EUROPEAN COMMISSION 
Brussels, 7.12.2011 
SEC(2011) 1512 final 
  
COMMISSION STAFF WORKING PAPER 
IMPACT ASSESSMENT 
Accompanying the document 
Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE 
COUNCIL 
on European Social Entrepreneurship Funds 
{COM(2011) 862 final} 
{SEC(2011) 1513 final}  
 
EN 2   EN Table of Contents 
1. Introduction................................................................................................................ .. 5 
2. Procedural Issues and Consulta tion of Interested Parties ............................................ 7 
2.1. Overall context........................................................................................................... .. 7 
2.2. Public consultation and cons ultation of other parties .................................................. 7 
2.3. Related initiatives....................................................................................................... .. 8 
2.4. Impact Assessment Steering Group ........................................................................... 10 2.5. IAB opinion and remarks taken into account............................................................. 10 3. Key characteristics of social inve stment funds and their investors............................ 11 
3.1. SEF are a key financing tool for social businesses .................................................... 11 3.2. Investors are increasingly seeking 'social returns'...................................................... 12 
3.3. SEF are currently a small player in the investment fund sector................................. 13 
3.4. Majority of SEF are institutional................................................................................ 14 3.5. SEF are thinly capitalised and clus tered in only a few Member States ..................... 14 
3.6. The target undertakings of SEF are ac tive in a wide range  of activities.................... 15 
4. Problem definition...................................................................................................... 18 4.1. Challenges establishing an operational definition of social businesses..................... 18 
4.2. Social businesses access to inve stment capital constrained....................................... 19 
4.3. Investors targeting social businesses face difficulties................................................ 21 4.3.1. Key Driver 1:  Investors face challenges identifying and understanding social 
investment propositions ............................................................................................. 21 
4.3.2. Key Driver 2:  Measuring or assessing social returns is difficult.............................. 22 
4.4. The potential of SEFs are not fully realised............................................................... 23 4.4.1. Key Driver 3:  Existing rules are fragmentary a nd poorly tailored to the needs of 
SEFs ........................................................................................................................... 23 
4.5. Summary of Consequent Problems............................................................................ 26 4.6. Evolution of the market without EU action ............................................................... 27 4.7. What is the added value of early EU ac tion in relation to the above problems ......... 30 
4.8. EU’s right to act and ju stification for acting.............................................................. 33 
5. Objectives.................................................................................................................. . 35 
5.1. General objectives...................................................................................................... 35  
 
EN 3   EN 5.2. Specific objectives ..................................................................................................... 35  
5.3. Operational objectives................................................................................................ 35 6. Identification of Policy Options................................................................................. 35 6.1. Options in relation to eligible investors ..................................................................... 36 6.2. Options on transparency on investment st rategies related to social business ............ 36 
6.3. Options on the measurement of social impact ........................................................... 37 6.4. Options on an European regulatory frame work for social investment funds............. 37 
7. Analysis and Comparison of Policy Options ............................................................. 38 7.1. Options on types on invest ors to be addressed........................................................... 38 
7.2. Options for Objective A – Improving cl arity and comparabilty of investment 
propositions................................................................................................................ 40 
7.3. Options for Objective B – Improve tools fo r assessing and analysi ng social impacts43 
7.4. Options for Objective C – Ensure re gulatory frameworks across EU are 
proportionate and effective for maximisi ng  fundraising opport unities for social 
investment funds ........................................................................................................ 45 
7.5. Choice of instruments ................................................................................................ 49 7.6. Summary of Retained Options................................................................................... 49 
7.7. Cumulative assessment of preferred options.............................................................. 52 
7.7.1. Assessment of take-up of the proposed EU framework for SEF ............................... 52 7.7.2. Benefits ................................................................................................................ ...... 55 
7.7.3. Costs................................................................................................................... ........ 57 
7.7.4. Impacts for other stakeholder groups, Employment, SMEs, and Third Countries, 
including assessment of administrative burden.......................................................... 59 
8. Synergies and Risks ................................................................................................... 61 8.1. Interaction with parallel pr oposals on Venture Capital.............................................. 61 
8.2. Interaction with the gene ral rules on alte rnative fund managers (AIFMD)............... 63 
8.3. Interaction with work under the Social  Business Initiative more widely .................. 63 
8.4. Risks linked to creating a EU brand for SEF ............................................................. 64 8.5. Risk associated with early action ............................................................................... 64 9. Monitoring and Evaluation ........................................................................................ 65 GLOSSARY OF TERMS ........................................................................................................ 68 ANNEX I – EMERGENCE OF A SOCIAL INVESTMENT MARKET ............................... 71 
 
EN 4   EN ANNEX III – CURRENT EUROPE AN FUND REGULATION ........................................... 80 
ANNEX IV – ISSUES WITH INVESTME NT FUNDS WHEN FUNDING SOCIAL 
BUSINESSES ............................................................................................................ 82 
ANNEX V – ESTIMATING ADMINISTRATIVE COSTS AND BURDENS...................... 84 ANNEX VI – SUMMARY OF IA........................................................................................... 85 
 
 
EN 5   EN This report commits only the Commission's services invo lved in its preparation and does not prejudge 
the final form of any decision to be taken by the Commission.  
 
