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EU for Sustainability

European Framework in Support of SMEs

The 25 million small and medium-sized enterprises (SMEs) in Europe account for 99.8% of all firms and are a significant source of job creation and prosperity, employing 66.6% of workers and producing 55.7% of value-added in the non-financial business sector.

Sustainable development has been one of the fundamental objectives of the European Union for nearly 20 years, and it is now the priority of the Next Generation EU, which allocated 750 billion euros to projects addressing sustainability-related topics (e.g.: environment, natural resources, digital innovation…).

Supporting European SMEs in the transition towards more sustainable business models means supporting Europe to develop a more inclusive and green economy.

Creating a SME-friendly environment for existing companies and new entrepreneurs is another one of the EU’s main objectives. The adoption of the Small Business Act (SBA) in 2008 and the Entrepreneurship 2020 Action Plan have been the most important European policy frameworks for SME policy during the past decade. In March 2020, the European Commission (EC) renewed its commitment to an SME-friendly environment with the presentation of the Communication “An SME Strategy for a sustainable and digital Europe”.

The Strategy consists of three main pillars:

  1. Capacity-building and support for the transition to sustainability and digitalisation
  2. Reducing regulatory burden and improving market access
  3. Improving access to financing

Support to the sustainable and digital transitions of European SMEs

  • Sustainability advisors will be appointed within the existing Enterprise Europe Network to help SMEs with environmental and social challenges and improve access to skills.
  • Up to 240 Digital Innovation Hubs will advise SMEs on how to integrate digital innovations into their products, business models and processes.
  • The new European Innovation Council (EIC) will make available €300 million as of 2021 to encourage breakthrough innovations delivering Green Deal objectives.

Support to improve SMEs’ Market access and funding

  • Creating an SME Initial Public Offering (IPO) Fund with investments channelled through a new private-public fund set up under the InvestEU program and launching a gender-smart finance initiative to stimulate funding for female-led companies and funds.
  • Create the ESCALAR initiative, a mechanism to boost the size of venture capital funds and attract more private investment, to help high-potential enterprises to grow.

Support through the framework provided by the 2020 New Industrial Strategy for Europe

The Strategy outlines three Key Drivers to support on the long-term the Union’s industrial base – including the competitiveness and viability of EU SMEs:

  1. Global competition
  2. Climate neutrality
  3. Digital future

The three Key Drivers are underpinned by a set of inter-connected and reinforcing fundamentals covering:

  • Certainty for industry and a deeper and more digital single market
  • Upholding a global level playing field
  • A shift to climate neutrality
  • Building a more circular economy
  • Embedding industrial innovation
  • Skilling and re-skilling
  • Investment and financing the transition

Additional supporting measures:

  • The Your Europe Business Portal – a guide providing entrepreneurs with information and interactive services that help them expand their business abroad.
  • The Enterprise Europe Network – an online portal aiming at supporting SMEs and entrepreneurs access market information, overcome legal obstacles, and find potential business partners across Europe.
  • The SME Internationalisation support – a dedicated page providing information on foreign markets, aimed at helping European business internationalise their activities.
  • The single portal on Access to Finance – an online tool developed to support SMEs in finding financing opportunities supported by the EU.
  • The European Cluster Collaboration Platform – a digital platform offering dynamic mapping of over 1000 profiled cluster organisations worldwide or supports the emergence of new value chains through cross-sectorial cooperation.
  • The SME Assembly – one of the most significant SME-oriented appointments in Europe, providing an opportunity to present different approaches to promoting SME entrepreneurship.

EU Funding Instruments for European SMEs

The European Union provides a wide range of financing instruments in the form of grants, loans, guarantees, and contributions to EU companies, independently of their size and business sector.

Overall, EU funding opportunities can be divided in two categories, based on their allocation methods:

  1. Direct management – managed by the European Commission and assigned through public calls. These instruments generally aim at improving the implementation of already existing European policies in certain sectors (es. Research and innovation, digital agenda, environment, energy, transports etc.)
  2. Shared management – managed by the National and regional authorities under the EU’s Cohesion Policy. These funding mechanisms generally aim at reducing disparities between European Member States (e.g. agricultural and environmental policies).

Within the two categories outlined above, European funding can also be allocated through the provision of appropriate financial instruments, taking the form of equity or quasi-equity investments, loans or guarantees, or other risk-sharing instruments, provided through financial intermediaries in support of interventions with potential economic sustainability.

