RSB Regulatory Scrutiny Board SPV Special Purpose Vehicle TA Technical Assistance TEN Trans-European Networks TEN-E Trans-European Energy Networks TEN-T Trans-European Transport Network TFEU Treaty on the Functioning of the European Union VC Venture Capital 1Introduction: political and legal context 1.1Scope and context In line with the political orientation and guidance note of the College on the next Multiannual Financial Framework (MFF), there is a need to explore ways to incorporate the cross-cutting objectives of the new MFF in the future EU investment programme, particularly with regards to simplification, flexibility, synergies and ensuring coherence with other EU programmes. The considerations put forward in the Commission's Reflection Paper on the future of EU finances highlight the need "to do more with less" and leverage the EU budget at a time of budgetary constraints. To address the overlaps inherent in the current multitude of EU-level financial instruments (FIs) and applicable rules, the Reflection Paper suggests as a possible solution their integration in a single fund. This single fund would provide support via a wide variety of financial products while having a strengthened focus on policy areas and objectives. It also requests EU-level financial instruments and those managed by Member States under cohesion policy to be complementary. EU financial instruments and budgetary guarantees (BGs) are financial tools aimed to support investment and to achieve EU policy objectives. Financial instruments can take the form of debt, guarantees, equity, etc. Budgetary guarantees back financial products provided by implementing partners. Their main objective is to address market failures and suboptimal investment situations related to the supply of financing to economic actors with a risk profile that private financiers are not always able or willing to address. The reasons can range from asymmetry of information to risk averseness of private investors, underdeveloped financial markets and liquidity problems. This lack of financing provided by the market may have negative externalities that hinder economic growth, job creation, innovation, the pursuit of long term objectives, the emergence of more sustainable economic models and the resilience of the financial system. In these cases, financial public support may be justified. The public support may be provided in the form of grants or repayable instruments. For economically viable projects with a revenue generating capacity, a more systemic use of financial instruments and budgetary guarantees can help increase the impact of public funds. The EU has been successfully addressing investment gaps related to market failures with EU financial instruments since the mid-1990s. The EU's first budgetary guarantee, the External Lending Mandate, was created in the 1970s and is still used today to support EIB’s lending activities outside the EU. The New Community Instrument, mobilising investments by the EU budget in the form of loans "to stimulate an economic upturn and support common policies", was created in 1978. Under the current and previous MFFs, financial instruments have been expanding under a variety of programmes. During the 2014-2020 MFF, the Commission established 16 centrally managed FIs. The budget allocation for these instruments for internal action currently amounts to EUR 5.4 billion. These instruments aim at supporting investments in different policy areas, like Research and Innovation (R&I), small and medium size enterprises (SME) financing, infrastructure, cultural sectors as well as promoting environmental and social sustainability (see Annex 5 for a complete list of 2014-2020 centrally managed financial instruments and budgetary guarantee for internal action). Financial instruments are also a delivery mechanism for the European Structural and Investment Funds' (ESI Funds) programmes delivered under shared management. These instruments address specific Member States and regions and they are managed by the relevant Managing Authorities. The total budget planned to be delivered through financial instruments under shared management for the 2024-2020 period amounts to approximately EUR 21 billion. Moreover, in the aftermath of the financial and sovereign debt crisis, boosting jobs, growth, and investment has become one of the top 10 priorities of the Juncker Commission. As a response to the subdued investment levels, the Commission launched in November 2014 the Investment Plan for Europe. It focuses on removing obstacles to investment and seeks to deliver jobs, growth, and innovation in Europe. One of its key actions is the European Fund for Strategic Investments (EFSI), which aims at mobilising EUR 500 billion of additional investment through support via an Infrastructure and Innovation Window, and an SME Window by end-2020. EFSI provides a budgetary guarantee of EUR 26 billion underpinned by provisioning of budgetary resources of EUR 9.1 billion. Moreover, the EIB provided additional risk-bearing capacity of EUR 7.5 billion. Other actions include the European Investment Advisory Hub (EIAH) that provides technical assistance to private and public project promoters, as well as the European Investment Project Portal (EIPP) that is an online platform connecting project promoters and investors.

The conditions for an uptake of investment have improved since 2014, thanks to the improvement of the economic conditions and also due to the public intervention such as the EFSI. However, important investment gaps have been observed in different policy areas often held back by persistent market failures. Based on the public consultation for the next MFF and the mid-term evaluations of the EU centrally-managed financial instruments and the EFSI, the Commission intends to propose the creation of the InvestEU Programme, a single EU investment support mechanism for internal action for the 2021-2027 MFF. The Programme would include an InvestEU Fund, InvestEU Advisory as well as the InvestEU Portal. The InvestEU Fund would be the successor programme to the EFSI and the current centrally managed financial instruments (excluding external action financial instruments). The InvestEU Advisory would be the successor mechanism to the EIAH and current centrally managed technical assistance initiatives. The InvestEU Portal is the successor of the European Investment Project Portal. The InvestEU Fund will consist of providing an EU budget guarantee that will back the financial products provided by the implementing partners. It would target EU added-value priority projects and promote a coherent approach to financing EU policy objectives. It would use an effective and efficient mix of EU financing tools for specific policy areas and would target cross-sector needs and emerging priorities. It will also improve complementarity between different EU investment financing instruments by avoiding duplications and overlaps. The InvestEU Fund would also be accompanied by technical assistance (TA), the InvestEU Advisory, aimed at preparing, developing and implementing a robust investment pipeline. The InvestEU Advisory will build on existing initiatives (e.g. EIAH, ELENA, InnovFin Advisory) and provide support where possible and appropriate within InvestEU Fund objectives. Such TA support will also promote environmental and social sustainability that are important cross-cutting objectives. The envisaged scope of this impact assessment relates to identifying the main challenges to be addressed by this support mechanism with a focus on the main improvements and possible disadvantages in terms of budgetary efficiency, synergies, simplification, flexibility and policy impacts that it can bring compared to the current interventions from the EU budget in the form of financial instruments and budgetary guarantee. The baseline for the InvestEU Fund is built on the budgetary allocations under the current MFF for centrally managed financial instruments and the EFSI (more details in section 3 and Annex 5) This impact assessment constitutes an ex-ante evaluation in the sense of the requirements of the Financial Regulation for the creation of the InvestEU Fund and its budgetary guarantee. 1.2Investment in a post-crisis economic environment Since 2008, the crisis has motivated specific initiatives aiming at promoting economic activity in order to support jobs and growth and/or mitigate the effects of the crisis: the European Economic Recovery Plan (2009-2010), the Marguerite Fund (launched in 2010), Progress-Microfinance (launched in 2011), the SME Initiative (launched in 2014) and the EFSI (launched in 2015). Source: Eurostat According to the last Commission economic forecasts, the expansion is making its headway. Lending to non-financial corporations grew by 2.9% in 2017 and investment should continue to grow at a robust pace in 2018 and 2019. Over the forecast horizon, the expansion is expected to remain solid. By 2021, Member States are expected to have recovered their pre-crisis GDP level, with very few exceptions. However, persistent market gaps holding back investment are still observed in different policy areas. The recent acceleration of investment in the EU has not managed to bring investment rates up to historical averages. Efforts will therefore need to continue beyond 2020 to bring investment back to its long-term sustainable trend with particular focus on current and emerging EU policy priorities. Source: AMECO and ECFIN calculations Against this background, the InvestEU Fund will be designed by refocusing the EU investment support intervention in a more policy-oriented way, addressing the challenges identified below. 1.2.1Sustainable infrastructure Infrastructure investment activities in the EU in 2016 were about 20% below investment rates before the global financial crisis. Investment rates in 2016 represented 1.8% of EU GDP, down from 2.2% in 2009 . Compared to 2009, current infrastructure investment in Europe declined most in the transport sector.