1. INTRODUCTION  
The subject matter of this impact assessmen t is social businesse s and their funding.   
Social businesses are an emerging type of bus iness, which seeks to achieve social goals 
through the use of business tec hniques. Such enterprises draw  on a wide range of funding 
sources – public money in the form of grants, charitable donations, direct investments – but 
take a business form so they can draw on support from the financial markets.  
Social business is a signifi cant part of the European economy. Consultation on the 
Commission's Social Business Initiative has sh own the wide range and growing maturity of 
this sector. External assessments show that th e number of social busi nesses and their impact 
is growing: the 2009 GEM survey1 estimated the share of the population involved in social 
entrepreneurship as 4.1% in Belgium, 7.5% in Finland, 3.1% in Germany, 3.3% in Italy, 
5.4% in Slovenia, and 5.7% in the United King dom. Approximately one in four businesses 
founded in Europe would therefore be a social en terprise. These estimates suggest this is not 
a small sector, and in absolute terms the numbe r of EU citizens directly employed within or 
indirectly impacted by the se ctor is significant.   
There is a growing awareness of the distinct  nature of the social business sector. The 
development of the European Venture Philan thropy Association to 135 members across 20 
countries demonstrates growing awarene ss of this amongst investors and market 
participants.2 
Social businesses are almost exclusively SM Es. The social mission of social businesses 
correlates with a strong focus on sustainable or inclusive development, and on tackling social 
challenges across EU societies: this means that investment in social bu sinesses are likely to 
have a greater positive social impact than i nvestment in SMEs more general. Given some 
estimates, such as by J. P. Morgan, suggest soci al investments could gr ow rapidly to become 
a market well in excess of EUR 100 billion,  underlining the potential of this emerging 
sector.3 
Ensuring this sector continue s to grow and flourish woul d therefore be a valuable 
contribution to meeting the objectives of the Europe 2020 Strategy. 
Social businesses derive signi ficant proportions of their fundi ng from grants, whether from 
foundations, individuals or from the public sect or. As businesses, however, their sustainable 
growth depends on drawing on a wider range of investments and financing sources. In this 
regard, the EU market for investment funds has begun to play a significant role. A market for 
investment funds whose main objective is inves ting in social undertakings has taken shape. 
This reflects the increasing interest of many investors in making inve stments – typically as 
part of a wider portfolio – that  aim to achieve positive social effects over and above the quest 
                                                 
1  Terjesen, S., Lepoutre, J. , Just o, R. and Bosma, N. 2011. Global Entrepreneurship Monitor Report on 
Social Entrepreneurship, http://www.gemconsortium.org/about.aspx?page=pub_gem_special_topic_reports  
2  Presentation from EIF to Commission. On EVPA see http://evpa.eu.com/about-us. 
3  See J.P.Morgan, Impact Investments: An Emerging Asset Class , 2011.  
 
EN 6   EN of financial returns. Investment  funds targeted at social under takings are one important form 
of such investments.   
But social investment funds are typically small,  with concomitantly high relative costs, and 
they face certain specific diffi culties scaling up their fund-ra ising and buidling trust across 
the EU. Underlying this are specific market pr oblems related to the identity and goals of 
these funds, which are compounded by competing se lf-regulatory initiatives  to address them. 
In addition regulatory problems can be identified related to the application of rules on private 
investment funds to these funds, undermining thei r efficiency and access to the single market.  
The aim of this impact assesmsent is theref ore to clarify the nature and scale of these 
problems, to assess possible measures for ensu ring social investment funds can flourish in 
Europe, and to assess the potential impact of di fferent options and the likely overall impact of 
potential measures.   
This impact assessment complements work be ing carried out under the Commission's Social 
Business Initiative on supporting social businesses more  widely, includi ng through other 
forms of funding for social businesses. This impact assessment concentrates solely on the 
role of investment funds. Measures to address issues examined here could be complemented 
by other measures taken to build the financial eco-system in which social businesses operate. 
This includes measures at the level of the Member State to provide specific incentives, such 
as tax benefits for investors wh en they invest in social busin esses (that would have to be 
designed in line with state aid rules and the EU Treaty). While the effectiveness of these 
other measures will have a st rong impact on the take-up of th e measures identified here, the 
justification for these latter meas ures is not dependent on the wide r Social Business Initiative.   
Note on terminology 
Throughout this impact assessment, reference to  social businesses s hould be read – unless 
explicitly qualified – in a broad and inclus ive way. Social undertak ings, enterprises and 
businesses should be read as interchangeable  (terminologies sometimes vary according to 
source). Social businesses includ e businesses focused on environmental or ethical missions.   
References to social investment should be taken broadly. To ensure a clear distinction 
between social investments as such, which can  include any investme nts in which social 
impacts are being considered by the investors, and investment  funds specifically targeting 
social businesses as their investment target , the latter are referred to here as ‘social 
entrepreneurship funds’ (SEF).  
This reference does not cover funds that do not specifically fund social businesses, 
irrespective of whether they follow socially responsible investing guidelines or not. 
The focus of this Impact Assessment is on SEF in  particular, rather th an social investment 
more widely. Further details on these concepts an d their interactions can be found in Annex I. 
This impact assessment should be read along side the impact assessment on the European 
Venture Capital market (VC IA).4  
                                                 
4  [Reference to insert once published]. 
 
