Last month saw the unveiling of the European Commission’s (EC) new €315bn investment package that aims to kickstart growth, combat unemployment and address the lack of investment in infrastructure across Europe. The package will be implemented in the form of a new fund, the European Fund for Strategic Investments (EFSI), capitalised with €21bn from the EC and the European Investment Bank (EIB). It is hoped that this will leverage an additional of €294bn of private investment to bring it to the €315bn total.
Key stakeholders around Europe are now involved in developing specific recommendations on how the fund can more effectively achieve its objectives. To this end, last week the Young Foundation presented its thoughts to a workshop hosted by the influential Brussels think tank, the European Policy Centre.
The focus of the Young Foundation’s recommendations was the “societal” dimension referenced by the investment package: making the case for (i) investments in all those welfare services that strengthen people’s current and future capabilities (we call this ‘human capital’ investment) and on (ii) investments in public good more broadly (all those goods or services which create social value and have a positive impact on the whole community). We are argue for increased investment, from both private and public sources, in both fields.
Our specific recommendations are as follows:
1) “Societal value” in the investment strategy has to be clearly defined, aligned with existing practice, and implemented in every investment decision.
- Build on existing practice (e.g. Bridges Ventures and Nesta) starting with language: using the terminology of social impact rather than societal value. At the same time, there is a need to ensure that the definition of social impact is broader than in the EUSEF legislation, which limits the scope of social businesses to serving vulnerable groups.
- Ensure that the “societal value” is properly weighted in the evaluation of prospective investment projects by assessing infrastructure projects’ in terms of local work-force upskilling, new jobs created, related RDI activities, smart specialization, in addition to the usual metrics
- Ensure that at least one member of the Independent Expert Committee steering investment decisions has specific expertise in evaluating social impact and that each of its members is provided with detailed information on the importance of taking into account the’ “societal dimension” of every project.
- Ensure that the Investment Advisory Hub includes human capital and impact investing experts to provide guidance on how to evaluate societal impact and build effective public-private partnerships for investments. An open online platform could add value by facilitating the sharing of expertise and public support.
- Ensure that a share of the available EFSI funding resources are allocated for investments in human capital and public good as ends in themselves and not just as complements to investment in hard infrastructure. This can be achieved by ensuring that the “Investment Task Force” in charge of identifying strategic investment projects across member states also includes experts in human capital and public good investments. Finding investable projects for the investment pipeline is the main obstacle to capital deployment in these fields, and therefore the importance of experts in terms of scouting projects, as well as providing investment readiness assistance to project managers, is paramount.
2) Public and private funding streams have to be aligned within the new investment framework.
- EuSEFs funds and other impact investment funds such as the EIF backed Social Investment Accelerator (SIA), recently re-capitalized with €610m should be among EFSI’s investment options. Broadening the scope of the definition of social undertakings under the EuSEF regulation review (due in 2017) will be of the utmost importance in order to ensure the take-up of the label by impact investors.
- Private impact investors (e.g. Bridges Ventures, OltreVenture in Italy) should be considered investable vehicles.
- Impact investment funds capitalized through structural funds such as the Portugal Social Innovation Initiative to be launched early next year and the UK’s KeyFund offer viable opportunities to align the new strategy with cohesion policy, leveraging structural funds.
These recommendations give rise to some further questions worth exploring:
- What’s the potential of private investment in public goods provision and how can the new investment strategy incentivize it?
- What kind of investors could be interested in investments in public goods? What kind of financial returns on investment would be necessary to attract them?
The text summarizes part of the conclusions of a policy research project on the role of social impact investment in the new investment strategy of the EU led by the Young Foundation (UK) and sponsored by UNIPOL (IT)
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