The Commission has estimated investment needs in several key policy areas. For example: ·To reach the EU’s 2030 climate and energy target, about EUR 379 billion investments are needed annually over the 2020-2030 period, mostly in energy efficiency, renewable energy sources, and infrastructure – excluding transport infrastructure. ·Circa EUR 500 billion will be needed to complete the TEN-T core network during 2021-2030 and up to EUR 1.5 trillion, if the TEN-T comprehensive network and other transport investments are included. In case of the TEN-E (i.e. energy transmission projects with cross-border relevance), it is projected that EUR 179 billion will need to be invested during 2021-2030. These include investments that can enable important CO2 reductions as well as other priority air pollutants, and/or provide alternatives for infrastructure with large impacts on natural capital. ·The estimated investment required to achieve the objectives stated in the EU Urban Waste Water Directive ranged between EUR 22 and 25 billion, according to the information gathered under the last article 17 Report from EU Member States forecasts. Investments forecasted increasingly relate to the renewal, improvement and extension of the existing infrastructure. Source: Eurostat, Projectware, EPEC The weak infrastructure investment in Europe has been largely attributed to a decline in investment activities by governments (primarily regional or local authorities). Fiscal constraints, regulatory or political instability and investment decisions driven by political choices have been identified as the main challenges to infrastructure investment. According to EIB estimates, the overall investment gap in transport, energy and resource management infrastructure has reached a yearly figure of EUR 270 billion. Source: Action Plan: Financing Sustainable Growth, COM (2018)97 final In the field of telecommunications, the investment gap is approximately EUR 65 billion to reach the global benchmark for broadband services and to match US investments in cyber security and data centre capacity. Therefore, it is essential to further stimulate private sector investment. The lack of a strong pipeline of sustainable infrastructure projects is a recurring concern for investors. The capacity to develop and implement projects varies widely across the EU and between sectors. Therefore, technical assistance is key to further support the development of sustainable infrastructure projects in the EU and to scale up small and scattered projects. In addition, from environmental, and climate policy perspectives, the failure to reflect environmental costs in market prices renders sustainable investment in infrastructure less attractive. Further challenges arise for cross-border projects. Costs and benefits of projects involving several Member States are asymmetrically distributed among them, leading to coordination failures. At the same time, costs are charged at the national and local level, while benefits are realised transboundary or at EU scale and are dependent on other investments in the supply chain, value chain or network. 1.2.2Research and Innovation Research and Innovation (R&I) investment is a key driver of productivity and economic growth. However, private companies do not sufficiently invest in R&I from a welfare perspective. The reason is that companies do not take into account the positive externality from knowledge spill-overs, which benefit the whole economy. Indeed, the social returns from R&D investment are estimated to be two to three times higher than the private returns. The IMF (2016) shows that fully internalising the externalities of R&D would lead to 40% higher investments compared to the status quo. Such an increase could lift GDP in individual economies by 5% in the long term – and globally by as much as 8% due to international spillovers. R&I projects are more difficult to finance because they are risky and their returns are highly skewed. R&I may face significant adverse selection and moral hazard problems. This leads to lower investment both in terms of equity – as investors discount this uncertainty on financial markets – and in terms of debt financing – because of the intangible nature of investment or high risks related to innovative technologies, which makes collateralisation difficult, if not impossible. Financing constraints thus hamper profitable R&I investment opportunities, reduce firms’ innovative performance and growth prospects of economies, as opposed to the case of frictionless capital markets. R&D investment has typically also high adjustment costs (i.e. it relies on highly skilled human capital with firm specific knowledge). Firms therefore tend to smooth their R&D investment over time. Corporate liquidity can have an important impact on innovative firms' behaviour: young and smaller firms rely extensively on cash reserves to buffer R&D from the volatility in key sources of finance. The InvestEU Fund would allow financially constrained firms to maintain a relatively smooth flow of R&D expenditure in the face of shocks to finance, thereby reducing adjustment costs. The intensity of financial constraints for R&I vary with the structural and sectoral characteristics of companies. While financing constraints are in particular acute for younger and smaller innovative companies, such barriers can also be nonlinear. D’Este et al (2012) demonstrate that cost and market barriers for innovation are very present for non-innovative firms that want to embark on innovative projects as well as for highly innovative firms. This is in particular the case in the EU. R&D investments made by EU leading innovators, which are typically large firms, are more sensitive to financing constraints than their US counterparts, particularly in high-tech sectors.

Better access to finance could also improve sluggish productivity growth. A slowdown in productivity growth is particular acute in the EU and threatens future increase in living standards. Recent research shows that the productivity puzzle is not due to a lack of innovation, but to a lack of innovation diffusion between firms across all sectors. Cutting-edge firms are not slowing down in their productivity growth, but other firms are not keeping up. The gap between a handful of innovation leaders and the rest is widening. Furthermore, greater inequality among firms is one of the main culprits behind the rise in income inequalities. Coad, Pellegrino and Savona (2015) show that the cost and the availability of finance appear as crucial innovation barriers and negatively affect productivity across the whole distribution (conditioned on size, age, exports and education levels of firms). Brown, Martinsson and Petersen (2012) results suggest that better access to equity finance would significantly increase firm-level R&D intensity. Although ample evidence exists that economies achieve large and significant returns on R&I investments, and that the latter create new and better jobs in an economy that is ever more knowledge-based and intangible asset-intensive, the EU underinvests in R&D compared to its major competitors . Businesses in the EU spend far less on R&D than, those in the US and Japan, and less than a half of the South Korea, and the latest figures show a further increase of the gap. The underinvestment in business R&D is one of the reasons behind the widening of the EU’s productivity gap compared to the US. The R&D investment gap to reach the 3% EU GDP amounted to EUR 144 billion for the year 2016. 1.2.3SMEs There are 23.8 million enterprises in the EU that employed 93 million people in 2016, and which accounted for 67% of total private-sector employment and generated 57% of value added in the EU-28 non-financial business sector. About 85% of newly created jobs in the EU are accounted for by SMEs. However, obtaining financing in the form of debt or equity can still be a hurdle for company creation and its growth and scale-up, in particular in Member States with less developed financial markets. European SMEs rely heavily on debt finance in the form of bank overdrafts, bank loans or leasing. Market-based instruments (e.g. equity) are only considered relevant by 12% of SMEs although in many cases equity (risk-capital) is more suitable, as small companies often lack collateral or have irregular cash-flows (equity does not impose specific repayment schedule, and hence can be less of a burden during times of economic stress). Providing more diversified sources of funding is necessary for increasing the ability of SMEs to withstand economic downturns and for making the financial system more resilient during economic shocks. This is a key objective pursuit under the Capital Markets Union. Problem with access to debt finance Following the financial crisis, higher capital requirements (e.g. CRD) and the need for banks’ deleveraging, negatively affected banks’ willingness and ability to lend and to accept risk. This had a major negative effect on available SME bank finance across the EU. Credit standards tightened considerably and SMEs as a consequence experienced a credit crunch. The ECB’s monetary policy has significantly improved the liquidity situation and positive economic developments have helped as well. In addition, an SME Supporting Factor was introduced, thus reducing the capital requirements for exposures to SMEs in comparison with the pre-CRR/CRD IV framework. All of these activities have led to an improvement in the conditions for access to finance, and SMEs have on average recovered. Moreover, financial markets in the Member States show different degrees of development, in terms of diversity of financial institutions, product offerings and risk appetite. SMEs have no means to overcome these national differences because they rely on local or national providers of finance. SME financing is predominantly provided within national boundaries due to regulatory constraints. Cross-border lending is only at a nascent stage, predominantly fuelled by the emergence of fintech companies. For SMEs, the debt finance gap is estimated at EUR 30 billion annually. The financing problem is acute for firms that are undertaking activities with significant financial, technological, organisational or business-model risk and those wanting to finance growth projects which do not result in the acquisition of fixed assets which could be collateralised (e.g. in the area of culture and creativity, digitisation, internationalisation, etc.). For example, the financing gap for creative SMEs across Europe has been estimated at between EUR 8 and EUR 13 billion over 2014-2020. This sizeable gap is the consequence of a very dynamic sector that contributes 4.4% (approximately EUR 558 billion) of the EU GDP and 3.8% (8.3 million jobs) of the total EU workforce. Moreover, SMEs face a knowledge gap regarding investments in their digital transformation including Artificial Intelligence adoption. This is shown by the difference of take up of digital technologies by large companies (42% are highly digitised) vs SMEs (only 16% are highly digitised). Furthermore, undertaking innovative and other high-risk activities that are poorly understood by finance providers, result in low credit scores and lead to high interest charges to compensate for the perceived risk. Moreover, especially younger and smaller companies or those requiring rather small financing amounts are faced with a structural financing gap due to information asymmetries, lack of financial track records and disproportionate dossier costs, which is independent of the economic cycle or the country they are located in. If financing is offered at all, it is offered at unreasonable conditions in terms of interest rates applied, maturities, repayment terms and collateral required. These market failures – prevalent cross the EU – hinder the start-up and growth of companies. Companies rarely have the internal funds they need, and consequently seek external financing. This market environment results in an access to finance gap for SMEs that have a higher risk profile or insufficient collateral, and such access to finance gap differs from country to country. Insufficiently developed equity financing market Despite the fact that only 12% of SMEs currently consider equity financing relevant for their business, it is an important financing component, specifically for high-risk start-ups and high growth companies that require significant long-term investments and which do not produce immediate free cash-flows which would allow servicing debt payments nor do require the need for a collateral. Alternative sources of finance, complementary to bank-financing - including public equity markets – private equity and venture capital - are more widely used in other parts of the world, and should play a bigger role in providing financing to companies that struggle to get funding, especially SMEs But Europe's capital markets are still very fragmented and underdeveloped (EU SMEs receive five times less venture capital funding compared to US as shown in figure 5).



