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Document 52015AE3146

Opinion of the European Economic and Social Committee on ‘Building a financial ecosystem for social enterprises’ (exploratory opinion)

OJ C 13, 15.1.2016, p. 152–160 (BG, ES, CS, DA, DE, ET, EL, EN, FR, HR, IT, LV, LT, HU, MT, NL, PL, PT, RO, SK, SL, FI, SV)



Official Journal of the European Union

C 13/152

Opinion of the European Economic and Social Committee on ‘Building a financial ecosystem for social enterprises’

(exploratory opinion)

(2016/C 013/23)


Ariane RODERT and Marie ZVOLSKÁ

In a letter dated 28 April 2015, and in accordance with Article 304 of the Treaty on the Functioning of the European Union, Nicolas Schmit, Minister for Labour, Employment and the Social and Solidarity Economy, acting on behalf of the future Luxembourg presidency, asked the Committee to draw up an exploratory opinion on:

Building a financial ecosystem for social enterprises

(exploratory opinion).

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee’s work on the subject, adopted its opinion on 8 September 2015.

At its 510th plenary session, held on 16 and 17 September 2015 (meeting of 16 September), the European Economic and Social Committee adopted the following opinion by 204 votes to 2, with 4 abstentions.

1.   Conclusions and recommendations


The EESC welcomes the Luxembourg EU Presidency prioritising social economy and in particular its focus on creating a tailored financial ecosystem.


The EESC urges to the European Commission (EC) not to lose the momentum in supporting the social economy agenda and ensuring a continued and supportive policy framework for social economy development. This by renewing the Social Business Initiative (SBI) agenda including the tailored financial ecosystem needed.


The EESC stresses the need to see access to finance as one component in the full ecosystem needed for the development and growth of Social Economy Enterprises (SEE).


The ideal financial ecosystem for SEE includes features such as a multi-stakeholder approach, hybrid and patient capital solutions with guarantee schemes, often provided by social finance institutions sharing the values of the social economy.


The EC should support the emergence of new instruments, ensure that financial regulation enables the development, promote research on the societal added-value of investing in SEE and ask Member States (MS) for peer reviews on the subject.


The EESC welcomes that the social economy is an investment priority in the current Investment Plan for Europe (1) and urges the EC to fully make use of this provision.


The EC should review if/how social impact investment can be a component of the financial ecosystem for SEE and if the policies behind really support SEE development.


The EU must equally recognise SEEs by providing a supporting factor in the CRR regulation (2). Bank lending to the social economy would benefit greatly from this, with no impact whatsoever on public finances.


Financial support from the EU level must be coupled with the EC providing guidance, training and capacity building for governments and key stakeholders.


MS should act as co-investors to support the establishment of ethical funds, social innovation funds and social venture capital funds and facilitate public guarantee schemes. Further, MS should consider reviewing the opportunities of tax rebate on income (individuals and businesses) as well as other tax incentives for both savers and investors to attract investments into SEE.


SEEs must themselves take initiatives in developing instruments such as auto-capitalisation, crowdfunding and engaging in social finance partnerships, gathering their own resources and initiating partnerships.


But, to fully unleash the potential of the SEE, all MS must develop and implement national action plans for the social economy based on a broad stakeholder approach including representatives from civil society.

2.   Introduction and context


The EESC welcomes that the Luxembourg prioritises social economy during its EU Presidency, recognising the social economy’s contribution to employment, social justice and sustainable development.


The EESC is pleased that the Luxembourg EU presidency request this exploratory opinion which aims to explore the concept of a financial ecosystem from the perspective of social enterprises, the main characteristics and necessary conditions needed to fully build an adequate and effective European framework for the financing and investment into social economy.


The EESC also notes that the Luxembourg EU presidency highlights the fact that limited access to finance (particularly access to tailored finance) is a barrier to the growth and development of the social economy, this in line with previous EESC opinions (3), the EC, SBI (4) and the work of the OECD (5).