Shared Management

More than 76% of the EU budget is managed under the “shared managed” system, in collaboration with national and regional administrations, and mainly through five European structural and investment funds (ESIF):

European Regional Development Fund (ERDF)

These are funds that aims to consolidate the economic and social cohesion of the European Union by correcting imbalances between regions, focusing on investment in infrastructure, aid to businesses and services. In the context of the COVID-19 pandemic, the ERDF can be activated to finance health-related expenses and further initiatives to support the viability and competitiveness of small and medium-sized enterprises.
The ERDF focuses its investments on several key priority areas. This is known as “thematic concentration”:

  • Innovation and research
  • The digital agenda
  • Support for small and medium-sized enterprises (SMEs)
  • The low-carbon economy

The resources dedicated to these priorities, estimated to be around €226 billion for the 2021-2027 period, will be allocated depending on the category of region.

  • In more developed regions, at least 80 % of funds must focus on at least two of these priorities
  • In transition regions, this focus is for 60 % of the funds
  • This is 50 % in less developed regions

Furthermore, some ERDF resources must be channelled specifically towards low-carbon economy projects:

  • More developed regions: 20%
  • Transition regions: 15%
  • Less developed regions: 12%

European Social Fund (ESF)

Fund aimed at fostering employment opportunities and promoting the innovation of education and training programs, whilst promoting the social inclusion of the most vulnerable categories. as well as administrative capacity. The Fund further provides reskilling opportunities and technical support to EU SMEs – particularly to support the environmental and digital transitions.

In the 2021-2027 period, the ESF will provide some €89,6 billion in funding to:

  • train people and help them get into work
  • promote social inclusion
  • improve education & training
  • improve the quality of public services in your country.

Cohesion Fund (CF)

Funding initiative dedicated to those Member States with a gross national income (GNI) per capita amounting to less than 90% of the European Union’s average GNI. Its objectives include the reduction of economic and social disparities and the promotion of sustainable development.

The Cohesion Fund allocates a total of € 46,6 billion to activities under the following categories:

  • trans-European transport networks, notably priority projects of European interest as identified by the EU. The Cohesion Fund will support infrastructure projects under the Connecting Europe Facility
  • environment: here, the Cohesion Fund can also support projects related to energy or transport, if they clearly benefit the environment in terms of energy efficiency, use of renewable energy, developing rail transport, supporting intramodality, strengthening public transport, etc.

European agricultural fund for rural development (EAFRD)

Funding instrument under the Common Agricultural Policy (CAP) that supports rural development strategies and projects. It also forms part of the European structural investment funds (ESIF).

The EAFRD budget for the 2021-27 period amounts to around €286 billion. The budget will be spent over the course of this period, through the implementation of rural development programmes which run until the end of 2030.
It is distributed according to six priorities:

  • fostering knowledge transfer and innovation in agriculture, forestry and rural areas
  • enhancing the viability and competitiveness of all types of agriculture, and promoting innovative farm technologies and sustainable forest management
  • promoting food chain organization, animal welfare and risk management in agriculture
  • promoting resource efficiency and supporting the shift toward a low-carbon and climate resilient economy in the agriculture, food and forestry sectors
  • restoring, preserving and enhancing ecosystems related to agriculture and forestry
  • promoting social inclusion, poverty reduction and economic development in rural areas.

European maritime and fisheries fund (EMFF)

Direct Management

On the other hand, certain European programs are managed directly by the European Commission, or indirectly through agreements between the European Commission and other European institutions or agencies, such as the European Investment Bank (EIB). Below some of the most relevant examples of these financing mechanisms meant to support European businesses.


COSME is the EU Program for the Competitiveness of Enterprises and SMEs, with a budget of €2.3 billion for the period 2014- 20203.

The program’s support for SMEs is based on the following actions:

  • Facilitate access to finance with loan guarantees up to 150,000 Euros
  • Support internationalization and market access opportunities
  • Fostering competitiveness
  • Encouraging enterpreneurship

COSME is a program implementing the Small Business Act (SBA),which recognizes the central role that SMEs play in the EU economy.

InnovFin – EU Finance for Innovators (Horizon 2020)

A joint initiative promoted by the European Investment Bank Group (EIB, and European Investment Fund, EIF) in cooperation with the European Commission under the Horizon 2020 Program.

InnovFin’s financing instruments cover a wide range of equity loans, guarantees and financing to innovative companies, in all eligible sectors in EU Member States and associated countries. Financing is provided directly or through a financial intermediary, usually a bank or fund.

EIC Accelerator (European Innovation Council)

Specific measure dedicated to small and medium-sized enterprises, within the European Innovation Council (EIC) and supported by Horizon 2020, which aims at promoting the innovative potential of SMEs.

This tool finances projects that, starting from an innovative idea already tested, support the company in introducing its innovative product/service to the market by expanding its business and/or acquiring new ones.

Creative Europe Programme

Initiative managed by the EIF on behalf of the European Commission and launched under the Creative Europe program (2014-2020). The guarantee instrument was created to improve access to finance for SMEs in the cultural and creative sectors.