Source : PwC, MoneyTree Report, Q4 2017 For high-risk start-ups and high growth of companies, obtaining equity finance on reasonable terms is difficult for different reasons: one is the asymmetry between the information held by the firm and that known to the investor; and conflicts of interest between a firm's managers and its shareholders (the principal-agent conflict). Sources: TechCrunch, Rocket Internet Research While private capital for initial public offerings (IPOs) and pre-IPOs is in principle available, it is not sufficiently made available for this particular asset class of risk capital investments. Investors consider the risk/return profile for venture and growth capital investments inappropriate and the cost of undertaking research too high. Moreover, investors find it inefficient to invest because the funds are very often too small. These framework conditions create a market gap for equity risk capital finance that narrows the opportunities for exit strategies for leading technology companies (see figure 6). Matching US levels of venture capital financing as share of GDP would require around EUR 35 billion a year in additional EU venture capital activity. 1.2.4 Social investment and skills Investments in social infrastructure, social economy enterprises or social enterprises producing goods ('tangibles') as well as social services, ideas and people ('intangibles') are crucially lacking in the EU, yet are critical for the EU and its Member States to develop into a fair, inclusive and knowledge-based society. At the moment the social sector as a whole continues to experience a significant investment shortfall, and has to date been considered in a fragmented and scattered manner. Efforts to bridge the investment gap should also contribute to make social infrastructure and service provision more people-centred, accessible, and affordable. The social infrastructure investment gap is not easily quantifiable. Due to the heterogeneity of the sector, no comprehensive market gap analysis on the entire social sector in Europe has been performed to date. According to the report of the “High-Level Task-Force on Investing in Social Infrastructure in Europe” (HLTF), public investment in social infrastructure, including for education, health and housing, has been and remains low over the past decade, despite EIB/EFSI support. The HLTF has estimated that the investment gap for the priority sectors of affordable housing, education and healthcare can be calculated as an uplift of 25% of the current percentage of GDP identified for each sector. This estimate determines an investment gap of EUR 142 billion p.a. as illustrated by the table below. Sector Current annual investment in EUR billion p.a. Minimum gap per sector in EUR bn p.a. (uplift of 25 per cent of the current percentage of GDP) Additional items in EUR bn p.a. Annual Investment GAP in EUR bn p.a. Education & Lifelong Learning (0.4% of GDP) 65 15 - 15 Health & Long-Term Care (0.5% of GDP) 75 20 EUR 50 billion pa for long-term care Unknown amount for disability and migrants 70 Affordable housing (0.4% of GDP) 28 7 EUR 50 billion pa to address energy poverty 57 Totals 168 42 100 142 Source: HLTF Report on Investing in Social Infrastructure in Europe, January 2018 Microfinance and social enterprises in Europe are still recent developments and part of an emerging market that is not yet fully developed. Both micro-enterprises, in particular those employing vulnerable persons, and social enterprises are often confronted with difficulties in getting access to finance, which is a significant barrier to their growth and development while public finance in this area is still lacking, especially at the European level. The investment gap for micro-enterprises has been estimated through the same Survey on Access to Finance of Enterprises , and constitutes between EUR 33 billion and EUR 81 billion of the loan gap. Social enterprises constitute around 10% of EU business. This indicates that the financing gap for social enterprises is at least 10% of the total estimated gap, between EUR 3 billion and EUR 8 billion. As regards skills development, there are very large gaps in terms of providing apprenticeship-type training across the EU. Overall, the average annual company spending on apprenticeships in the EU is around 0.5% of their annual labour costs, or around EUR 30 billion, with potential gap of EUR 30 billion of investment to reach the level of financing in countries with advanced apprenticeships systems – i.e. 1% of the annual labour costs. A Commission analysis shared and discussed in the Eurogroup confirms the importance of investments in human capital to raise productivity and boost potential growth. The EIB considers that to reach US standards mostly in higher education annual investment of EUR 10 billion for state-of-the-art education facilities would be required, in addition to annual EUR 90 billion increased operational spending. EU support is therefore needed for improved educational attainment and skills providing easier access to labour market, lifelong skills development facilitating career progression, and minimising the risk of poverty/social exclusion. This includes investing in quality and affordable education, childcare, healthcare, long-term care, social housing and access to essential social services. Support for companies (particularly SMEs) to get involved more in combined school-and work-based education and training programmes as well as to improve the utilisation of skills through redesigned business processes is also needed. 1.3Lessons learned from previous programmes It has been recognised that financial instruments such as guarantees, loans, and equity play an important role for the achievement of EU policy objectives and one of the advantages is that the FIs support has to be repaid, which leads to resources being used for several funding cycles. Their repayable nature also ensures better alignment of interests between different stakeholders, greater economic scrutiny of projects, as well as more financial discipline. An additional important feature is the leverage effect. This relates to the total investment mobilised by private investors in relation to the deployment of EU budget resources. These financial instruments and the EFSI "have [also] become EU trademarks, making the EU visible and recognisable in the daily lives of its citizens". However, there have been numerous requests underlining the need to simplify and streamline the available offer of EU investment support instruments. The fragmentation of the EU offer led to the emergence of overlaps, different sets of rules by instruments and a lack of visibility of the EU activity in this field. This results in unnecessary complexity and higher budgetary and administrative costs. There is also some criticism that the proliferation of financial instruments led to insufficient accountability and control. More importantly, final beneficiaries and financial intermediaries have become confused about the different solutions offered in terms of instruments and products. The post-2020 investment support scheme must therefore be focused, simpler and more transparent, while allowing for quick response to a changing market environment through an increased flexibility of budgetary allocations to emerging priorities. A similar need for simplification has also been identified for the TA offers as they often underpin individual initiatives.

