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European Union social investment funds market takes a major step forward

Parliament vote paves way for regulation to come into force

New plans to help boost Europe-wide investment in social businesses have been approved by the European Parliament.

Under the proposals, a new label for funds investing in social business will be created: European Social Entrepreneurship Funds (EuSEF). Another will cover venture capital funds investing in unlisted small firms, dubbed EuVECA.
The new rules will create a pan-EU passport, with uniform criteria, for all fund operators that invest in social businesses. The funds will explicitly have making a “measurable and positive social impact” as their focus.
The idea is to help foster a social investment market in the EU as investors increasingly pursue social goals and not just financial returns, according to the legislative proposal tabled by French MEP Sophie Auconie. The measure was passed yesterday at a plenary session of the Parliament with 603 votes in favour and 27 against (with 46 abstentions).
Internal Markets Commissioner Michel Barnier said: “I warmly welcome the European Parliament’s vote on our proposals to create Europe-wide funds for venture capital and for social businesses.”Funds will be able to be marketed to either institutional investors or retail investors willing to invest more than €100,000. Funds will have to focus at least 70% of the capital they raise into supporting social enterprises.
After the vote in the European Parliament, the Council is expected to adopt the regulations on March 21. Following that, the rules should come into force some time “before the summer”.
The regulation will require EuSEF managers to put in place “procedures for monitoring and measuring the positive social impacts which are to be achieved” by their investments. The label can only be used by fund managers who are “fully transparent as to their investment policy and their investment targets”. A key feature is that how the EuSEF manager’s pay is calculated will have to be described, along with profit disclosure.

The European Commission will review the regulation after four years to see how the EuSEF market has developed.