Accelerating change: an EU policy-maker’s perspective of social finance

In the latest in this series asking honest questions about investing for impact, the European Commission’s Ann Branch takes a step back to consider the role of public policy. Social investment is rapidly growing across Europe, and EU institutions now have dedicated teams working to accelerate it. But what’s next for Brussels policy-makers – and how can they navigate the sometimes delicate questions around social finance while deploying their resources in all the right places?

Ann BranchSustainable development, inequality and other societal challenges now make the news headlines every day. It’s an interesting time for social finance and impact investing – including for us policy-makers, so I’m grateful for the opportunity to add my reflections to this series.

My first observation is how rapidly the social enterprise and social finance space has evolved in Europe in the last few years with more social enterprises, more investors, more intermediaries and more instruments. We see this internally also, in that this field has become better recognised within the European Commission and the European Investment Fund. Each of these institutions now has dedicated teams; this was not the case several years ago. A similar trend exists in other international organisations.

Secondly, we’ve seen a proliferation of terminology. Market research conducted for us on social enterprise finance (to be published soon) confirms that across Europe a range of terms are used largely interchangeably, such as social enterprises, social economy, impact enterprises, purpose enterprises, community interest companies, social businesses, benefit corporations, social cooperatives, among others. Similarly, a variety of terms are used to describe the financing of these companies, such as social finance, impact finance, impact investing, sustainable finance or ethical investing – although they are all underpinned by a number of shared values.

The European Commission and the European Investment Fund now have dedicated [social investment] teams; this was not the case several years ago

Although confusing at times and the source of much discussion, this semantic evolution is a symptom of popularity and reflects the heterogeneity of history, traditions and legal forms in Europe (before we even begin to consider global diversity). From the policy-maker’s perspective, we cannot expect, nor do we need to have a universal monopoly on language. That said, when we design new policies and support measures, we do use specific definitions to better target our support and ensure effective use of public funds. At EU level we have the additional challenge to ensure our support accommodates Europe’s diversity and that it brings additional value to what national measures could achieve.

A delicate balance

A third reflection is that the distinction between “investing for impact” and “investing with impact” has been increasingly articulated and discussed. Both approaches have value, but the support they need from public institutions will differ. Alongside, the wider discussion about ethical investment is prompting warnings about mission drift or green/impact washing. Neither the field nor its reputation would be served by watered-down notions of impact which would end up essentially as box-ticking exercises for companies or investors. Similarly, financial innovation needs to be sensitive to concerns about commodifying the vulnerable.

Investing for impact vs. investing with impact

When the term impact investing was first coined a dozen years ago, it was a niche specialism. Today, it embraces investors with a wide range of objectives, behaviours and intentions, so EVPA and its members prefer to distinguish between ‘investing for impact’ – where the primary focus is on achieving a social impact, with any associated financial returns as a secondary objective, and ‘investing with impact’ – where the primary focus is on achieving a net positive financial rate of return alongside social impact.

Read more: Impact Strategies – How Investors Drive Social Impact


So the right balance must be struck. On the one hand, mobilising private finance for social goals can help grow the “pie” of total funding available, public and private combined, as well as creating more sustainable funding streams for many companies and organisations. On the other hand, we need to be mindful that private finance cannot solve everything. Grant funding remains an essential tool, as does public policy, for solving many systemic problems.

Private finance cannot solve everything. Grant funding remains an essential tool, as does public policy, for solving many systemic problems

A fourth observation is that EU-level funding has been instrumental in developing the social finance space. This was one of the findings of the independent research mentioned above. Since 2015, guarantees managed for us by the European Investment Fund have helped to improve the risk-return profile of financial intermediaries supporting social enterprises, and equity investments and transaction cost grant support have helped to capitalise social venture capital funds as anchor investments. We now have a growing network of intermediaries across Europe with 30 deals in place in 17 countries and this number will continue to grow. EU support is also helping intermediaries to consolidate through equity and quasi-equity investments in their structures and our recently launched social finance advisory services can help them further. For 2014-2020 we estimate that EU funds of some €820m will mobilise in the range of €3bn in total investment for social enterprises and microfinance. In addition, grant funding has enabled the launch of dozens of projects, the emergence of new intermediaries, and support for European networks. 

More systemic impact

Looking ahead, we need to continue and consolidate what we have started: market gaps and failures are not resolved overnight. In terms of new areas for the European Commission, we frequently hear that there is growing interest in social investment, but not enough companies to invest in. There is therefore a need to help with investment readiness, particularly for companies with an often complex triple bottom line: financial, social and environmental. Related to this is how to optimise scaling, the replication of good social innovation business ideas in new regions and how to connect them to investors. At the European Commission we supported a few locally useful national investment readiness pilots in recent years, but the challenge is how to achieve more systemic impact with the limited EU funds we have. We are currently reflecting on whether more integrated approaches make sense, namely integrating incubation services with funds, and networking across borders to help with scaling and the replication of good social innovations with business potential.

While access to funding is crucial, it is more effective with conducive national framework conditions. We will soon publish a comprehensive mapping study of social enterprise ecosystems in Europe and we are launching a study examining the impact of the 2011 Social Business Initiative, our first major policy initiative to give a boost to social economy and social enterprise development. From this work it is clear that many developments have occurred since 2011. How do we continue this progress? Much of the responsibility in this area falls to the national level, but we can support Europe-wide knowledge gathering, sharing and learning so that member states can accelerate reform. Our web-based “Better Entrepreneurship Policy” Tool launched last year is also intended to help policy-makers at all levels self-assess and improve the design of their inclusive and social entrepreneurship policies and to engage with their stakeholders.

We estimate that EU funds of €820m will mobilise around €3bn in total investment for social enterprises and microfinance

This range of diverse funding possibilities and policy initiatives demonstrates our emphasis on a holistic approach, fostering the whole ecosystem.

That feels increasingly relevant when we look at what’s happening outside Brussels. Beyond social enterprise and social finance, discussions are getting louder on the role of business in society and attitudes are shifting in boardrooms. In August 2019, 181 CEOs in the United States committed to leading their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders. The World Economic Forum is hosting reflections on building sustainable markets and new economic models, with calls for proper accounting of natural and social capital costs to avoid improperly priced risks, to help sustainable market opportunities, and to align prices, incentives and consumer choices to bolster sustainability. These are signs of a real shift in thinking and paradigms.

Let’s hope we have reached a tipping point in terms of mobilising business efforts for sustainable development. It is no longer unrealistic to predict that the day is coming soon when all companies and financial institutions have to integrate sustainability into their business model. The reasons are both ethical and based on a business imperative. The social economy, social enterprises and social finance are contributing to this shift in paradigm and leading by example.

The information and views set out in this article are those of the author and do not necessarily reflect the official opinion of the European Commission.

Ann Branch will be speaking at the EVPA's 15th Annual Conference, Celebrating Impact in The Hague, 5-7 November. At the conference the EVPA will present its new Charter of investors for impact, setting out the key principles that drive and distinguish such investors.