The Reflection Paper on the Future of EU Finances" underlined that there seems to be evidence that "[t]he number of EU-level financial instruments and rules applying to them is an obstacle to their efficient use”. The Commission Communication on the next MFF also underlined that "[…] the current landscape of EU market-based instruments is fragmented, with almost 40 financial instruments and three budgetary guarantees and guarantee funds managed centrally, which amount to a share of around 4% of the current Multiannual Financial Framework. There is clear scope for rationalisation and greater efficiency." The High Level Group on Simplification for post 2020 recommended: "For those EU funds which support investments (ESIF, EFSI, CEF, Horizon 2020, etc.) overlaps which lead to competition based on a more beneficial legal regime should be identified and removed, with effectiveness and results being the relevant factors to determine which instrument should be the most appropriate in a given context". The European Parliament also calls for simplification and greater efficiency. In its Resolution on the Reflection Paper on the Future of EU Finances the European Parliament: ·"[A]dvocates a real and tangible simplification of implementation rules for beneficiaries and a reduction of the administrative burden”. ·“Encourages the Commission, in this context, to identify and eliminate overlaps between instruments offered by the EU budget which pursue similar objectives and serve similar types of actions." ·In particular, the Parliament "calls on the Commission to simplify and harmonise the rules governing the use of financial instruments in the next MFF with the aim of creating synergies between the different instruments and maximizing their efficient allocation." Finally, there is a need to step up mainstreaming efforts notably related to the EU (and global) sustainable development objectives. It is important to ensure that EU investment support mechanisms such as the InvestEU Fund are guided by robust and advanced sustainability criteria, including those set by the EU climate and environment policy. Therefore, the InvestEU Fund will draw lessons from the past and current EU investment support instruments. This concerns in particular the experience with the 2014-2020 financial instruments as well as the EFSI. Detailed lessons learned and past evaluation results are included in Annex 3. Past evaluations have demonstrated that the EFSI has been effective in delivering concrete results and encouraging a sustainable increase in the low investment levels in Europe. In particular, the budgetary guarantee underpinning EFSI has proven to be an efficient tool to increase considerably the volume of riskier operations financed by the EIB. The EFSI budgetary guarantee freezes less budgetary resources compared to financial instruments, as it requires limited provisioning needs compared to the level of financial engagement. In other words, it assumes a contingent liability and is consequently expected to achieve efficiency gains that result in higher investment mobilised per euro spent. A budgetary guarantee has also proven more cost-efficient for the EU budget, as it is remunerated for the risk taken and it limits the payment of management fees to the implementing partner(s). Past EFSI evaluations have also stressed the need to improve EFSI’s geographical balance, avoid overlaps with other EU Financial Instruments, as well as reinforce and clarify additionality. It is also generally recognised that there is a need for greater advisory and technical assistance which would contribute to a sizeable pipeline of projects that contribute to the EU policy objectives. Evaluations of investment support programmes noted a certain level of fragmentation and overlaps among different EU investment support instruments as well as with financial instruments under shared management. For instance, CEF evaluation showed that its financial instruments have seen limited uptake, partly due to the new financing opportunities opened by the EFSI. The Interim Evaluation of Horizon 2020 also points out that "since the set-up of EFSI in 2015, it has proved challenging to reach InnovFin's objectives, as a significant part of the products deployed overlap with EFSI in terms of both risk spectrum and eligibility". There is currently a certain overlap also between different financial instruments targeting SMEs, including with programmes under shared management. More detailed assessment of duplications and overlaps is presented in Annex 12. Moreover, as highlighted in the European Court of Auditors’ report on the COSME Loan Guarantee Facility, the latter has achieved positive results, but needs better targeting of beneficiaries and more coordination with national schemes. In particular, the report recommended that the Commission carries out an assessment of market needs and how EU guarantee instruments can best respond to these needs alongside national/regional instruments. In this regard, the Commission has prepared an in-depth market assessment at the level of each Member State demonstrating the market gap and the rationale for an intervention at EU level (more details are available in the IA related to the Single Market Programme). The EU support has also played an important role in the development of the nascent social investment market through the Programme for Employment and Social Innovation (EaSI), in particular for microfinance and social entrepreneurship, empowering European citizens and fostering social inclusion. Based on the public consultation, the social inclusion and employment areas are seen as the biggest challenges where the EU response in terms of investment is least sufficient. However, the resources have been rapidly absorbed and there is an important unmet demand. The experience of blending CEF grants with financing products or EIB or National Promotional Banks conventional lending or private finance has also been positive. More effort is needed to facilitate combining, when appropriate, different forms of support to maximise the leverage and impact of private or public funds. For future instruments, it will be important to strengthen the mobilisation of private capital and avoid potential crowding out effects (linked to additionality). 1.3.1Complementarity between the EU level and ESIF According to the ESIF Operational Programmes 2014-2020, financial instruments will account for 9.5% of the European Regional Development Fund (ERDF), 2.7% of the Cohesion Fund (CF) and 1.3% of the European Social Fund (ESF) allocations included in multi-fund programmes. The average allocation to FIs is 7.2%. This compares to 5% of ERDF allocation to FIs in the previous programming period . Experience under the current and previous programming periods show that the complementarity of financial instruments under shared management and those centrally managed could be further improved. In particular, the Court of Auditors noted that how the various EU guarantee instruments can best respond to SMEs needs alongside nationally/regionally funded instruments, thereby ensuring EU added value, was not adequately assessed . The attempts to combine FIs centrally managed and those under shared management have proven to be complex and this might have been one of the reasons that slowed down their uptake.

The Commission's Reflection Paper on the EU's finances pointed out that the "new EU-level financial instruments and the loan, guarantee, and equity instruments managed by Member States under cohesion policy should be complementary". It further indicates that this "complementarity between the different instruments should be ensured, through upstream coordination, same rules and clearer demarcation of interventions" (p. 27). 1.3.2Results from the Open Public Consultation Open Public Consultations (OPC) for the post-2020 impact assessment were organised per group of policy areas. This impact assessment will mainly consider the results from the OPC on the EU Support for Investment. For this policy area, 642 replies were received from all Member States. Relevant results from OPCs regarding different policy areas like Cohesion; Security, Migration and Asylum; Strategic Infrastructure; Values and Mobility are also taken into consideration. The following issues raised are particularly relevant and have been taken into account in assessing the different possible actions presented in this report: ·Most respondents believe that the current EU support for investment does not sufficiently address policy challenges like reducing unemployment, support social investment, facilitate digital transition, facilitate access to finance in particular to SMEs, ensure a clean and healthy environment and support industrial development. ·The respondents stressed the importance of EU wide policy challenges, among others, in areas like research, support for education, clean and healthy environment, and transition to low carbon and circular economy, and reducing unemployment. ·Most participants believe that current EU investment support programmes to a fairly large extent add value compared to what Member States could achieve at national or regional level. ·Around 60% of respondents to the OPC on Strategic infrastructure expressed a view that difficulty to access financial instruments is an obstacle that prevents the current programmes from successfully achieving policy objectives. For OPC on Security and Cohesion, the insufficient use of financial instruments is identified by around 40% of participants. ·A vast majority of participants support the identified steps that could help simplify and reduce administrative burdens. In particular, this includes fewer, clearer and shorter rules, alignment of rules between EU funds, as well as a stable but flexible framework between programming periods. 1.4The way forward: a single investment support instrument The Reflection Paper on EU Finances proposes the following: “[o]ne option to address this could be […] integration [of financial instruments] within a single fund which would provide loans, guarantees and risk sharing instruments — blending with EU grants where appropriate — depending on the project and windows for the different policies (such as research, innovation, climate action, environment, SME support, infrastructure, including for energy efficiency) to cater for different objectives". The Commission Communication further clarifies that "[o]ne option to improve the efficiency and impact of instruments aiming at investment support in the EU could be their integration within a single investment support instrument. This would further reinforce the European Fund for Strategic Investments and have a positive impact on investment levels, economic growth and employment across the EU" . The European Parliament "considers the option of a single fund that would integrate financial instruments at EU level that are centrally managed under such programmes as the Connecting Europe Facility (CEF), Horizon 2020, COSME, Creative Europe and the Employment and Social Innovation programme (EaSI) on the one hand and the European Fund for Strategic Investments (EFSI) on the other, a proposal to be discussed further". The European Parliament "is of the opinion, however, that such simplification should not result in the replacement of grants by financial instruments and must not lead to a sectorialisation of EU programmes and policies, but should guarantee a cross-cutting approach with complementarity at its heart. [It also] calls for a far-reaching harmonisation of rules with the aim of creating a single rulebook for all EU instruments." Based on the above consideration it is proposed to set up a single investment support instrument - the InvestEU Fund. It will be a centrally managed instrument/framework for financing EU investment priorities. It will integrate under a single framework all centrally managed financial instruments and the EFSI budgetary guarantee. 2The objectives 2.1General objectives of InvestEU Programme As single investment support scheme for internal Union policies, the InvestEU Programme is both a policy instrument and a delivery tool. As a policy instrument, the InvestEU Programme general objective is to support EU policy priorities by financing investment operations that contribute to: ·the competitiveness of the Union, including innovation and digitisation; ·the sustainability of the Union economy and its growth;

·the social resilience and inclusiveness of the Union; and ·the integration of the Union capital markets and the strengthening of the Single Market, including solutions addressing the fragmentation of the Union capital markets, diversifying sources of financing for Union enterprises and promoting sustainable finance. The objective is to mobilise public and private investment operations within the EU addressing market failures and investment gaps that hamper the achievement of EU goals regarding sustainability, competitiveness and inclusive growth. Underpinned by an EU guarantee, the InvestEU Fund will contribute to the modernisation of the EU budget and will increase the impact of the EU budget by "doing more with less". The InvestEU Programme should have the capacity to shape the EU strategy to tackle the subdued investment activity in Europe. With this, it should increase the competitiveness of the Union and contribute to the economic growth and job creation. By diversifying the sources of funding and promoting long term and sustainable finance, the InvestEU Programme will contribute to the integration of European capital markets and the strengthening of the Single Market. As an EU wide resource pooling financial, market, technical and policy expertise, the InvestEU Fud shall also be a catalyser for financial innovation at the service of policy objectives. 2.2Specific objectives In particular the InvestEU Programme would aim at the following specific objectives: ·to promote financing and investment operations supporting sustainable infrastructure; ·to promote financing and investment operations supporting research, innovation and digitisation; ·to increase the access to and the availability of finance for SMEs and, in duly justified cases, for small mid-cap companies; and ·to increase the access to and the availability of finance to social enterprises, promote financing and investment operations supporting social investment and skills and develop and consolidate social investment markets. As a delivery tool, the InvestEU Programme aims at implementing financial instruments and budgetary guarantees more efficiently, achieving economies of scale, increasing the visibility of EU action and enhancing the reporting and accountability framework applicable to those instruments. The proposed structure aims at simplification, increased flexibility, and removal of potential overlaps between seemingly similar EU support instruments. The InvestEU Programme interventions will be channelled through four thematic policy windows, each one entailing two compartments, one at EU level and one under ESIF, the Member State compartment (see section 3.1,): ·Sustainable infrastructure; ·Research, innovation and digitalisation; ·Small and medium-sized enterprises; and ·Social investment and skills. In addition, the InvestEU Programme will include the InvestEU Advisory for project development and advisory support throughout the investment cycle to foster the origination and development of projects. The TA support will be provided in the InvestEU policy areas and will also ensure a single point of access for final beneficiaries including project promoters and intermediaries. These general and specific objectives will be taken into account in section 5 (Delivery mechanism) and section 6 (Performance measurement). The above general and specific objectives are translated into operational objectives for each policy area, as detailed below. 2.2.1Sustainable Infrastructure Window The objective of the investment support from the InvestEU Fund under this window would be the provision of finance to sustainable infrastructure in areas such as transport, energy (including energy efficiency), network infrastructure (smart grids, energy storage, e-mobility), broadband, environmental related sectors (e.g. waste, water, air, circular economy), innovative sectors (such as green infrastructure and other natural-capital related projects), and emerging priorities in areas such as urban mobility and digital service (see scoping paper on Sustainable Infrastructure available in Annex 4).

