Spanish state pours millions into impact – this is where the money's going

Late last year, the Spanish government announced a series of major investments in funds committed to environmental transition, digital transformations, and social causes – totalling €270m. Impact Loop takes a closer look at the portfolios of the firms managing the funds to see what sectors may benefit most.

Environmental and digital transformation

The €270m comes from the €2bn state-run Co-investment Fund (FOCO), with support from the €750bn ‘Next Generation EU’ Covid recovery fund. The investments are split into several tranches, with €220m devoted to funds working on the environmental and digital transitions and €50m via the Social Impact Fund to support small businesses tackling environmental and social challenges.

The fund is designed to encourage foreign investment in Spain by requiring a foreign co-investor to contribute to its investments, overseen by COFIDES, the state-owned fund manager. As such, the earmarked €270m aims to generate much more once foreign investments are included, totalling at least €440m for Spanish firms.

The fund “provides a unique environment for international investors to promote projects that generate economic impact and contribute to building a more sustainable and technological future," said Ángela Pérez, CEO of COFIDES, at the time of the €220m investment announcement.

Madrid-based Azora Gestión manages the first recipient fund, the Azora European Climate Solutions Fund, which makes its impact ambitions clear. The firm pursues solutions to SDGs 7, 11, and 13 – namely Affordable and Clean Energy, Sustainable Cities and Communities, and Climate Action. Its portfolio includes investments in carbon removal and energy management startups across Europe.

The Azora European Climate Solutions Fund specifically targets leading businesses in the lower middle-market who are "offering decarbonisation solutions for the real economy, and in particular, the decarbonisation of the built environment," Fernando Gómez Fortún, Investment Director at the fund told Impact Loop.

Looking to 2025, the firm believes "there will be many opportunities" in the sectors they focus on, particularly the circular economy and sustainable construction sectors in Spain.

"Our focus is on identifying businesses that can really scale through the use of technology" said Gómez Fortún.

The second fund, the Clean Hydrogen Equipment Fund, is run by Paris-based climate-tech heavyweights Hy24. As the name suggests, the fund focusses on hydrogen power-based solutions across the production chain. A leading investment in the fund's portfolio is Norwegian Hexagon Purus, which develops technologies for hydrogen-fuelled vehicles.

Hydrogen is gaining momentum in Spain, with startups like H2SITE, Helios Aragon, and Matteco leading the way. This rush into hydrogen has been partly energised by lessons learned from Spain’s earlier missteps with solar energy.

On the digital transformation side, the Eurazeo Growth Fund, managed by Paris-based Eurazeo, has less of an impact focus. Information on its holdings suggests a strategy centred on AI-backed fintech and digital services in Spain.

Boosting SMEs through social impact

Turning to the other tranche of funds, €30m from Spain's Social Impact Fund will go into the IB Deuda Impacto debt fund, managed by Madrid-based Impact Bridge asset managers. This fund fosters social and environmental impact-driven companies at the micro level, particularly small- to medium-sized businesses working on rural development, agriculture, climate and sustainability, gender equality, and labour inclusion.

The fund aims to support up to 40 SMEs, using private debt rather than equity as the main instrument. This addresses a key issue for SMEs in Spain: limited access to flexible funding options.

"In Spain in particular, small businesses have limited access to alternative sources of capital from a debt perspective as compared to other European countries, and there is room to grow," Maria Samoilova at Impact Bridge previously told Impact Loop.

Education and social inclusion

A further €20m from the Social Impact Fund will go to the €100m Q-Impact Fund II, managed by Q-Impact investment managers. This fund focuses on SMEs working on impact in education, social inclusion, climate-tech, and sustainability.

The Spanish impact investment market was valued at around €3.3bn at the end of 2023, according to the national regional impact advisory body SpainNAB. The amount of money needed to properly see through the environmental and digital transformations is of course huge, and Azora told Impact Loop they welcome the support offered by the Spanish state.

"Support from the state in areas like the transition to a more sustainable economy and tackling the climate crisis is, and will remain, critical," said Azora's Fernando Gómez Fortún. "We are thrilled to have them as limited partners in our Fund."