European Commission urges EU member states to consider social impact bonds

European Union member states are being urged to explore mechanisms such as social impact bonds and other innovations to help them cut social costs.

The European Commission wants countries to take into account the ”social investment dimension” of funding from key European Union sources such as the European Social Fund in the 2014-2020 period.

“This includes exploring innovative approaches to financing and financial engineering, drawing lessons from experiences such as those on Social Investment Bonds, microfinance and support to social enterprises,” the Commission’s Employment Directorate says.

It wants states to prioritise social investment and to modernise their welfare states.

The European Social Fund provides funding across the EU, worth €76bn over the 2007-13 period.
The Directorate, headed up by Commissioner László Andor, a Hungarian economist, says EU member statesstill make insufficient use of more innovative approaches to financing which could aid a “more effective use of social budgets”. The comments come in a new ‘Communication on Social Investment for Growth and Cohesion’ just adopted by the Commission.

“Social investment is key if we want to emerge from the crisis stronger, more cohesive and more competitive,” Andor says. “Within existing budget constraints, Member States need to shift their focus to investment in human capital and social cohesion.”

Social impact bonds are where private investors fund providers to implement a social programme in return for a promise (‘bond’) from the public sector to reimburse the investment if the programme meets defined outcomes.

The most prominent social impact bond is the UK’s Peterborough Prison project, which has sparked interest in Australia, Canada and the US.