Support from the InvestEU Fund under this policy window will: ·Orient capital flows towards sustainable infrastructure investment, in order to achieve sustainable and inclusive growth; ·Stimulate investment needed to respond to the challenge of climate change mitigation and of meeting the greenhouse gas emission reduction commitments by 2030 taken by the EU under the Paris agreement; ·Contribute to coordinated investments in infrastructure projects involving several Member States (cross-border projects), in particular the financing of trans-European networks; ·Address emerging market needs, new technological developments and priorities; ·Promote interoperability; ·Foster cross-sectoral synergies between energy, transport and digitalisation; and ·Provide assistance to continue to build more capacity for developing projects, platforms and programmes. Sustainability proofing of infrastructure investments Long-lifetime infrastructure should be resilient to potential effects of climate change and other environmental challenges. Climate change adaptation and mitigation considerations need to be integrated throughout the project cycle. Projects shall be subject to climate proofing, which entails two components: first, ensuring the resilience to the current and future adverse impact of climate change through a climate vulnerability and risk assessment and integration of relevant adaptation options; second, accounting for the cost of greenhouse gas emissions in the cost-benefit analysis facilitating due consideration of low-carbon options. Major projects – funded by the European Regional Development Fund and Cohesion Fund in the 2014-2020 programming period – are already subject to climate proofing . Factors such as the increase in weather related risks caused by climate change should also be taken into account when making investment decisions. In addition, other environmental challenges other than deriving from climate change per se should be addressed (such as biodiversity loss, air, water and soil pollution, due to fragmentation and degradation of land and unsustainable land-use,). For investments in new sustainable infrastructure, negative externalities related to climate and other environmental risks need to be taken into account in the overall project risk assessments and mitigation strategies during planning and development phases. The sustainability proofing of investments will need to reflect the latest developments in the field, notably the progress made to develop an EU taxonomy under the Commission Action Plan on Financing Sustainable Growth. 2.2.2Research, Innovation and Digitalisation Window The Research, Innovation and Digitalisation Window will aim to mobilise significant R&I investments to deliver higher productivity, economic growth and better living standards. It will stimulate all innovation: from radical to incremental. The specific objectives of the Research, Innovation and Digitalisation window will aim to: ·Improve access to and availability of finance for R&I projects adapted to the different needs and risk appetite of potential final beneficiaries at various stages of the innovation cycle; ·Create critical mass of financing to stimulate industrial scale demonstration of innovative technologies, disruptive innovation and support high-risk investments in R&I and new technologies to boost the EU’s global competitiveness; ·De-risk investment in R&I and help upscale and deploy innovative solutions at commercial scale;

·Support innovation diffusion and transfer established solutions to new markets to improve innovation performance across the EU; ·Address investment gaps through supporting new Financial Products and innovative financing solutions such as crowd-lending or hybrid instruments and cross-border financing options; ·Foster the transfer of best practices between financial intermediaries with a view to encourage the emergence of a broad product offering supporting R&I activities and R&I-intensive entities; and ·Provide technical assistance to improve investment readiness and bankability of R&I projects, including deep tech companies, middle market firms, universities, technology transfer offices, public research organisations and large research infrastructures. 2.2.3SME Window The main objective of the SME Window is to increase the access to and availability of finance for European SMEs, in support of employment creation and economic growth. This could be achieved by providing support for categories of SMEs for which the access to finance problem is the most pronounced – start-ups, younger and smaller companies, SMEs lacking sufficient collateral to realise their investment projects linked to the growth of the company, and innovative companies. At the same time, the SME window would also aim to promote the implementation of specific policy priorities of the EU that do not receive sufficient level of support from the private sector. For example, the areas of internationalisation, digitisation or the uptake of innovation, and in sectors such as innovative SMEs and the cultural and creative industries. Furthermore, the capacity of financial intermediaries to work with SMEs, e.g. in the cultural and creative sectors, needs to be improved so that they can fully play their market role of channelling private investment resources to these areas and thus increase their growth potential. The SME window could also contribute to supporting farm investments for restructuration and modernisation, as well as rural entrepreneurship. The SME Window will also support the Capital Markets Union strategy by promoting more diversified sources of funding and overcoming fragmentation of capital markets as a means to increase the ability of SMEs to withstand economic downturns and making the financial system more resilient during economic shocks. The EU-level debt products should focus on SMEs that would not receive support from the market due to the perceived higher risk or the lack of collateral. Where justified, more dedicated support may be provided for SMEs or organisations or, were justified to small mid-caps, for a specific sector or a specific policy orientation. Concerning equity in particular, the aim would be to increase private equity investments in R&I-intensive or high-risk SMEs and small midcaps and tackle market gaps that are not properly addressed by national and regional programmes. The strengthening of the EU equity industry's ability to attract institutional and other investors to operate on a pan-European basis and to provide European exit strategies for leading growing companies will also be targeted. To ease high growth SMEs to scale up beyond the private equity markets notably when going public, the window could also support and facilitate SMEs seeking a listing on a SME Growth Market – Multilateral Trading Facility created by MiFID II, aiming to improve the functioning of the entire funding escalator of the SMEs and providing fast and profitable exit opportunities for venture capital and private equity investors. It is essential to ensure the complementarity and EU-added value of the support by focusing it on market gaps which are not adequately addressed through national or regional programmes. A possibility to avoid such overlaps would be that support targets especially those countries where the access to finance problem is most pronounced and not addressed nationally. 2.2.4Social, skills and human capital Window The European Pillar of Social Rights recognises among its core principles the right to education, training and lifelong learning as well as to social protection including childcare, housing, healthcare and long-term care. The general objective of the Social Investment and Skills Window would be to support private and public investment in social infrastructure in areas such as education, social housing, and health, as well as to develop and consolidate the nascent market structures underlying the European social economy and social enterprises and the training and education sectors, both in terms of financing support and technical assistance/capacity building. Taking account of and providing leverage to policy instruments in support of the social dimension of the EU in the next MFF and against the backdrop of the European Pillar of Social Rights, support from this Window will aim to: ·Consolidate the nascent market structures underlying the European social economy organisations and social enterprises ecosystem; ·Increase access to, and the availability of, microfinance for vulnerable persons (e.g. unemployed, youth, elderly, migrants) and micro-enterprises, social enterprises; ·Build up a stronger capital market for social infrastructure promoters investing in areas such as education (including childcare), social housing, and health (including long-term care); ·Support human capital investments (both demand and supply side), for students and workers and other persons in need of initial training, reskilling and upskilling, as well as for education and training providers, start-ups and companies at large;

