Promoting inclusive growth, job creation and sustainable development have been long-standing priorities of the European Union (EU). However, due to their mandate to remain financially sustainable, EU partner financial institutions often struggle to support projects when returns are highly uncertain, where enterprises have limited track record or in locations perceived as risky. By providing guarantees and blending instruments, the European Fund for Sustainable Development Plus (EFSD+) helps to enable riskier investments that can bring strong development benefits.
Enabling higher risk investments: The European Fund for Sustainable Development Plus (EFSD+)
Abstract
When it launched the EU External Investment Plan in 2017, the European Union had one key objective: promoting inclusive growth, job creation and sustainable development in sub-Saharan Africa and the European Neighbourhood. To do so, it aimed at increasing investments in sectors such as sustainable energy; micro, small and medium-sized enterprises (MSMEs); agriculture; and digitalisation. However, projects in these sectors typically have a higher risk profile than the portfolio of investments supported by EU partner financial institutions. Because of their mandate to remain financially sustainable, these partners often struggle to invest in projects when returns are highly uncertain, where enterprises have limited track records or in locations perceived as risky.
The European Investment Fund for Sustainable Development (EFSD) was created in 2017 to provide financing capacity in the form of grants, technical assistance and guarantees – a type of insurance policy to protect financial institutions from the risks of non-payment. In 2021, the EFSD became the European Investment Fund for Sustainable Development Plus (ESFD+), substantially larger in terms of funding and geographic scope. In 2021, when the Global Gateway strategy was launched to mobilise up to EUR 300 billion for digital infrastructure, energy, transport, health and education, the EFSD+ became one of its main financing instruments.
Main features of the EFSD+:
The EFSD+ Guarantee is deployed through eligible financial institutions. Unlike other arrangements that cover private financial institutions directly in developing countries (e.g. Sweden’s guarantee instrument), the EFSD+ covers public institutions. To benefit from the EFSD+, a financial institution must be “pillar-assessed”: this means it must be entrusted to indirectly manage the implementation of EU funds or budgetary guarantees, following a positive assessment by the European Commission. In practice, the main implementing partners are the European Investment Bank (EIB); the European Bank for Reconstruction and Development; bilateral development finance institutions (DFIs) of EU Member States; and the International Finance Corporation. As the bank of the European Union, the EIB has a specific role to implement EU development policy priorities and benefits from dedicated windows.
The EFSD+ offers EUR 40 billion in guarantees. These guarantees include dedicated EIB windows (EUR 26.7 billion) and Open Architecture windows for other partner financial institutions (EUR 13.1 billion). The Open Architecture window comprises six thematic windows: connectivity, sustainable cities, natural capital, human development, MSMEs and sustainable finance.
The ESFD+ also includes EUR 18 billion in blending, mainly in the form of grants. These contributions include grants for infrastructure projects and technical assistance, such as feasibility studies for projects, business plans and staff training. They also cover risk capital (e.g. equity) and guarantees. For these guarantees, cash is transferred upon signing and returned if there are no losses.
Strong interest from partner financial institutions: in 2022, the Directorate-General for International Partnerships launched the first Open Architecture call for proposals for EUR 6 billion. It attracted proposals worth up to EUR 24 billion of guarantees, highlighting strong interest for this instrument. As of 2025, about a third of the available amount for guarantees (EUR 12 billion of EUR 40 billion) had been signed.
More financing to contexts facing high levels of fragility and least developed countries (LDCs): by October 2025, under the EFSD and EFSD+ guarantees, about two-thirds of signed operations were in countries facing situations of fragility and/or in LDCs. For example, EFSD+ guarantees have enabled the Finnish Development Finance Institution (Finnfund) to invest in digital infrastructure in South Sudan. This investment would likely not have been possible without the risk mitigation provided by the EFSD+ guarantee.
Increased access to financing for small enterprises in partner countries: the EFSD+ has supported Nasira, a risk-sharing facility managed by Dutch Entrepreneurial Development Bank (FMO). Nasira provides portfolio guarantees to local financial institutions in sub-Saharan Africa and the European neighbourhood so they can reach underserved segments such as agriculture and MSMEs, as well as young, female and migrant entrepreneurs.
Co-ordination of investments: the European Union indicates the EFSD+ has enabled the mobilisation of EUR 50 billion towards Global Gateway objectives. There is no available data on the mobilised amounts by source of financing, and this amount is likely to correspond to co-financing amounts from international finance institutions and regional development banks.
Some positive examples of private finance mobilisation: with EFSD+ support, Danish DFI Impact Fund Denmark has partnered with four private Danish pension funds to create SDG Fund II, which invests in developing countries towards realisation of the Sustainable Development Goals (SDGs). In this case, the EFSD+ guarantee did not cover potential losses by Impact Fund Denmark but rather those of private investors. This guarantee helped secure the participation of these investors in the fund.
Streamlining the process could improve outcomes. Due to the lack of standard terms for legal agreements, negotiations of guarantee agreements have taken two to three years. In several instances, projects were no longer feasible due to the time taken to sign the guarantee.
Measuring additionality is not easy. While feedback from partner financial institutions is positive, and EFSD+ guarantees back first-time investments, there is limited public information on the new types of segments, sectors or locations – especially contexts with higher levels of fragility – and LDCs targeted thanks to EFSD+ support. The few evaluations of the EFSD+ highlight insufficient evidence on how interventions differ from business-as-usual investments, as well as their overall impact.
The EFSD+ can help mobilise private finance, but this requires active engagement from EU partner financial institutions. Some DFIs, such as Impact Fund Denmark, have proactively used EFSD+ to partner with private investors. Building on these positive examples, the EFSD+ could play a stronger role in covering transactions involving private investors.
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European Court of Auditors (2024), Opinion 03/2024 accompanying the Commission evaluation of the External Action Guarantee, https://www.eca.europa.eu/en/publications/OP-2024-03.
Perez, A., N. Albhakit and B. Ruiz (2023), “The implementation of EFSD+ from an inclusive perspective”, report commissioned by the, ECOPER, July, https://www.europarl.europa.eu/thinktank/en/document/EXPO_STUD(2023)702595.
Siegfried, J. et al. (2025), “The European Fund for Sustainable Development Plus”, CGD Policy Paper, No. 357, Center for Global Development and Lion’s Head Global Partners, Washington, DC, https://lionsheadglobalpartners.com/wp-content/uploads/2025/04/european-fund-sustainable-development-plus-maximising-eu-guarantee-leverage-and-impact-1.pdf.
OECD (forthcoming), OECD Development Co-operation Peer Reviews: European Union 2025, OECD Development Co-operation Peer Reviews, OECD Publishing, Paris.
OECD (2025), “Sweden’s guarantee instrument: Mobilising capital for sustainable development”, Development Co-operation TIPs • Tools Insights Practices, OECD Publishing, Paris, https://www.oecd.org/en/publications/development-co-operation-tips-tools-insights-practices_be69e0cf-en/sweden-s-guarantee-instrument-mobilising-capital-for-sustainable-development_f332e44d-en.html.
Garbacz W., D. Vilalta and L. Moller (2021), “The role of guarantees in blended finance”, OECD Development Co-operation Working Papers, No 97, OECD Publishing, Paris, https://doi.org/10.1787/730e1498-en.
To learn more about European Union’s development co-operation, see:
OECD, "European Union institutions", Development Co-operation Profiles, OECD Publishing, Paris, https://www.oecd.org/en/publications/development-co-operation-profiles_04b376d7-en/european-union-institutions_e27f9002-en.html.
More In Practice examples from European Union are available on Development Co-operation TIPs • Tools Insights Practices.
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