European Commission’s new funds label aims to make social investment easier

New social funds label initially only available for professional investors

The European Commission has launched an initiative aimed at making it easier for investors to put money into social investment funds.

It has proposed a new ‘European Social Entrepreneurship Funds’ label to help investors identify which funds focus on social businesses. The funds will initially only be available for professional, not retail, investors.

“The approach is simple: once the requirements defined in the proposal are met, managers of social investment funds will be able to market their funds across the whole of Europe,” the Commission said.

To get the label, a fund will have to prove that 70% of investors’ capital goes to support social business. Uniform rules on disclosure will ensure that investors get “clear and effective information” on investments.

“Investment fund managers will find it less costly and complex to raise funds, including cross-border, and will find it easier to distinguish their social entrepreneurship funds from other kinds of funds,” the Commission says.

The Commission argues that specialised social investment funds are rare or are not large enough and that cross-border investment in them is “unnecessarily complicated and expensive”.Social businesses are defined as those that have a positive social impact and address social objectives rather than just profit. The EU says it is a growing sector, representing 10% of all European businesses with more than 11m employees.

Internal Market Commissioner Michel Barnier said: “Our new measures will help build these businesses across Europe, ensuring they get the financial support they need so that they can grow – especially in these times of crisis.”

Funds that use the new brand will have to publish information about the kinds of social businesses they target, the ways they are selected, the ways the fund will help the social businesses, and how social impacts will be monitored and reported.

Because such investments can be risky, the new label will only be available to professional investors; once it is up and running the Commission will look at making it available to retail customers.

The proposals will have to be passed by the European Parliament and the Council of Member States.
Link to Commission announcement