The European Commission launched a Social Business Initiative in November 2011. One of the 11 key action areas is a proposal for regulation on European Social Entrepreneurship Funds. This proposal is currently being discussed in the European Parliament and I will have the opportunity to address the Committee on Economic and Monetary Affairs on 20 March.

The goal of the proposal is to provide a framework in the EU that will remove barriers to efficient flows of capital to funds that invest in social entrepreneurs and social businesses. The proposal seeks to remove two perceived obstacles to the growth of social-investment funds:

  1. Due to different rules in each member state, funds find it costly and difficult to raise capital in countries other than the ones in which they are based.
  2. Lack of transparency for investors on which funds really do invest in social businesses with a clearly tracked social or environmental impact and which ones are more mainstream investments.

To remove these two barriers, the proposal on the table seeks to:

  1. Create a brand or label called “European Social Entrepreneurship Fund”. The label is given to funds that invest at least 70% of their assets in social businesses. In order to get the label, a fund has to provide information on its social objectives, how it measures them and which investments it has made in a standardized way.
  2. Funds with the EU label would easily be able to fundraise from investors across the EU, while being supervised by the authorities in the member state in which they are based.

For a “citizen summary” and the full proposal, follow this link.

With only a handful of exceptions, it is clear that most social investment funds based in Europe are small, of € 20 million or less. It is also noticeable that a significant number of them are registered in Luxembourg. Do you think that the proposed legislation will increase the investment flows to funds with a social-impact objective? Is it addressing the true barriers in the EU? As an investor or a fund manager, have you encountered the above mentioned barriers?

Mirjam Schöning



Editors Note: Mirjam Schöning, Head and Senior Director, Schwab Foundation for Social Entrepreneurship