Social economy in Europe: adapt investments to drive more funding, says the EESC

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New financial instruments are needed if the social economy is to keep growing beyond the stimulus provided by public programmes, says a newly-adopted report by the EESC, which also calls for financial training as a way to foster private funding.

The social economy can only attract suitable investments if there are dedicated financial instruments that balance social impact with acceptable returns for investors and fair risks to social enterprises, the European Economic and Social Committee (EESC) says in an opinion adopted at its January plenary session.

Requested by the French presidency, which will make the social economy a focus of its semester at the helm of the European Union, the opinion sets out criteria for establishing such financial instruments.

Social entrepreneurs tend to seek traditional financing such as loans rather than share funds or other financial instruments. Investors lack confidence in the sector due to misunderstandings and unclear assessment criteria.

Giuseppe Guerini, the rapporteur for the opinion, said: There is a real need to facilitate the connection between the world of private investment and the world of the social economy. We believe that too often financial operators treat social economy organisations as high risk simply because they use tools that are commonly employed to assess other kinds of enterprises. This leads to misclassification which tends to underestimate the more specific dimensions of the social economy.

In the EESC's view, social impact investments should meet the following criteria:

  • have a clear goal to create positive social impact;
  • support enterprises that are clearly defined as social economy enterprises;
  • set levels of expectation based on fair, sustainable and transparent economic returns, even when these could be lower than market average;
  • allow part of the assets to be reinvested in other investments that pursue social objectives;
  • have a measurable impact and an adequate knowledge of the goals of the investment;
  • be consistent with the principles and values of the enterprise they invest in.

Mutual understanding

A healthy social economy reduces inequality, promotes social cohesion and protects the environment. The EU has identified the sector as one of 14 key ecosystems in its industrial strategy. Yet despite EU support, Europe’s 2.8 million social entities often lack the capital to expand their services. 

Financial instruments dedicated to social enterprises have developed considerably over the past decade, but there is still room for improvement.

Sound mutual knowledge is essential to bridge the investment gap. Financial actors need to be better supported to understand the realities of social enterprises and to help the latter understand the world and the instruments of finance, stressed the co-rapporteur for the opinion, Marie‑Pierre le Breton.

In addition, education is essential to bridge the investment divide, and existing good practices can increase knowledge. For instance, Finland’s Centre of Expertise for Impact Investment provides technical and professional support to enhance the skills of those who intend to make investments with social impact.

Others build investor confidence. These include "pay-by-results" investment models in France, which involve private investors willing to mobilise resources for social policies that have been agreed with the government, payment for which is linked to achieving the expected results. However, EU-wide indicators must be established to assess enterprise impact. These could be objective indicators, such as jobs created, or subjective ones, such as community wellbeing.

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