Brexit: the European Investment Bank Contents

Chapter 2: The EIB and its activities in the UK

The EIB and its mandate

6.The European Investment Bank, founded in 1958, is the world’s largest multilateral borrower and lender by volume, aiming to provide finance and expertise for sound and sustainable investment projects which contribute to furthering European Union policy objectives. The European Investment Bank Group, formed in 2000, comprises the European Investment Bank (EIB) and the European Investment Fund (EIF).

7.The EIB is principally focused on four key priorities: infrastructure; climate and environment; innovation and skills; and small and medium-sized enterprises (SMEs), the last primarily the focus of the EIF. The EIF was established in 1994, with a central mission of supporting Europe’s micro businesses and SMEs by helping them to access finance. The EIF designs and develops venture and growth capital, guarantee schemes and microfinance instruments which specifically target this market segment. In this role, the EIF fosters EU objectives in support of innovation, research and development, entrepreneurship, growth, and employment. (See Box 1.)

Box 1: The European Investment Fund (EIF)

Whereas the EIB is wholly owned by Member States, the EIF is a public-private partnership. The EIB is the majority shareholder (with 62 percent of the shares) and it is also part-owned by the EU, represented by the Commission. Private financial institutions own 11.8 percent of the Fund. Rather than investing in companies directly, the EIF’s activity is channelled through European venture capital and private equity funds. It invests both in funds with pan-European mandates and in funds with a country-specific mandate (including in the UK). While the EIB’s SME and mid-cap activity1 is typically focused on delivering financial support to established enterprises, mostly in the growth or maturity stages, the EIF concentrates on supporting enterprises in earlier stages of growth and the provision of guarantee schemes.

8.The EIB’s mandate is set out in the EU Treaties and its Statute. All EU Member States are members of the EIB by virtue of Article 308 of the Treaty on the Functioning of the European Union (TFEU) and can be recipients of EIB loans. However, the EIB can lend to third countries for development purposes.2 In 2017, approximately 10 percent of the EIB’s lending was to around 150 “partner countries” (in southern and eastern Europe, the Mediterranean region, Africa, Asia, Latin America, the Caribbean and the Pacific). It works in these countries to implement the financial pillar of the EU’s external cooperation and development policies by encouraging private sector development, infrastructure development, security of energy supply and environmental sustainability.

9.Article 212 TFEU provides that the EU “shall carry out economic, financial and technical cooperation measures, including assistance, in particular financial assistance, with third countries other than developing countries”.3 Such measures are to be consistent with the development policy of the EU and are to be carried out within the framework of the principles and objectives of the EU’s external action.

The EIB’s lending in the UK

10.The EIB has been working with the UK since its accession in 1973. Over this time, it has lent more than €118 billion in the UK across different sectors of the economy, notably in the areas of energy, transport, water and housing. The volume of this funding has gradually increased over time, with 70 percent (€83 billion) of EIB funding being provided in the last 20 years and 45 percent (€53 billion) since the financial crisis.4 In 2015 alone, the EIB provided £5.6 billion for 40 different projects in the UK, amounting to approximately one third of total funding of UK infrastructure.5

11.More than one-quarter of the EIB’s financing for the UK has gone to the energy sector. The EIB’s activities in this area are governed by its strict energy lending criteria, to ensure that the projects it supports adequately reflect the EU’s energy and climate policies. The EIB has also pioneered the use of ‘green bonds’ to help finance its renewable energy and energy efficiency lending, having issued to the world’s first Climate Awareness Bond (CAB) in 2007.6

12.As a result, much of the EIB’s support for the UK energy sector has gone towards promoting sustainable sources of energy. This has included providing over €3 billion for developing and expanding the UK’s offshore wind industry, which has now become a sophisticated market for energy investment. One example of this support was the £525 million loan granted to support construction of the Beatrice windfarm off the Caithness coast in north-east Scotland. When completed, this will generate enough electricity to meet the energy needs of more than 475,000 homes.7

13.The success of the UK’s offshore wind industry is often cited as an example of the EIB’s active involvement in effectively ‘de-risking’ these projects and encouraging investment from the private sector. It has been able to do this thanks to the public guarantee it has from the EU’s Member States,8 as well as the returns it has generated from previous projects. Peter Clutton-Brock, a researcher at the climate and environment think tank E3G, told us:

“There is no shortage of capital in the capital markets to fund energy assets. However, the types of technologies that are being developed often come with a new technology risk for some institutional investors and some mainstream public project finance investors, so the ability of the EIB to take on some of the project risk and technology risk is a major contributing factor. They would not be there without it.”9

14.The EIB has played an important role in supporting some of the UK’s most significant transport infrastructure projects in recent years, providing almost €8.8 billion of financing over the last decade. Speaking on behalf of Transport for London (TfL), Alex Conway, Assistant Director for Brexit and European Programmes at the Greater London Authority, noted that the EIB had been a “very important partner” in Crossrail, London Overground, and the Tube and Docklands Light Railway extensions. It has also provided £600 million for major road transport routes in Scotland, helped introduce new trains on the East Coast Main Line, supported the expansion of Greater Manchester’s Metrolink network, and provided £825 million of funding for ports and harbours across the UK.