A new social landscape is emerging in Europe as a result of the crisis and our society facing new complex challenges. There is an urgent need for social innovation mobilising all sectors in society. The social economy is a vital sector employing over 14 million people (6) and has a key role to play providing solutions for e.g. employment creation and social inclusion (7) contributing to smart, sustainable and inclusive growth. But the sector is still underdeveloped in many Member States (MS). To unleash its full potential an enabling ecosystem must be developed where access to tailored finance plays a central role.


In view of the EESC’s continued commitment to the social economy agenda, this opinion aims to bring forward the particular perspectives of SEE, which by definition use profit making as a mean to achieve the primary social mission.


To frame this opinion, the EESC therefore reiterates the definition set out in the Rome Strategy  (8), whereby social economy is described as a plurality of organisational forms shaped by diverse national and welfare contexts, but with shared values, characteristics and goals. SEE refers to a universe of organisations based on the primacy of people over capital, and includes organisational forms such as cooperatives, mutuals, foundations and associations, as well as newer forms of social enterprises. It must be underlined that SEE are enterprises belonging to people and/or created by people and not by the financial system.


It should also be noted that this opinion, while related to the subject, does not touch on the particulars of ‘social impact investment’, nor the EuSEF regulation, which are subjects expressed in previous EESC opinions (9).

3.   Access to finance, a challenge for social economy


As pointed out by OECD (10), there is currently an incompatibility in the existing financing framework that does not correspond to the reality of SEEs and their requirements, indicating a need for cultural adaptation of the financial, legal, policy framework to design appropriate tools. It is vital that for social finance to become sustainable, an integrated approach, different from tradition finance, must be adopted.


One key issue is that SEE business models are insufficiently known and understood. Not fully recognising the specificities in these models (such as limited or no profit distribution, a user- or need-centred focus, shared decision-making, democratic governance or shared ownership) make it difficult for SEEs to access mainstream finance and instruments supporting SMEs generally.


SEEs are, more than other business models, confronted with the issue that financial market logic is not designed to support SEE development. Financial markets do not capture and reward the social added value of SEE nor their general interest mission. Today SEEs are often remunerated only for the cost of the service they provide but not for the social value they create. Return on investment for SEEs entails delivering primarily social impact and limited financial returns. This fact that the social mission overrides the maximisation of profit may result in the false impression that SEEs are higher risk and less reliable than other businesses. Research, facts and data actually show the opposite (11). Investment in SEE is in fact not a cost but an investment into the future, which contributes to increased employment rates and strengthens the competitiveness and overall economic contribution of a MS in the long run.


Several attempts have been made to promote social investment instruments building on the architecture of traditional financial instruments. However, since the logic of private capital often goes hand in hand with features such as short-term exit strategies, requesting ownership and high-return investment logic, these instruments fail to work for SSE since features like these often are in direct conflict with SEE business models and activities.


Issues such as difficulties in divesting (when working with people in need) and no or limited second-market opportunities, create additional complications for mainstream investors. While these instruments may successfully reach some enterprises (often as profit-maximising businesses with a social mission), SEEs still need specifically tailored financial instruments.

4.   A supportive and sustainable financial ecosystem


This opinion focuses on the characteristics and conditions needed to improve access to finance for SEEs rather than providing a comprehensive review of the range of available finance instruments. The real potential of SEE can only be realised if access to finance is integrated into a tailored and fully integrated ecosystem together with components such as legal frameworks, business development and various support, demonstrating that social investment is both financial and non-financial investments.


While recognising that improving financing for SEE is crucial for development and sustainability, it is important to make a distinction between financing SEE structures and SSE activities. It is important to finance both these aspects but the approaches and instruments may differ. Certain is that when developing social finance tailored to SEE it must be in the context of promoting social initiatives and action and be seen as a means to realise the sector’s potential rather than being a purpose in itself.


It must be recognised that SEEs usually have a mixed revenue stream  (12) where sales of goods and services often are coupled with government funding. SEEs often rely on a mix of financing streams ranging from funds for a specific project or program based on a policy objective, to public contracts or raising funds for expansion or new investments.


In some MS, SEEs rely on continued public funding, working closely with public authorities in pursuit of a common policy or general interest objective. Furthermore, public funding is particularly important in the innovation process (often linked to preventive work) and the early development stages of SEEs. The EESC therefore stresses that this form of public cooperation and funding support must not be jeopardised when looking at external finance sources and that it is particularly important when supporting the emergence and building of a social economy sector in certain MS.