·Support the Commission’s future action in the field of social enterprises at EU level; and ·Support the emergence and consolidation of social investment markets by boosting both the supply and demand sides; supporting investment readiness and capacity building of public authorities and of intermediaries active in the micro-finance, social economy organisations and social enterprise finance sector. 2.3Simplification Suboptimal investment situations are currently addressed through a heterogeneous and fragmented portfolio of EU financial instruments and the EFSI. These all come with different legal, administrative, and operational arrangements that result in unnecessary complexity. The aim of the InvestEU Fund would be to simplify the EU investment support by constructing a single framework that would help to reduce the complexity. Due to a lower number of agreements under a single set of rules, the InvestEU Fund will simplify the management of investment support instruments, the governance and the final beneficiaries' access to the EU support. Moreover, as the InvestEU Fund covers all investment support policy needs, this would allow streamlining and harmonising the reporting requirements and performance indicators. 2.4Enhanced flexibility EU investment support instruments address market gaps and suboptimal investment situations. However, investment support needs are constantly evolving due to changes in technology, laws and rules, policy priorities, economic cycles, and risk appetite of financiers and investors. It should thus be possible to modify easily the products. Imposing strict and rigid rules and mechanisms would negatively affect beneficiaries. This could have negative repercussions on investment levels, growth prospects, employment, as well as on achievement of policy objectives. The EU investment support needs to respond quickly to these changes and requires flexibility in the following areas: ·Ability to align existing financial products to new market conditions. This implies an ability to change particular investment guidelines, criteria as well as the amount of support during implementation; ·Possibility to discontinue underperforming financial products or create new ones. This would also include a possibility for the Member States to withdraw contributions from a financial product set up under the InvestEU Fund Member State compartment (see section 3.2) under certain principles; ·Ability to reallocate resources between products within a specific policy window; ·Possibility to reallocate a portion of resources among policy windows. Any reallocation of resources between windows could be limited to [15% ] of the guarantee amount of any of the windows; ·Possibility to easily combine or blend, when appropriate, support under the InvestEU Fund with grants from other EU programmes; ·It should be possible to design products with specific risk coverage rates (e.g. level of first loss piece or guarantee rates) for particular market failures; and ·The Commission should also have the flexibility to grant the EU guarantee to several implementing partners that fulfil the required eligibility criteria (see section 5.3).



3Programme structure and priorities

The current experience with the EU financial instruments and the EFSI budgetary guarantee demonstrated a need for simplification, streamlining and better coordination of EU’s investment support instruments during the next MFF. Experience with the EFSI also revealed significant benefits and efficiency gains inherent in using, where possible, a budgetary guarantee instead of traditional financial instruments. It is therefore proposed to set up a single investment support instrument, the InvestEU Fund, underpinned by a budgetary guarantee. It will be a centrally managed framework for financing EU investment priorities. It will integrate under a single framework all centrally managed investment support instruments and the EFSI and will allow to also cover new and emerging priorities. The budgetary guarantee underlying the InvestEU Fund will be allocated to four thematic policy windows as indicatively shown in the table below. The split is based on policy prioritisation, absorption capacity, and the size of the investment gasps. The InvestEU Fund will however foresee a possibility to reallocate a limited portion of resources among policy windows (see 2.4). The InvestEU Fund assumes a slight increase in the EU budget from EUR 14.5 billion during the current MFF (see Annex 5) to 15.2 billion allocated or an increase of almost 5%. The InvestEU Fund is however expected to increase the overall available budgetary guarantee much more. The available EU support would increase by 21% to EUR 38 billion and the total expected investment mobilised by 16.3% to EUR 650 billion (as illustrated in the table below). The increase of the available EU support is due to a shift from the current mix of FIs and the EFSI (EU) guarantee to the use of a single budgetary guarantee that is a much more efficient delivery mechanism. 2014-2020 2021-2027 Weight of windows (based on the budgetary guarantee/FIs) (EUR m) (Baseline: EFSI + FIs) (InvestEU Fund) Thematic Policy Windows Budgetary guarantee / FIs Investment mobilised Budgetary guarantee Investment mobilised 2014-2020 2021-2027 Sustainable Infrastructure 12.215 216.370 11.500 185.000 39% 30% Research, Innovation and Digitisation 7.560 148.250 11.250 200.000 24% 30% SMEs 9.413 171.848 11.250 215.000 30% 30% Social, Investment and Skills 2.233 26.520 4.000 50.000 7% 10% Total 31.421 562.988 38.000 650.000 100% 100% EU Budget 14.521 15.200 Source: Commission services, 2018 (indicative split in current prices) The fact that the budgetary guarantee is set to increase more (21%) than the expected investment mobilised (16.3%) is explained by the following InvestEU Fund characteristics: ·Compared to the EFSI, it would include more targeted products oriented on delivering more additionality and having more policy value added; ·The InvestEU Fund assumes a much higher share for the thematic products that are more budget consuming and also display a lower multiplier; and ·The InvestEU Fund would also have more implementing partners and there is therefore a need for a more cautious estimate of the provisioning rate and the multiplier. The funding priorities for each policy window will be developed in investment guidelines. These investment guidelines will determine some basic principles of intervention, such as additionality criteria, alignment of interest, proportionality, good market practice, sustainability, support to new investment (no refinancing), sectoral and geographic balance, leverage and multiplier effect. Source: Commission services For each policy window, the guidelines would furthermore specify: ·Policy areas for intervention – this would define in more detail the areas/sectors of intervention responding to the specific policy objectives and sectors identified under the InvestEU Programme regulation; ·Type of financial products envisaged to serve the different objectives identified in the regulation and the policy areas, including risk and revenue sharing arrangements; ·Blending needs with other EU programmes; ·Monitoring and performance framework to be put in place to measure the impact of the financial products envisaged.

For each window, a Policy Board, composed of representatives of the lead policy Directorate-Generals and a number of other relevant Directorate-Generals, will define the strategy of the policy window, in line with the investment guidelines and design concrete financing products (see section 3.4 for more details on the governance of the InvestEU Fund). The InvestEU Fund will also allow for a voluntary contribution of shared management resources where this delivers on ESIF policies i.e. Member States would use InvestEU Fund as the delivery mechanism for part of their ESIF allocation. This would be used under the InvestEU Fund framework but would be earmarked for investment support in specific Member States. The InvestEU Fund would also be accompanied by the InvestEU Advisory providing technical assistance support building on existing TA initiatives (EIAH, ELENA, InnovFin Advisory) which aims at preparing, developing and implementing a robust investment project pipeline. Furthermore, the InvestEU Fund will enable additional contributions from other EU programmes, including those outside the EU budget, where relevant and appropriate (e.g. the EU ETS Innovation Fund). The InvestEU Fund main characteristics include: ·A single structure, directly communicated to financial intermediaries, project promoters and final beneficiaries in search of financing; ·Flexibility measures that will enable the InvestEU Fund to quickly react to market changes and policy priorities that evolve over time; ·The ability to deliver sector-specific instruments to support particular market failures e.g. Green Shipping, energy demonstration projects, natural capital; ·Increased leverage and more efficient use of budgetary resources through the use of a budgetary guarantee. Compared to financial instruments, budgetary guarantees freeze less budgetary resources due to limited provisioning compared to the level of financial engagement and the overall investment mobilised; ·Simplified and focused offer of investment support instruments targeting the main EU policy objectives. Such offer would also enable combining grants and finance from different EU programmes, or EIB conventional lending or private finance; ·An integrated governance and implementation structure that enhances internal coordination and strengthens the position of the Commission towards implementing partners. This would lead to management cost efficiencies, avoidance of duplications and overlap and increased visibility towards private investors; ·Simplified reporting, monitoring, and control requirements; due to the single framework, the InvestEU Fund will foresee integrated and simplified monitoring and reporting rules; ·Better complementarity and ease of combination between programmes managed centrally and those under shared management; ·A possibility for Member States to channel shared management allocations through the InvestEU Fund (in the Member State compartment); ·Possibility to contribute additional resources, if relevant and appropriate, from other EU programmes for specific policy objectives such as low-carbon innovation in energy, CCS (Cultural and Creative Sectors), and energy intensive industry supported under the EU ETS Innovation Fund; and ·Association of the InvestEU Advisory to the InvestEU Fund in order to support the development and implementation of a pipeline of bankable projects. Furthermore, the single integrated structure of the InvestEU Fund offers the opportunity to address the shortcomings identified in the lessons learnt section in the following way: ·Better coordination, single approach to implementing partners. Instead of a multitude of delegation agreements and different provisions in different delegation agreements (even when addressing the same issue), the InvestEU Fund will feature a single agreement per implementing partner. The governance structure, comprising all relevant DGs, will ensure effective coordination among instruments. ·Competition among implementing partners. Under the current MFF, most intervention under budgetary guarantees and financial instruments for internal policies is operated via the EIB Group. The InvestEU Fund opens up the possibility for other partners or consortia to enter in agreements directly with the EU, ultimately increasing the choice of policy implementation options for the EU. ·Additionality and EU added value. In response to recommendations from evaluations and audits of the EFSI and financial instruments, the InvestEU Fund will aim to strengthen requirements on additionality and EU added value of the intervention.