Figure 1: Volume of UK projects supported by the EIB since 2008

Bar chart showing value of UK projects (€ billion) supported by EIB since 2008 by sector

Source: European Investment Bank

15.Across Europe transport has been the sector that has received the most EIB support since the bank’s foundation in 1958. It has benefited from the EIB’s public mandate, in this case regarding the flexibility of its contracts. Speaking about the EIB’s £1 billion loan for the construction of Crossrail in south-east England, which will ultimately increase London’s rail capacity by 10 percent, Alex Conway told us:

“One of the important things for Crossrail was that the EIB facility allowed the interest rate and the start date of a loan to be agreed well ahead of the required drawdown, which is not an option available when borrowing from … capital markets. That really helps to manage interest rate risk and the funding risk.”10

16.The EIB has also been an important provider of finance to the UK’s water and sewerage systems. In 2015 it provided a £530 million loan to support Severn Trent’s investment programme for drinking water and waste water treatment. The EIB also backed the Thames Tideway Tunnel in 2016 with a £700 million loan, in what has been the largest infrastructure project ever undertaken by the UK water industry. Often dubbed the ‘super sewer’, the project is urgently needed to help tackle overflows of untreated sewage into the river as it flows through the centre of London.

17.The EIB has likewise played an important role in supporting urban development in the UK, notably in the housing sector. Under its mandate, the EIB cannot lend to property construction schemes unless they have a social element, and this has predominantly occurred in the area of social housing. For example, in recent years it has provided £1.5 billion to the Affordable Housing Finance programme in partnership with The Housing Finance Corporation (THFC), which will support the construction of 20,000 new affordable homes in areas of Glasgow, Wigan, Scarborough, Bradford and Cambridge. Since 2014 it has worked directly with large housing associations such as Sanctuary as well as local government. Just before the EU referendum, in June 2016, the EIB announced £280 million of support for two major social housing projects in Northern Ireland.

18.Unite the Union, the largest trade union in the construction sector, which has a significant number of members in the UK social housing sector, believed that losing access to EIB funding “could stymie affordable housing development”.11 In a similar vein, the East of England European Partnership told us: “As with local authority areas across the UK, the need for more housing is acute and the removal of another option by which to finance new building stock without a replacement will be a blow to local authorities post-Brexit.”12

19.Higher education has also increasingly benefited from access to the EIB, which since 2010 has provided more than £2.1 billion in loans to thirty universities across the UK. This funding has mainly been used to fund campus development, including the construction, redevelopment and refurbishment of campus facilities (such as libraries, sports facilities and science parks), the expansion or upgrading of research and teaching facilities, and the funding of new academic buildings and student residences. While some universities have recently been able to secure financing from private bond markets, these are more expensive and only available to those universities with the highest credit rating.13

20.Mark Drakeford AM, the then Cabinet Secretary for Finance in the Welsh Government, told us that the EIB has provided “substantial sums of capital” for investment in campus developments at Swansea and Bangor universities.14 Philip Harding, Director of Finance and Business Affairs at University College London (UCL)—which in 2016 received £280 million from the EIB to upgrade and expand its Bloomsbury campus in central London, as well as for the building of UCL East, the university’s new site at the Queen Elizabeth Olympic Park in east London—underlined the EIB’s importance for the higher education sector:

“As to the nature of university investments, particularly large-scale infrastructure investments, universities are charities; they are not-for-profit organisations. Typically, these sorts of projects do not pay back very quickly, nor do they generate particularly attractive financial returns. Often, the benefits are secured over a longer period and are largely intangible or difficult to quantify; they enhance the value that students get from their experience by being able to access high-quality facilities and improve the quality and quantity of research output from universities.”15

21.Other significant areas of EIB support include the financing of research and development projects in sectors such as aircraft manufacturing and pharmaceuticals, the expansion of 3G/4G mobile networks across the UK, and the construction of new hospital buildings, including in Birmingham and Liverpool. The EIB has also provided almost €3.9 billion in subsidised credit lines to commercial banks to improve their provision of SME finance, as well as regional public investment vehicles such as the Northern Powerhouse Investment Fund, the Midlands Engine Investment Fund and the North East Fund.