4.5.    Using a range of finance sources


Public funding remains a key finance source in many MS and for many SEEs. The connection between the social mission of a SEE and public policy objectives building on a system of common goals and trust are at the core of public funding initiatives. In this context the EESC wishes to highlight the connection to and its support for a continuation of the EC Social Investment Package (13), which aims to promote social policy innovation with a strong role of SEE. In many MS a primary income source for SEE are public contracts. Providing a service of general interest is often a core activity for SEE to fulfil their social mission. This income contributes importantly to financial sustainability. In case of public contracting one criteria must be the respect of social standards and in particular application of collective agreements.


Private finance instrument vary from traditional instruments such as commercial banks, business angels and venture capital to such as donations, venture philanthropy and social impact investors. While several of these instruments may be fitting the SEE, it appears that social finance provided by specialised social finance providers are better suited.


Attention should also be given to individuals’ interest to invest into SEE initiatives especially at community level. Crowdfunding platforms, donations and philanthropy provide a key finance resource for SEEs.


The social economy sector itself generates funds in the form of retained earnings often encouraged by the tax relief system. The option of accumulating profits that are not distributed to members (indivisible reserves) is used by cooperatives as the main instrument to finance their own growth. Another instrument is the option for cooperative members to participate in the financing of their own cooperative through the provision of voluntary loans (social lending) that in some MS are regulated by specific legislation (14).


Specialised financial institutions, social, ethical and cooperative banks as well as social venture philanthropy provide instruments specifically designed for SEE. For example the Italian cooperative development funds (15) is set up to promote and develop cooperatives specifically. These funds are formed using the 3 % levied on the annual pre-tax profits of cooperatives. Other examples are CoopEst development fund and the CGM Finance Consortium, which are internal financial systems open only to members providing bridging loans and overcoming problems in gaining access to the ordinary banking system through the contractual capacity of a group.


Consideration must be taken when building a marketplace or platform for these instruments and incentives to attract capital must be evaluated. While public capital can be policy-motivated, private capital may be attracted through tax incentive schemes, the shared-risk element and engaging with the social economy sector. Regardless, any incentives given to private financial providers should be balanced with the expected financial and social return as well as how the financial profits are used. This should ensure that the public interest, the general interest and efficient spending (if public) remain at the heart of the initiative.

4.6.    Fundamentals to consider when creating a conducive financial ecosystem


The creation of a financial ecosystem for SEEs relies on establishing a multi-stakeholder approach bringing together resources and instruments. This form of multi-stakeholder systems, or a social and solidarity finance system, brings together both monetary and non-monetary resources. It builds on trust and financing support involving several players (SEEs, savers, public sources, pension funds and financial institutions etc.) building relationships (financial intermediation, socialisation and support relationships) sharing common goals and rules. The success of this approach is clear in for instance Quebec and should be explored further for the European context (16).


It is fundamental that the financial support is developed from a lifecycle approach. Grants or funded pilot schemes often fail in the second phase due to the lack of appropriate instruments enabling SEE to scale up and be sustainable. Specific instruments and supportive policy frameworks must be designed for each development stage: pre-start-up, start-up/pilot stage, consolidation and growth, meeting the specific needs at each stage.


Traditional risk capital is based on a quick return on investment usually tied to influence through ownership. This is particularly difficult for the social economy to utilise and in conflict with SEE business models and activities. Therefore providing guarantee schemes and co-investment mechanisms to share responsibility and risk-taking are crucial in this context. Building on good practices of guarantee schemes already in place (often from public funds) should be reviewed when developing schemes alleviating the first ‘risk’ of the financing.


Social economy finance providers are often ideal to provide both financial and non-financial support such as investment readiness programmes and general guidance and business development support. This form of support is crucial to reduce the risk of failure. Here general ‘financial coaching’ as well as ‘financial education’ must be considered.


It is central that at the heart of social finance is social impact measurement  (17) to demonstrate the social impact created in parallel with financial return. This is the only way to capture the full value created by the SEE activity and the full scope of Return on Investment (ROI) — both social and financial.

