While so far most support developed for facilitating industrial decarbonisation has been targeted primarily at large corporates in the most polluting sectors, at the end of November the French Ministry for the Economy, Finance and the Recovery announced the setting-up of a new scheme intended for SMEs and mid-market companies: the “transition bond”.

 

In September 2023, the Argos X BCG barometer on the progress made by European SMEs and mid-market companies in decarbonisation1) indicated that only 11% of SMEs and mid-market companies had implemented a structured decarbonisation plan (i.e. one with GHG measurement, a detailed roadmap, and significant investment) and that they were motivated mainly by regulation, energy prices, and customer demand, rather than by the goal of a structured and comprehensive approach. The three main obstacles identified were, unsurprisingly: lack of financial resources, regulatory complexity, and lack of in-house expertise.A month later, a study by Bpifrance Le Lab indicated that 88% of French SME and mid-market leaders had declared that they were able to reduce their carbon footprint, particularly through eco-design or supplier choice, but absolutely not by committing to overhauling their strategy or modifying their business model…

In November 2024 to support SMEs and mid-market companies in their decarbonising efforts, the French Ministry of the Economy, Finance and the Recovery launched a new mechanism: “transition bonds” (TB). This new type of bond will be rolled-out with insurers and management companies, and will benefit from a State guarantee for long-term financing. Such types of financing “will enable companies to improve their environmental performance while accelerating their development.”

A mechanism for the long term

The mechanism is original in that it allows for long-term financing (8 years) with a grace period of 4 years. The €5 billion maximum State guarantee can cover all ultimate fund losses up to a maximum of 30% of the fund’s outstanding amount. According to the Ministry, the intention is to “encourage the financing of projects seen as unprofitable in the short term, and which are insufficiently covered by commercial offers available from the banking networks.” These “transition bonds” will be distributed from 2025 to the end of 2029 to “ensure consistency with the first deadline set by the European Fit for 55 plan, which for 2030 anticipates a 55% reduction in GHG emissions in comparison with 1990 levels.”

Three possible investment routes

The mechanism provides three routes to access investment:

– the “equipment” route: financing projects to improve the environmental performance of the company concerned. The investment must relate to the acquisition of equipment required by the regulation (see Art. 4 and 5 of French Decree no. 2024-752 of 7 July 2024). The purchased equipment must not merely be to align with prevailing European standards or those coming into effect within 18 months.

– the “solutions company” route: direct financing of SMEs whose principal activity contributes to transition of the economy. The company must pursue one or more “solution” activities or technologies provided for by the regulation (see Articles 4 and 5 of French Decree No. 2024-752 of 7 July 2024). These activities must account for 50% of turnover or 50% of capital expenditure (Capex).

– the “transitioning company” route: direct financing of SMEs that have committed to a decarbonisation approach. The company must present a GHG emissions report and an action plan setting out its decarbonisation targets and its actions to achieve them. It must also give the management company an annual report on progress toward the outcomes set out in the action plan. Depending on progress achieved against the objectives, the management company may raise or reduce the transition bond’s interest rate.

SMEs are eligible for all three routes, but mid-market companies are eligible only for the “equipment” route.

How will it actually work?

Transition bonds will be placed in two funds managed by the partner management companies with contributions from institutional investors such as insurers:

– an interest alignment fund that will hold 20% of the outstanding amounts not guaranteed by the State,

– a guaranteed fund that will retain 80% of the outstanding amounts. The State will guarantee up to 100% on any initial losses, capped at €5 billion or a maximum of 30% of the fund’s outstanding amounts.

How is it used?

To issue a transition bond, the company must submit its application to a management company authorised to distribute this product. It will need to provide a complete dossier, including an investment plan with the amount and description of the investment project, a statement of all public aid already received, and the requisite supporting documents for that particular access route. Please note: In subscribing to a transition bond, the company commits to using the financing for the purpose indicated in its investment plan and accepts responsibility for the accuracy of the information provided. In the event of fraud(2), error or non-compliance with regulatory texts on transition obligations, the State may withdraw its guarantee and the management company may demand early repayment.

 

Industrial Decarbonisation Strategy: where are we after three years?

Following the launch in 2020-2021 of the Industrial Decarbonisation fund through France Relance, at the beginning of 2022 France adopted an Industrial Decarbonisation Acceleration Strategy as part of France 2030. This strategy provides for the development of roadmaps for nine major high-emission sectors (chemicals, steel, aluminium, cement, glass etc.) and the implementation of a range of support mechanisms, with a €5 billion budget for decarbonising industrial sites and €610 million to promote innovative solutions. Amongst these measures are the Zibac, IbacPME, DemiBac, Solinbac, BCIAT, and Decarb-Ind calls for projects, along with calls for expressions of interest such as the one to “Increase the number of industries committed to decarbonising through one or more mechanisms of the PACTE Industry programme to, inter alia, build a decarbonising strategy and transition plan” launched by Ademe in April 2024. Bpifrance and ADEME triggered the Decarbonisation Accelerator, a support programme for SME and mid-market leaders looking for guidance in setting-out a low-carbon strategy (4th cohort in February 2025). The Pacte PME association started the Decarbonisation Alliance in July 2023, enabling several large companies to support the decarbonisation efforts of their suppliers (1,500 identified SMEs). More recently, in December 2024, Ademe launched a public tenders procedure entitled “Large industrial decarbonisation projects” for projects representing a total aid amount of at least €20 million, such as carbon capture and storage projects. In parallel, it also relaunched the Industrial Decarbonisation Call for Projects “to support projects that enable a reduction of at least 1000 tonnes of CO2/year.”

 

1) According to Insee, in 2021 France had 159,000 small and medium-sized enterprises (SMEs) and 6,200 mid-market companies.

2) In contract law, fraud refers to a fraudulent manoeuvre intended to deceive.

 

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