22.In addition, the EIF has played an important role in facilitating access to finance for SMEs and mid-caps. Operating through financial intermediaries, it indirectly supports investment into some of the most high-potential and innovative small companies in the UK. The British Private Equity and Venture Capital Association (BVCA) told us that the EIF had been a significant player in the UK and European venture capital market: “Between 2011 and 2015, the European Investment Fund invested €2.3 billion into UK venture capital, growth and mid-market funds, which in turn supported total investment of €13.8 billion into SMEs.”16 This meant that about 37 percent of venture capital raised in the UK over this period came from the EIF.17

23.The EIB has been an important provider of funding for the UK, including almost 50 billion over the last decade. This has included the financing of key projects in areas such as energy and the environment, transport, water and sewerage, education and housing. The EIF has also been an important investor in UK venture capital, growth and mid-market funds, facilitating access to finance for SMEs. As the UK will lose access to these important sources of finance, there will be negative consequences for future projects in these areas unless alternative sources are established.

How the EIB supports investment

Provision of cheaper, long-term financing

24.As a result of its public guarantee, and its track record of successfully supporting projects across Europe, the EIB has been granted a AAA credit rating by all of the major credit rating agencies, enabling it to borrow cheaply on capital markets. Combined with the fact that the EIB is not required to operate on a profit-making basis, this means that it can provide finance for projects more cheaply than commercial lenders. Its focus on long-term finance also allows it to fill a gap that may otherwise be left unfilled by the private sector. Robert Jenrick MP, Exchequer Secretary to the Treasury, told us that “there are specific advantages where the EIB has proven itself in offering loans of long duration, which are important to particular infrastructure projects”.18

25.The benefits of the EIB’s ability to provide cheaper, longer-term financing were underlined in much of the evidence. The Infrastructure Forum, which brings together investors in and builders and operators of UK national infrastructure—and which established a specific working group in 2017 to examine the significance of and future options concerning EIB lending in the UK—noted that the EIB provided funding at a lower cost than the capital markets: “This subsidised lending enables infrastructure projects in the UK to be delivered more cheaply than they could be otherwise.”19

26.The Infrastructure Forum also explained that there were advantages to the EIB’s appetite for supporting long-term investments, which could reduce the risk of refinancing before a project has been completed. It can often provide longer-term loans compared to the private sector, within financing periods that can be as long as 30 years. If access to the EIB is lost as a result of Brexit, it stated, “This long termism may be difficult to replace.”20

27.The value of the EIB’s cheaper and longer-term financing was also recognised by local authorities and devolved administrations. The East of England European Partnership explained that the availability of assured, long-term finance at competitive rates had been one of the “key factors in organisations in the East of England obtaining finance from the EIB alongside a range of other sources”.21 Mark Drakeford AM also noted that the EIB provided long-term, low-cost capital for necessary investment in public and private infrastructure. He warned about the possible consequences of losing access to the EIB post-Brexit:

“The effective withdrawal of EIB finance has a quantifiable cost. An increase of 200 basis points in the cost of capital would lead to an increase in costs of around £1.5 million per annum for each £500 million borrowed. The additional financing costs caused by higher interest rates would lead to a significant loss of productive investment in Wales and across the whole of the UK.”22

28.James Richardson, Chief Economist at the National Infrastructure Commission (NIC)—established in 2015 to provide the Government with expert advice on the UK’s long-term infrastructure needs—referred to the UK’s offshore wind industry, telling us that the EIB’s role had been “key in bringing down the price and making it much more viable to deploy these renewables at scale in a cost-competitive way”.23 Peter Clutton-Brock, from E3G, agreed:

“It is the fact that the EIB has an AAA rating and is therefore able to borrow relatively cheaply from the capital markets, coupled with the fact that it does not have a mandate requiring it to achieve a commercial return, which allows it to offer slightly cheaper finance than other private institutions.”24

29.The same applied to the transport sector. Speaking on behalf of TfL, Alex Conway told us that “the main value is that [the EIB] is the lowest-cost form of finance”. Current EIB loans to TfL are worth about £3.3 billion—around 30 percent of its direct borrowing—and have resulted in “significant savings compared with TfL’s other long-term funding options”. Mr Conway warned about the effect of losing access to the EIB: “With future important investments of the likes of Crossrail 2, that might increase the price, which might have an effect on the ultimate viability of the scheme. There is genuine concern.”25

