German fund industry association BVI has proposed a new European Impact Fund (EIF) to the European Union that would invest in companies and sustainable projects making a real impact for the transition to a green economy.
The EIF would invest in long-term projects through European impact bonds, equity and debt instruments issued by the European Commission, or small and medium-sized firms in the EU, it suggested.
The BVI said the fund would invest at least 50% in European impact bonds of public or private issuers – it would invest exclusively in transferable (equity or debt) securities of non-financial EU issuers.
Moreover, at least 20% of the fund’s capital would be deployed to transferable securities from the small and mid-cap market segment, and up to 10% would finance SMEs through closed-ended funds, according to Art. 2 (2) Commission Directive 2007/16/EC.
The directive refers to regulations relating to undertakings for collective investment in transferable securities (UCITS) – the EIF would operate under the legal framework for UCITS funds.
According to BVI, at the EU level, the European impact bonds label would be attached to project bonds, green or social bonds, issued by the Commission and tied to EU grants for a particular project.
The maturity date of an individual bond would be set according to political or financial management criteria, it said, adding that the proceeds would finance regional and cohesion projects.
The EU regional and cohesion policy funds is “the core of the new investment vehicle” it said.
According to the European Fund and Asset Management Association (Efama), investment funds domiciled in the EU managed more than €15trn in 2019 but only a small fraction of these assets have been used to raise capital for transformative projects.
According to Morningstar, ESG funds in the EU managed approximately €1trn in H1 2020, but the immediate impact on transforming the economy is limited, and a “substantial part” of the assets are invested outside the EU, BVI said.
Commitments to responsible investments rose by 10% in 2019 to €1.7trn from €1.5trn the year before in Germany and in Austria, according to a survey conducted by the Forum Nachhaltige Geldanlagen (FNG), the industry association promoting sustainable investment in the DACH region.
Responsible investment almost quadrupled over the last five years, compared with a value of €466bn in 2014.
BVI has urged the German government, which holds the rotating presidency of the EU Council, to finally fix certain aspects of current EU sustainability-related financial regulation.
“The [German] government must now do everything in its power in Brussels to promote holistic and practicable sustainability regulation,” the industry group added.
BVI believes that the EIF investment vehicle will help to contain the economic distress caused by the COVID-19 pandemic, support the EU’s climate goals and provide capital to small and middle-sized firms in Europe.