·Stronger verification of compliance with policy objectives, to balance the demand-driven approach at the level of individual operations. The scrutiny of the EU policy consistency of the financed projects will be intensified due to the work of the Commission staff in the Policy Boards and the Project Team. InvestEU (Next MFF) Improvement compared to the current MFF Shift towards budgetary guarantees by default Less budgetary resources to achieve the same objectives. A single budgetary guarantee More efficient due to economies of scale and diversification compared to several ring fenced budgetary guarantees: less provisioning needed for the same level of protection from the EU budget. A single fund: common rules, consistent products, single voice Overcomes fragmentation, overlaps and inconsistencies. Flexibility Higher capacity to redeploy resources and to develop new products according to the demand. Efficiency gains For financial intermediaries and final beneficiaries: single set of rules and reporting requirements, cross-reliance on audits. For implementing partners: single contractual framework. For the EU Budget, risk remuneration and limited fees. Budgetary guarantees under ESIF Higher impact with fewer resources. Upfront coordination between the EU centrally managed instruments and ESIF levels Better respect of the subsidiarity principle. More efficient allocation of budgetary resources. Qualitative upgrade of interventions. Synergies. Lower need for combinations, but when needed: single set of rules. Non-exclusive access to the EU guarantee Diversification of pipelines and wider coverage of policy objectives. Enhanced coordination and negotiation capacity. A structured and streamlined framework for blending Simplification. Increased visibility, enhanced accountability Single brand. More effective democratic control. Coherent framework for technical assistance Technical assistance will be streamlined under a single framework 3.1InvestEU Fund structure The InvestEU Fund aims at achieving a balance between a lean and flexible structure with simple rules and the need to cater for specific investment support needs in different policy areas and for different types of beneficiaries. While there are some trade-offs to be made, these two objectives are not mutually exclusive. Lessons learned from the EFSI’s structure and in particular the use of windowssuggest that an organisation into policy windows achieves a good balance between simplicity, streamlining and ability to target specific policy needs. The windows will be used to deploy financing products (e.g. debt, equity) as well as thematic sub-instruments and pilot initiatives targeting high risk and first-of-a-kind projects, as currently done under certain financial instruments (e.g. InnovFin Energy Demo Projects, Natural Capital Financing Facility, SME guarantees) and provide for a more comprehensive guarantee coverage. The number and scope of InvestEU Fund’s policy windows would need to achieve the following objectives: ·Simplicity – there should be only a handful of policy windows to avoid fragmentation and confusion among implementing partners and beneficiaries; ·Target specific EU policy priorities and respond to market needs that can be addressed with similar financial products; and ·The structure should minimise potential scope overlaps between windows through simple and pragmatic demarcation rules. Based on the main policy challenges and their nature (see section 1.2), it is proposed that the InvestEU Fund includes the following four windows: (i) sustainable infrastructure, (ii) research, innovation and digitalisation, (iii) SMEs, and (iv) social investment and skills and human capital. The InvestEU Fund budgetary resources will be distributed among the four windows. This allocation will be based on the size of the respective market gaps and experience with the current financial instruments and the EFSI. An additional argument to be taken into consideration is the absorption capacity by implementing partners, financial intermediaries and final beneficiaries. The InvestEU Advisory/TA support will be allocated among policy windows according to identified needs and market gaps. Moreover, limited resources would be kept outside the policy windows at the InvestEU Fund level to support initiatives like a single entry point and cross-policy advisory products and would ensure flexibility for emerging needs. 3.2Member State compartments The EU budget implemented through shared management with Member States also deploys financial instruments to address local market failures or sub-optimal investment situations. The policy objectives of the EU-level and investments support instruments under ESI Funds are not identical; the former focus on EU-wide and the latter on regional or national suboptimal investment situations. However, the experience has demonstrated the need to increase complementarity and ease of combination between the two types of support mechanisms. In the current programming period, not many Member States have channelled part of their ESIF allocations through EU level financial instruments. The InvestEU Fund will offer a compelling opportunity to increase effectiveness and impact of ESI Funds for investment support in a given Member State through the use of a budgetary guarantee. The same objective of budgetary efficiency that recommends the shift from financial instruments to budgetary guarantees at EU level (see section 5.2) applies to ESIF. Member States will have the possibility, on a voluntary basis, to channel part of their ESIF resources through the InvestEU Fund. For this purpose, the InvestEU Fund structure would include a Member State compartment under each window. However, the possibility for the Managing Authorities to implement their programmes partly through tailor-made financial instruments including in combination with InvestEU Fund would be kept in the post-2020 legal framework. The EU would be the guarantor (otherwise, in most convergence Member States the guarantee would be weaker and, thus, financially less effective) and the EU budget (ESIF) would provide the provisioning against expected losses, managed in the common provisioning fund established by Article 212 of the revised Financial Regulation (FR), and Member States would assume the contingent liability. No national co-financing would be required. The Commission would select the implementing partner, among those eligible for indirect management according to Article 154(4) FR and which have expressed an interest to become an implementing partner for the Member State compartment. The Commission would then sign a guarantee agreement providing the EU guarantee to the selected implementing partner.

This proposal would bring the following benefits for Member States and for the EU budget: ·Wider impact of the EU budget on investment and economic and social welfare with fewer budgetary resources. ·No national co-financing required by the Member State and very low probability of any disbursement related to the contingent liability. Any provisioning left at the end of the budgetary guarantee comes back to the Member State. ·Predefined scheme and products provided by the InvestEU Fund, which simplify for Member States the design of effective market instruments (or provides them with a product they do not have the expertise to develop) and facilitate the switch from grants towards market instruments; it also reduces the scope of the ex-ante assessment to be carried out by Member States. Products designed for the entire window may need to be adjusted to address specific policy issues. ·As the management model for the ESIF compartment is indirect management, not shared management, the choice by the Member States of the implementing partner does not need to follow public procurement rules. ·The management role of the Commission will alleviate the administrative burden for Member States and will ensure spread of good practices across the EU. ·A simplified State Aid compliance mechanism would be put in place. ·Member States will have the possibility to withdraw from InvestEU Fund their contributions under certain principles. ·The InvestEU Fund would provide central performed monitoring and evaluation activities, including centralised reporting. Reporting systems will ensure sufficient information flows to the Member States. Respective scopes of the EU level and the Member State compartments The proposed structure with two compartments in each window should allow a better complementarity and division of labour between the two levels and a more effective application of the principle of subsidiarity. In addition, the two compartments within each window will share the same InvestEU Fund rules, which would allow a clearer and simpler framework for combining different sources of EU funds. The scope of the EU level compartment would comprise: ·Investments supporting EU policy priorities addressed at EU level; ·EU wide market failures and investment gaps; and ·The design, development and EU wide market testing of innovative financial products, and the corresponding ecosystems to spread them, for new or complex market failures and investment gaps. The Member State compartment would address country specific market failures and investment gaps ensuring a critical mass and a more efficient geographical concentration of resources. Country specific market failures and investment gaps widespread among Member States would be addressed in a complementary manner, whereby the EU level compartment would ensure the possibility to address the market failure in all Member States, while the Member State compartment would allow a more effective geographical concentration of resources in accordance with the needs of each Member State. During the InvestEU Fund mid-term review the Commission will assess whether certain instruments developed and tested at EU level, but that address market failures and investment gaps that have a local dimension, could better be deployed at Member State level in line with the principle of subsidiarity. 3.3EU added value