4.7.    An ecosystem based on blended capital


Particular attention should be given to hybrid forms of financing, which are seen as being more suitable for social economy enterprises as they combine elements that evaluate the common good with financial incentives. The hybrid capital combines a grant component (public grants, philanthropic funds, donations) with equity and debt/risk-sharing instruments. Financing instruments of a hybrid capital nature include recoverable grants, forgivable loans, convertible grants and revenue share agreements. Hybrid capital often involves close interplay between public and private capital and a common policy objective but also co-dependence balancing interests between stakeholders.


Other finance solutions, suitable for SEE are patient forms of capital. In for instance France and the province of Québec in Canada (18) social/solidarity guarantee and investment funds bring together capital from various sources and stakeholders such as individuals, public funds and pension funds providing debt and equity instruments that are based on principles of lower returns (than regular venture capital) over a longer period (7 years plus). This latter is being particularly important, since SEE activated often relies on continuity of service.

5.   Policy recommendations


Given the differences across Europe and the broad range of needs in the social economy sector, the following recommendations are grouped based on responsibilities for different level of policy makers.

5.2.    The European institutions


The EU institutions should play a supportive, catalytic, enabling and mobilising role for all stakeholders in the SEE financial ecosystem. Further they must continue to demonstrate their commitment to the development of the social economy in Europe by ensuring a supportive policy framework for social economy development generally by renewing the SBI agenda.


The EC should further channel funding towards the SEE through intermediaries to support the emergence, experimentation and innovation of new instruments ensuring that financial regulation enables and not hinders this development.


The EC should also consider trialling a lighter regulatory regime to motivate capital to the social economy sector.


The EC should review how crowdfunding or collaborative economy instruments can support SEE. The EC could consider hosting a ‘showroom’ of crowdfunding and participative initiatives aimed at SEE. Examples exist at MS level and could potentially tie into the social innovation platform as well as Horizon 2020 programmes.


The EC should promote research on the societal added-value of investing in SEE. Issues to explore could be how social and economic value is created and captured and the effectiveness of various financial instruments.


The EESC welcomes that the social economy is an investment priority in the current Investment Plan for Europe and urges the EC to fully make use of this provision. In particular capital intense investments, such as health and social care should be considered. Important for all investments are to include a general interest criterion into the investment rating and selection to better capture the social added value.


The Capital Markets Union (CMU) stresses the emergence of environmental, social and corporate governance investment and that public and private funding can work together to improve the supply side of investments. It is important that the EC ensures in its regulatory activity that there is a link between the promotion of SEE development and the CMU proposals.


The European funds play a particular role to support SEE. ESIF could be used as an enabler for MS action by providing guarantees or financial leverage to stimulate the emergence of social welfare funds across Europe. EaSI and COSME funds should be used by the EC to boost the investment capacity of financial intermediaries and the investment readiness of SEE. EC should secure a balanced participation in the Horizon 2020 program, enabling the SEE to participate in mainstreaming projects. The EC should closely monitor and report on the uptake of these funds for SEE both from a political and technical viewpoint.


The EC and the EIB/EIF should ensure that EU-level financial mechanisms including the SME financing action plan are accessible for SEEs by consistently mainstreaming SEE into SME policy and finance facilities and by simplifying procedures. Key here is to specifically mention the expression ‘social economy enterprise’ to fully ensure diverse enterprises are considered and raising visibility.


The EC should review if/how social impact investment can be a component of the financial ecosystem for SEE and under which conditions. Here the experiences and trials of the EIF social investment accelerator as well as the recent launch of the EC guarantee schemes (19) will provide interesting experiences. In addition the recent OECD (20) and EMES (21) reports provide important input on weather instrument of social impact bonds and the policies behind really support SEE development.


The Basel III financial regulations are threatening the financial ecosystem for the social economy. It is vital that the regulations preserve the ‘biodiversity’ of the financial system, rather than applying arbitrary rules. A relevant issue to be tackled is the treatment of loans to the social economy according to current prudential rules (Basel III, CRD IV/CRR). At present, no relief on balance sheet is provided for lending to social enterprises, even though the sector is not considered risky, nor is lending to the sector encouraged. On the contrary, according to the SME balancing factor included in the CRR, the EU has recognised capital relief for banks lending to SMEs and households. The EU must equally recognise SEEs by providing a social economy enterprise-supporting factor, for example by amending the present Article 501.1 of the CRR. Bank lending to the social economy would benefit greatly from this, with no impact whatsoever on public finances.