30.Piers Williamson, Chief Executive at The Housing Finance Corporation (THFC), characterised the EIB’s financing for housing development as a form of subsidy: “In my market, it is cheap funding; it is the cheapest long-term funding that one can get.”26 Moreover, this lower cost form of finance “can be used almost as an accelerant; phases of regeneration that might not happen can be encouraged to happen because, essentially, it provides a revenue subsidy over commercial forms of funding.”27

31.Witnesses from the higher education sector told us that the EIB provided one of the few opportunities to secure long-term, attractively priced finance, and stressed in particular the importance of the EIB’s long time horizon. Universities UK told us about the lack of long-term certainty in commercial loans and argued that investment in campus developments “cannot take place without long-term commitment”.28 Philip Harding from UCL told us:

“Prior to [working with the EIB], the primary source of debt finance for universities was bank lending, at the time when banks were prepared to lend long term and at attractive rates to universities. That is no longer the case. Typically, bank lending for universities is now limited to much shorter periods of between five and seven years … The EIB offers one of the few opportunities to secure long-term, attractively priced finance. In our case, the finance was over a 30 year term.”29

32.The EIF also has a AAA credit rating, and is able to offer longer-term investment than is often provided by the private sector. Catherine Lewis La Torre, Chief Executive of BBB Patient Capital Holdings at the British Business Bank—the UK institution responsible for improving SMEs’ access to finance—told us that the provision of long-term capital “is an obvious place where the EIF has played” a role.30 The EIF also manages several initiatives that aim to enhance access to finance for SMEs and small mid-caps where it shares some of the risk borne by financial intermediaries, which in turn can ultimately reduce the cost of borrowing.31

33.The availability of cheaper, long-term financing from the EIB is one of its key benefits. Losing access to the EIB would almost certainly increase the cost of capital in different sectors of the UK economy and could mean that some future projects would no longer be commercially viable. Similarly, if the EIF withdraws from the UK market, small businesses may find it more difficult to access affordable finance. If access to the EIB and EIF is lost as a result of Brexit, the Government will need to ensure that comparable funding continues to be available.

Independent expertise and due diligence

34.Many of our witnesses cited the importance of the EIB’s independent expertise and due diligence for crowding in private investment, in addition to its cheap and longer-term financing.32 This is an explicit objective of the EIB, which states: “The combined expertise of our economists, engineers, financial analysts and climate specialists ensures the success of our projects. In turn, the stamp of approval from our specialists triggers more investment from the private sector.”33 Philip Duffy, Director for Growth and Enterprise at HM Treasury, highlighted the importance of “the confidence it gives the overall market, because it has a very good due diligence process”.34

35.The EIB’s ability to conduct effective due diligence is a reflection of its large in-house expertise: it has 3,000 full-time staff including finance professionals, engineers, economists and environmental experts. They are responsible for comprehensively reviewing all projects that the EIB is involved with. Laurie Macfarlane, Public Banking Lead at UCL’s Institute for Innovation and Public Purpose (IIPP), told us that one of the main benefits of the EIB was its breadth of professional expertise compared to private financial firms:

“The EIB also employs significant engineering or scientific expertise that provides a broader way to assess projects, looking not just at prices and market signals but at fundamentals. That is quite important for its ability to crowd in private sector investment. If the EIB is a first-mover investor in something, it gives other investors the confidence to say, ‘The EIB has looked at this and appraised it robustly using its wide range of expertise’. It gives them confidence to come in and invest.”35

36.Organisations that work directly with the EIB made similar points. The Infrastructure Forum told us that many of the organisations within its network had praised the EIB’s due diligence. It noted that, as a AAA-rated lender, the EIB’s presence reassured investors. This effect was particularly acute on large syndications, where the EIB could lead negotiations with experienced teams.36

37.Peter Clutton-Brock focused on the energy sector, noting UK investors were much more confident about investing in energy projects where the EIB had already applied its expertise and conducted due diligence: “Often more so than the cost of capital, that is a key factor in crowding in additional sources of finance”.37 Mark Drakeford AM underlined the importance of the EIB’s expertise to the Welsh Government:

“It brings a significant additional benefit for project promoters in the form of commercial expertise. The South Wales Metro project, for example, has benefited from the bank’s commercial expertise to inform the procurement process, while previous investments in Wales have, similarly, benefited from expertise and best practice offered by the EIB.”38