The EU long-term goals regarding sustainability, competitiveness and inclusive growth require significant investments in different policy areas. This includes, inter alia, new models related to mobility, renewable energies, energy efficiency, natural capital, innovation, digitalisation, skills, social infrastructure, circular economy, climate action, and small businesses growth and creation. Renewed efforts are needed to tackle persisting market fragmentation and market failures caused by private investors' risk-averseness, the public sector's limited funding capacity and structural inefficiencies of the investment environment. Member States cannot sufficiently bridge those investment gaps alone. An intervention at EU level ensures that a critical mass of resources can be leveraged so as to maximise the impact of investment on the ground. Intervention at EU level can better attain the objectives pursued mainly because of the disparities in Member States' fiscal capacity to act. In addition, the EU level provides for economies of scale in the use of innovative financial products by catalysing private investment in the whole EU and making best use of the European institutions and their expertise for that purpose. The EU intervention also provides access to a diversified portfolio of European projects, thereby catalysing private investment, and allows for the development of innovative financing solutions which can be scaled up or replicated in all Member States. Added value could also be expected from channelling ESIF contributions to the InvestEU Fund where the budgetary guarantee could enhance the support to specific final recipients or products in the programme areas. In addition, an EU intervention is the only tool capable to effectively address investment needs linked to the EU-wide policy objectives. Tackling the problem only with structural reforms and improved regulatory environment would not be sufficient to address the remaining investment gaps in the post 2020 period. A more detailed analysis of the EU Added Value per policy window is available in the Annex 4 (Scoping Papers per policy Window). Moreover, the InvestEU Fund will develop a set of principles and criteria to address additionality at project level. An initial reflection on the subject is included in Annex 10. 3.4Governance There are several options on how the InvestEU Fund’s governance could be organised. These options relate to several possible layers: centralisation versus decentralisation, in-house governance at the Commission level versus independent governance structure outsourced to an implementing partner similar to the system for the EFSI. The governance structure currently used for the EFSI exhibits important drawbacks in the context of the InvestEU Fund ambitions. Compared to the EFSI, and also due to the need for flexibility to respond to changing market needs, the InvestEU Fund will be more focused on addressing specific policy objectives. This will require a stronger policy steer. Second, the need for simplification, flexibility, and the fact that InvestEU Fund foresees several implementing partners exclude the possibility for external governance organised at a specific implementing partner level. Under the InvestEU Fund, the Commission will be able to grant the EU Guarantee to any implementing partner that fulfils the relevant criteria. Therefore, maintaining the governance at the Commission level will better fulfil the InvestEU Fund’s objectives and accountability, and in terms of structure will ensure an adequate and coherent policy steer. It will also facilitate a more in-depth overview of the supported projects and consequently facilitate risk management. Outsourcing the governance to several implementing partners would weaken the policy steer compared to an in-house Commission solution and potentially weaken the alignment of interests and coherence in decision-making. Neither a completely decentralised nor a centralised system is desirable. The decentralised governance would just imitate the current fragmented governance for the existing instruments. A single governance for the whole InvestEU Fund would on the other hand be too general and would not cater for specific policy needs. Thus, the governance should be aligned with the proposed window-based structure of the InvestEU Fund. This would include an overall InvestEU Fund governance complemented by separate but interlinked governance arrangements at policy windows level. Figure 8 below presents a visual comparison of the governance arrangements for the EFSI and current centrally managed financial instruments compared to the proposal under the InvestEU Programme (full-sized graphs can be found in Annex 13). A key challenge of a governance structure organised at a Commission level is to ensure an appropriate level of banking and investment expertise. This can however be mitigated with active involvement of experts and implementing partners in the InvestEU Fund’s structure. Overall, the governance structure aims at looking at the InvestEU Fund as a whole while pursuing the different policy objectives and maintaining an acceptable level of risk. To this end, effective risk management with regard to the use of the EU budget guarantee is foreseen to be set-up and implemented with the aim to ensure that risks are identified, managed and communicated. In particular, a risk assessment function will be established for the purpose of monitoring the EU guarantee under the InvestEU Fund. Moreover, effective rules for managing conflicts of interest will be put in place to ensure segregation of duties, and proper verification at all governance levels will be consistently maintained. Proposed InvestEU Programme governance Source: Commission services Moreover, the governance structure of the InvestEU Programme reflects its reinforced policy orientation and strengthened steer by the Commission. The InvestEU Programme planned governance is composed of both external elements to be foreseen in the draft legislation (Advisory Board, Investment Committee and, partially, Project Team) and Commission internal coordination (Steering Board, Policy Boards, Inter-Service Coordination Committee, Secretariat and, partially, Project Team):

·Advisory Board: An Advisory Board meeting in two compositions: (i) representatives of the implementing partners, and (ii) representatives of the Member States will be set up in order to allow the Steering Board and the Policy Boards (see below) to consult the implementing partners and the Member States when preparing and designing new financial products, following market developments and sharing information. ·Steering Board (Commission internal): A Steering Board to ensure horizontal coordination and steering of the InvestEU Fund will be set up. The Steering Board will prepare the various horizontal documents necessary for the functioning of the InvestEU Fund (investment guidelines, scoreboard, harmonised format for project submission by implementing partners etc.). Moreover, the Steering Board will monitor the overall risk profile of the InvestEU Fund and verify that the risk characteristics of the financial products proposed under the policy windows correspond to the general risk profile and general orientations of the InvestEU Fund. ·Policy Boards (Commission internal): Investment support will be allocated under four policy windows clustering financial products by policy areas. Each window will have a Policy Board, composed and led by policy DGs. The Policy Board will be in charge of the design of financial products within a window (including the resources attached to them and the necessary risk provisioning within the parameters set by the Steering Board) and monitoring of the performance of the implementing partners within that window. ·Investment Committee: The Investment Committee, which meets in four different configurations corresponding to the windows, approves the use of the EU guarantee according to the eligibility criteria set by the InvestEU Fund regulation to operations proposed by implementing partners. The Investment Committee will be composed of four independent experts who will be the same for all the four compositions to ensure horizontal consistency and of two independent experts per window specialised in the policy area of their respective window. It will make its assessment on the basis of the scoreboard. ·Project Team: The Project Team will comprise experts put at the disposal of the Commission by implementing partners. Subject to a positive confirmation by the Commission of consistency of the proposed operations with Union law and policies, the Project Team will perform a quality control of the due diligence of the proposed financing investment operations carried out by the implementing partners. Financing and investment operations are then submitted to the Investment Committee for approval of the coverage by the EU guarantee. All implementing partners will be requested to second a number of banking and risk management experts to the Commission who will review the risk features/issues of the projects submitted for this purpose. These experts will not work on projects submitted by their institution of origin to prevent conflicts of interest. ·Secretariat (Commission internal): The implementing partners will send projects or facilities/programmes to the InvestEU Fund Secretariat, which will attribute them through the Project Team to the Investment Committee of the relevant Policy Window. 3.5Avoiding overlaps among policy windows The 2014-2020 investment support instruments have generally proven effective in addressing market gaps. However, the fragmentation of the EU offer led to the emergence of several overlaps. Past EFSI evaluations found overlaps between EFSI and other centrally managed financial Instruments. While these have been addressed during implementation by re-focusing existing instruments towards new market segments, it is important to avoid such overlaps in the future. Moreover, several overlaps have been identified between the centrally managed financial instruments. Under the current MFF there have been at least 14 different instruments focusing on SMEs under internal, centrally managed EU FIs and the EFSI (see annex 12). In addition, there are overlaps between centrally managed instruments and investment support instruments under shared management. Avoiding overlaps and simplification is one of the main reasons for the creation of the InvestEU Fund. The InvestEU Fund structure is designed to group instruments into clear policy priorities. The InvestEU Fund with its centralised approach (i.e. a single fund, a single Steering Board, a single approval process of the operations by the Investment Committees, a single agreement with each implementing partner and participative involvement of all relevant policy DGs in the Policy Boards and the Inter-Service Coordination Committee) would ensure that EU financing is channelled in a coordinated and harmonised manner, without overlaps. The governance structure ensures coordination and provides for information exchange channels between the Commission services and key stakeholders. Furthermore, in its oversight capacity, the Steering Board will ensure avoidance of overlaps of eligibility between windows and products. Avoidance of potential overlaps between financial products offered within a policy window would be a competence of relevant Policy Boards. Nevertheless, there may still be borderline cases that will have to be addressed based on demarcation principles for allocation of proposals submitted by implementing partners between windows. An example for a possible set of principles could be the following: 1.Does a product proposal support a social objective? Proposals for support having a social objective, regardless of their nature – whether it relates to infrastructure, microfinancing or SMEs - will fall under the social investment and skills window. 2.Does a product proposal support an SME via financial intermediary? Proposals that support SMEs through an intermediated lending will fall under the SME window, except for those proposals for support that have a social objective. 3.Does a proposal support research and innovation activities? The research, innovation and digitalisation window will support projects/products, which fall within the definition of research and innovation activities other than innovative SMEs and small midcaps (financed under SME window). 4.Does a proposal support an infrastructure? Infrastructure projects/products that are not social infrastructure and not [primarily/fully] R&D infrastructure will fall under the Sustainable Infrastructure Window. In practice, the implementing partner will indicate the relevant policy window in their submission of a specific operation and financial product to which the operation would be assigned. This will then be reviewed by the Commission. A similar solution is proposed for technical assistance, the InvestEU Advisory. In order to avoid overlaps and to simplify the access to the