With a budget of €251 million, it supports small and medium businesses in the cultural and creative sectors, whilst fostering their competitiveness.

EU Programme for Employment and Social Innovation (EaSI)

EaSI’s “Microfinance and Social Entrepreneurship” project supports actions in two thematic areas: micro-credits and micro- enterprises for vulnerable groups and micro-enterprises; social entrepreneurship.

The main three objectives of the Programme are:

  • to improve access to and availability of microfinance opportunities for vulnerable groups wishing to start up or develop activities and for micro-enterprises
  •  develop the institutional capacities of microcredit providers
  • support the development of social enterprises, in particular by facilitating access to finance

Covid-19 – support instruments for EU businesses and SMEs

The following paragraphs describe the measures taken to support enterprises in the specific context of the COVID-19 pandemic. The initiatives outline particularly reference to the possible solutions that European Funds can offer to address companies’ organizational and liquidity needs, as well as to support workers in terms of income support and retraining.

As part of the Coronavirus Response Investment Initiative (CRII and CRII+),the European Commission has temporarily extended the possibilities of support that Member States can normally grant to companies on the basis of the current EU state aid framework.

In addition to the traditional forms of aid and/or financing- co-financing of specific initiatives and projects, new types of aid have been temporarily implemented. These support mechanisms mostly aim to:

  • Address liquidity needs and support companies in financial difficulties, due to or aggravated by the COVID-19 pandemic.
  • Mitigate severe disturbances in the economy of a Member State, e.g. compensating companies in sectors particularly affected by the epidemic.
  • Provide short-term export credit insurance in case it is no longer available due to causes related to the pandemic.

Companies facing a sudden lack of liquidity because of the COVID-19 pandemic therefore access the following support mechanisms, which will, however, have to be notified to the European Commission for prior approval:

  • Direct grants, repayable loans, tax breaks
  • Loan guarantees
  • Subsidized interest rates on loans

Regarding subsidies, repayable loans, and tax breaks, funding can reach up to €800,000 per company (€100,000 in the primary production of agricultural products and €120,000 in the fisheries and aquaculture sector).

Grants can be allocated either in a non-repayable setting (no refund nor interest rates) or through facilitated repayment mechanisms. Companies wishing to access these financing tools will have to participate to public calls submitting a project proposal to the paying agency. These usually include information concerning the business’ economic and financial activity, a marketing plan, with indications on commercial strategies, and a planning of the company’s performance in the years following the implementation of the financial intervention.

The guarantees, on the other hand, may have a maximum duration of 6 years and relate to loans for investments and/or working capital. Companies could thus access the capital necessary for immediate liquidity needs and future investments by applying for loans that will be covered by State guarantees, which can guarantee up to 90% of the loan.

Soft loans can be provided by a public body or a bank, based on specific national or regional conventions and may be requested by companies, startups and freelancers who want to invest in innovative projects or for the development of their business, benefiting from lower interest rates.

EU funding instruments – COVID19 response at EU level

Pandemic Emergency Purchase Programme (PEPP) – European Central Bank

Program for the purchase of temporary assets in both the public and private sector with a total budget of €750 billion. Foreseen measures under this initiative include:

  • Corporate Sector Purchase Programme (CSSP): the range of eligible activities will be expanded to include the non-financial business assets
  • Additional Credit Claims (ACC): the scope will be expanded to include financing credits related to the business sector
  • Interest rate reduction for longer-term refinancing operations (-0,75%)
  • Review of the European banking systems to release €120 billion of extra capital

European Guarantee Fund

Implementation of banking guarantee schemes based on existing programs. Through the Fund, the ECB allocates €25 billion to scale up its support to SMEs and others in the real economy by mobilizing up to €200 billion.

Coronavirus Response Investment Initiative (CRII) e CRII+

The initiative, with a total budget of €37 billion, will be dedicated to reinforcing EU health systems, safeguarding the viability of European SMEs, and to protect labour markets and other vulnerable sectors of the Union’s economy.

European Investment Fund

Creation of an emergency fund that will redirect €1 billion from the EU budget as a guarantee to the European Investment Fund to incentivise banks to provide liquidity to SMEs and midcaps. This initiative is expected to support at least 100,000 European SMEs and small mid-caps with about €8 billion of financing.

The European instrument for temporary Support to mitigate Unemployment Risks in an Emergency (SURE)

Instrument meant to help protect jobs and workers affected by the Coronavirus pandemic in the form of short-term support to Member States that request its activation.
It provides up to €100 billion in financial assistance to Member States, in the form of loans granted on favorable terms by the EU (borrowed on the financial markets).