38.The EIB’s expertise and due diligence was also recognised by the NIC. James Richardson told us that with the EIB “you have an established institution and the expertise, and people in the markets understand what it means if the EIB is willing to co-invest”.39 The Minister, Robert Jenrick MP, noted:

“There are a number of areas where the EIB has particular expertise … it has maturity and a well-respected track record, and it has capacity, particularly in some areas of technology, such as renewables. It has a track record of supporting new technologies sooner than some other institutions; on wind power, for example.”40

39.Independent expertise and due diligence are also key attributes of the EIF. From the FinTech industry, Victoria Roberts, Head of Government Affairs and Policy at Innovate Finance, focused on the EIF’s advice and technical expertise, which underpinned its strong track record.41 Tim Hames, Director General of the British Private Equity and Venture Capital Association (BVCA), also underlined the benefits of the EIF’s comprehensive due diligence process:

“The great thing about the EIF, although if you are a fund manager it could be a bit of a pain, is that it has a reputation for conducting due diligence, which at minimum is intense and at worst intrusive. Because it is European taxpayers’ money, nobody goes over an applicant like the EIF does. It is a full-blown body search. If you are a much smaller investor thinking about whether you should invest in fund X, and you see that the EIF has given it the full treatment and passed it, you are relatively relaxed and you think, ‘I don’t need to do the same’.”42

40.Giles Derrington, Head of Policy at techUK, agreed, and explained that the EIF’s willingness to enter the market at an early stage meant that it had “a crowding-in way of working”. This was one of the key ways in which the EIF could generate additional investment from the private sector: “It says, ‘We are putting this amount of money into this fund. You can take our commitment to others and say, ‘Look, they are going in; it is a green light for you to invest’’ … The importance of the EIF in general, and in how it supports [venture capital], is that it is not just about the money, but the signal it sends about the market.”43

41.The independent expertise and high-quality due diligence of the EIB and EIF are essential for crowding in private investment. Their participation in specific projects provides a stamp of approval and a positive signal to the market, thereby encouraging additional investment from the private sector. If these institutions stop supporting projects in the UK after Brexit, the Government must ensure that means to replicate their independent expertise and due diligence continue to be available.

1 The EIB defines SMEs as those firms with 10–249 employees and mid-caps as those with 250–3,000.

2 Treaty on the Functioning of the European Union, OJ C 326 (consolidated version of 26 October 2012) Protocol (No 5) on the Statute of the European Investment Bank, specifically authorises the EIB, within the framework of the task set out in Article 309 TFEU, to grant financing for investment carried out, in whole or in part, outside the territories of the Member States. Article 209 TFEU, in conjunction with Article 208 TFEU, provides that the EIB “shall contribute, under the terms laid down in its Statute, to the implementation of the measures” that are “necessary for the implementation of development cooperation policy.”

4 European Investment Bank, ‘Finance projects: multi-criteria list’: [accessed 10 December 2018]

5 European Investment Bank, Press Release, EIB confirms GBP 5.6 billion record UK lending (14 January  2016): [accessed 25 January 2019]

6 European Investment Bank, Press Release: 10th anniversary of “green bonds” celebrated in Luxembourg (5 July 2017):–184-10eme-anniversaire-des-emissions-vertes-celebre-au-luxembourg.htm [accessed 18 December 2018]

7 European Investment Bank, Press Release, GBP 525m European backing for Beatrice windfarm off Caithness coast (23 May 2016):–121-gbp-500m-european-backing-for-beatrice-windfarm-off-caithness-coast [accessed 18 December 2018]

8 The EIB has €21.7 billion of paid-in capital as well as €221 billion of subscribed callable capital, which Member States have a legal obligation to pay if required.

11 Written evidence from Unite the Union (EIB0012)

12 Written evidence from the East of England European Partnership (EIB0006)

14 Written evidence from the Welsh Government (EIB0004)

16 Written evidence from the British Private Equity and Venture Capital Association (EIB0009)

19 Written evidence from The Infrastructure Forum (EIB0007)

20 Ibid.

21 Written evidence from the East of England European Partnership (EIB0006)

22 Written evidence from the Welsh Government (EIB0004)

28 Written evidence from Universities UK (EIB0008)

31 European Investment Fund, We support innovators, entrpreneurs and social change makers across Europe (13 October 2016): [accessed 18 December 2018]

32 ‘Crowding in’ describes the increased propensity of the private sector to invest as a result of an initial financial commitment from another party.

33 European Investment Bank, EIB at a glance (March 2018): [accessed 18 December 2018]

36 Written evidence from The Infrastructure Forum (EIB0007)

38 Written evidence from the Welsh Government (EIB0004)

43 Ibid.

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