Since financial innovation for the social economy primarily happens at local, regional and national levels, the EC is in an ideal position to gather and share innovative instruments and solutions to provide evidence for policy decisions. Here, EU-wide synthesis and monitoring of sharing new finance initiatives and instruments at MS would be useful.


Financial support from the EU level must be coupled with the EC providing guidance, training and capacity building for governments and key stakeholders. Therefore, the EESC calls for a handbook with guidance on how to build the financial ecosystem and how to design and implement financial instruments for the social economy. Similarly, good practices of general guidance at MS level such as investment readiness programmes should be shared and built on.


The EESC welcomes the EC’s interest to sets up a social finance working group in cooperation with the GECES (European Commission Expert Group on Social Enterprise) which could act as one resource base for policy development and monitor Member-State situations and action.


Peer-reviews on financing SEE activities and structures should be considered to encourage sharing instruments and best practices among MS.


The EC should review the benefits and challenges of MS providing tax incentives. This is relevant both for SEE generally but also as an incentive to attract capital from private savers and social finance providers. This aspect should be reviewed out from the fact that SEEs today are disadvantaged in relation to access to finance (public or private) compared to other enterprises.


Member States, Local and Regional Authorities


MS at national, regional and local level play a central role in providing enabling policy and support to develop and grow the social economy. Few MS have an adequate support system in place, calling on MS to develop and implement national support systems for the social economy, in accordance with the SBI. Particular emphasis should be put on access to tailored financial support both at national and local/regional levels. These initiatives could potentially be presented in the GECES context.


MS could act as co-investors to support the establishment of ethical funds, social innovation funds and social venture capital funds. A key element is to provide public guarantee schemes or, by providing policy, to motivate capital from pension funds, credit unions, etc.


MS should evaluate the possibilities of securing finance through state owned guarantee funds in order to give the social economy access to traditional finance.


MS can consider capitalising social investment funds by reviewing the opportunities of tax rebate on income (individuals and businesses), as well as other tax incentives for both savers and investors to attract investments into SEE. However the drive behind these tax advantages should be the social value creation by SEE.


The EESC urges the MS to develop suitable social economy regulations regarding microfinance, as already pointed out by the EC (22).


Financial intermediaries play a crucial role in social economy development. MS should encourage the emergence of social finance intermediaries, whether cooperative or ethical banks, or commercial banks with a specific subsidiary targeting the social economy, which provide social finance funds and instruments by providing a favourable regulatory environment.


Local and regional authorities play a key role in providing local infrastructure and implementing initiatives. In addition they should be urged to take initiative for multi-stakeholder cooperation to support local/regional development. Here the ERDF provides a vital support.


Other stakeholders


SEEs must themselves take initiatives in developing instruments such as auto-capitalisation, crowdfunding and engaging in social finance partnerships, gathering their own resources and initiating partnerships.


Important is also for SEEs to consider more cooperation with external partners such as private commercial banks and various intermediaries. This may not be suitable for all situations but could be valuable at some stages of development. Central is to build interest and knowledge of SEE among the financial community under the right conditions.

Brussels, 16 September 2015.

The President of the European Economic and Social Committee


(1)  Recital 17 and article 9.2.


(3)  OJ C 24, 28.1.2012, p. 1, OJ C 229, 31.7.2012, p. 44, OJ C 229, 31.7.2012, p. 55, OJ C 458, 19.12.2014, p. 14.

(4)  COM(2011) 682 final.





(9)  OJ C 458, 19.12.2014, p. 14.

(10)  See footnote 5.


(12)  EC Mapping study:

OECD Policy Brief:


(14)  See for example Italian Law 127/71.

(15)  Italian Law 59/92.


(17)  OJ C 170, 5.6.2014, p. 18.





(22)  COM(2007) 708 final.