Backed by the InvestEU programme, the European Climate Debt Solutions Fund has also secured €36m from other investors including Rivage Investments which is managing the fund.
The European Climate Debt Solutions Fund (EUCLIDES) has received a commitment of €30m from the European Investment Fund (EIF) to invest in innovative climate solutions providers across Europe.
Backed by the EU’s InvestEU programme, which provides support for sustainable investment, innovation and job creation in Europe over the period 2021-27, the EIF investment brings the overall investment in EUCLIDES to €66m. The fund has also received commitments of €30m from banks and insurers and €6m from Paris-based Rivage Investment which is managing the fund.
The Rivage Investment team is targeting a first close of €100m by the end of H1 of this year with an overall fundraising target of €250m.
The fund will provide growth debt to circa 40 SMEs from across Europe specialising in clean-tech solutions to the climate crisis. Portfolio companies will be mainly drawn from France, Germany and Benelux, although the fund manager said opportunities would also be sought from the UK, Switzerland and the Nordics to provide diversification.
The fund’s selection criteria will focus on high-growth companies that can demonstrate a reduction in carbon and other greenhouse gas emissions by providing, among other things, physical and/or digital solutions, developing clean transportation of people and goods, clean energy solutions, as well as innovative industrial processes and disruptive technologies with a low environmental impact.
The companies targeted will also have to demonstrate a meaningful track-record as well as revenues, and comply with InvestEU gender criteria. Rivage Investments confirmed that two of the fund’s five strong investment committee are women.
Debt-focused impact investing
EUCLIDES will provide portfolio companies with tailor-made debt instruments, which will typically be issued alongside warrants to give the fund an equity upside in its investee companies in addition to the debt interest.
Responding to questions from Impact Investor Patrick Raffard, head of business development for Rivage Investment, explained the structure in more detail: “The fund will typically deploy growth debt and scale-up debt, with conditions adapted to the level of maturity of the solution and business model of the borrowers. Typically, financing will be structured to include an interest-only period, monthly or less frequent amortisation, linear or balloon amortisation schedules and so on. The fund will only invest in senior secured debt.”
The EIF said that this latest investment was one of its first senior private debt investments backed by InvestEU.
With the aims of the fund closely aligned with the EU’s own objectives under the European Green Deal to transition to a low-carbon economy, the EIF, said that it would look to invest in other private debt-focused impact funds in the future, across a range of environment-related themes, including, among others, mobility and transport solutions, energy efficiency, sustainable agriculture, the blue economy and industrial decarbonisation.
Speaking to Impact Investor Adrien Desbois, investment officer, said that the advantage of debt-focused funds was that they could provide tailor-made flexible funding structures adapted to the respective borrower’s needs.
“Considering the surge in cleantech and innovative companies looking for financing in Europe, the demand for this type of debt financing is increasing,” he added.
Desbois said that the EIF was in the “driving seat” to steer the senior private credit market towards a more sustainability-focused mindset, adding: “This will materialize by supporting, inter alia, new environmentally sustainable impact strategies in the senior private credit space across Europe in line with the European Green Deal and/or by encouraging the incorporation of sustainability aspects in the investment selection process of private credit fund managers across Europe.”
As an Article 9 fund, EUCLIDES will monitor the decarbonisation claims of all its borrowers and measure the avoided greenhouse gas (GHG) emissions at end-user level using a methodology based on the difference between annual GHG emissions associated with each investee compared to a reference counterfactual scenario. Rivage Investments also specified that more than 50% of the financing from the fund would meet with the EU Taxonomy eligibility rules, technical screening and minimum safeguards criteria.
Raffard added: “100% of our investments will have to evidence avoided emissions defined as the tons of CO² equivalent emissions differential between an actual project’s or solution’s emissions and the counterfactual scenario. In order to comply with these objectives, we have partnered with an external service provider that will support Rivage’s internal ESG team in qualitative and quantitative assessments and on methodological, sector-specific topics.”