Setting up the European social economy to thrive

In December 2021 the European Commission launched the European Action Plan for Social Economy. The plan proposes measures to enable the social economy, with the aim of powering a green and just transition.

Social investors have been working towards and advocating the launch of such a plan for years. This community has provided pioneering support to social enterprises and social purpose organisations, having understood early on their crucial role in contributing to sustainable growth.

The plan’s launch couldn’t come any sooner. The social economy is expanding; it currently represents around 2.8 million entities in the EU, and provides 13 million paid jobs. Furthermore, the Covid-19 pandemic saw social entrepreneurs play an outsize role: they were on the frontlines, providing critical services and care to the most vulnerable, and acting as a crucial social safety net. In light of this experience, social entrepreneurs and their supporting investors have the practical know-how to make sure Europe’s Covid-19 recovery is fair for all.

The social economy has crossed from idealism to action. There is a clear value to keeping the idealists active in this context: their practical experience is crucial. And when it comes to navigating access to European funds and ensuring the integrity of impact initiatives, the social investment community holds the expertise that can ensure the social economy thrives.

Money matters

The shift to a strengthened social economy will not happen without resources. Fortunately, there are resources at hand: the European Union approved a 2021-2027 financial framework and NextGenerationEU stimulus programme, in combination worth 2 trillion euros.

This package includes InvestEU, a new programme that brings together under one roof the multitude of EU financial instruments currently available to support investment in the EU. The InvestEU fund has a dedicated area for social investment and skills.

New funding opportunities have the potential to reinforce the capacity of social investors and mobilise more resources and private investments for a just and green transition. What remains uncertain is whether the EU will take the right steps to ensure social investors can access this funding.

For social investors, common accessibility challenges include:

• All funds must navigate a complex legislative environment, where state aid, cross border activities and taxes vary depending on the fund’s area of operations.
• First-time funds face challenges in establishing the necessary credibility to attract investors.
• Investors in early-stage social enterprises can encounter high costs and risks, out of balance with the small ticket sizes (e.g. <500k) these enterprises typically call for as initial investments.

The EU has pointed toward solutions to some of these challenges as well; indeed, one cornerstone of the EU Social Economy Action Plan is improving access to finance. The plan foresees a new EU Social Economy Gateway, which should provide a clear entry point for social economy stakeholders seeking information on relevant EU funding, policies, platforms and initiatives. This could enable both social enterprises and investors to identify more funding opportunities at local and EU levels.

National public authorities also play a crucial role in facilitating access to funding, as the majority of the EU funding is decentralised to member states for them to drive and disburse. These institutions should therefore engage in dialogue with the private social investment market and leverage this community’s expertise to ensure impactful public-private co-investments.

Ensuring real impact

Better measurement and management of social impact is also at the core of the EU’s plan. In parallel, the European Commission is working on a new Social Taxonomy to augment the EU’s sustainable finance strategy.

With the rise of ESG criteria and sustainable investments, clear definitions of social objectives are crucial. The net zero transition will not happen without also taking social aspects into account: we need a green and just transition.

Whether a social taxonomy is the best way to do this is still unclear, but standardised tools to measure the social impact of investments are a valid first step. EU standards for sustainable finance can encourage green and just investments, but only if they act as an accurate barometer and truly prevent green and social washing.

This is where EU policymakers can learn from the impact space and its longstanding expertise. Our community has been setting standards for decades and will be instrumental in empowering others and raising the bar in assessing the social value of an investment.

Ensuring real impact has always been a guiding principle of this community; as the social economy evolves, it becomes not just a principle but an achievable goal.

This article was first published on Euractiv, as part of its special report Financing the social economy.