EN 7   EN 2. PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES  
2.1. Overall context 
This work has a broad context.  The Treaty of  Lisbon refers to "a highly competitive social 
market economy, aiming at full employment  and social progress" . The EU2020 strategy and 
the Single Market Act seek to th is end to identify and take conc rete steps towards sustainable, 
inclusive growth. The Communication on a Eur opean Platform against poverty and social 
exclusion identified in addition the necessity of  "mobiliz[ing] the potential inherent [in] the 
social economy".5  
The financial crisis has once again underlined th e vital importance of st eps to support growth 
in all its forms. Sustainable and inclusive growth  has a particular and vi tal role to play. The 
social business initiative is therefore a key step in  this agenda, as set out in the Single Market 
Act: “The tremendous financial lever of the European asset-management industry … should 
be used to promote the development of businesses which have chosen – above and beyond 
the legitimate quest for financial gain – to pursue objectives of gene ral interest or relating to 
social, ethical or environmental development.”6 
The establishment of a European framework for social investment fund s has been identified 
by the Commission as a 'locomotive' for the soci al business initiative, one of 12 'key levers'.7 
The options to be identified and assessed in this impact assessment form the basis for the 
Commission's actions on this 'locomotive'.  
2.2. Public consultation and cons ultation of other parties 
On 13th July 2011, the Commission services launched a public consultation on possible 
measures to improve the access of social busine sses to finance by means of investment funds, 
which closed on 14th Sept 2011.8 Contributions received were 67 in total and can be 
consulted online.9 The consultation process has been ope n and transparent. The consultation 
has been published on the Commission webs ite and announced in a press release and 
complies with the minimum standards for pub lic consultation of interested parties. A 
summary of responses to this consul tation is available in Annex II.  
In general, the value of EU action in the area  of social business and more specifically on 
social  investment funds has been strongly endorsed  across different ty pes of stakeholders 
(including key Member States already active in  this area, other publi c authorities, fund 
managers including those inves ting into social businesses already, as well as other social 
investors, social entrepreneur s, industry associations, spoke speople for the foundation sector, 
and consumers). Many stakeholders underline gr owing appetite for investments into this 
sector, and note that while th e sector is young, it could grow  very rapidly, generating 
opportunities for coordinated action now. Of course, action now carries risks, and 
stakeholders have been open in  discussing and present these risks; views vary as regards 
details of action and the timing of different measures at the EU level. Generally, respondents 
underline the importance of the EU taking a ca reful and staged approach in this area. 
                                                 
5  See http://ec.europa.eu/social/main.jsp?langId=en&catId=961 , and for the text of the Communication, 
http://ec.europa.eu/social/BlobS ervlet?docId=6393&langId=en. 
6  See section 2.8 of the Single Market Act, SEC(2011) 467 final, which can be found at: http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0206:FIN:EN:HTML .  
7  See http://ec.europa.eu/commission_2010-2014/barnier/docs/news/2011/smact_timetable_en.pdf .  
8  See http://ec.europa.eu/internal_market/investment/social_investment_funds_en.htm . 
9  See http://ec.europa.eu/internal_market/investment/social_investment_funds_en.htm .  
 
EN 8   EN Given the emerging nature of the social invest ment market, the analysis contained in this 
impact assessment draws strongly on the contribut ions of stakeholders to the consultation, 
including when providing data on the size and natu re of the market. It also draws on market 
analysis by the Commission services. 
In addition, regulators and supervisors were also consulted via the European Securities 
Committee (ESC), including through a questiona rie requesting details on existing national 
regimes for social investment funds. 
This falls within the wider context of the Commission's work and c onsultation on the Single 
Market Act, where the role of social busine sses and their financing was also identified and 
explored with stakeholders and pa rticipants in that consultation. 
2.3. Related initiatives  
• EU Passport for Venture Capital 
Since many social businesses are also SMEs, measures that f acilitate access to finance for 
SMEs could also help social businesses. In th is context, of notable importance are the support 
and regulatory frameworks for venture capital, in particular the steps to be taken to develop a 
EU passport for Venture Capital funds. The exte nt to which work on establishing such a 
passport might aid social businesses is central in  considering the effectiveness and efficiency 
of the options identified in this impact assessment.  
In general terms, social busin esses facing funding shortfalls are SMEs, and investment funds 
targeting social businesses can be viewed as a specific type of venture capital fund; for this 
reason the analysis in this impact assessment will consider whether the situation of social investment funds targeting soci al businesses warrants  additional steps over and above those 
taken on venture capital funds. 
• Social Business Initiative  
As noted, actions foreseen within the Social Business Initiative (and on Corporate Social 
Responsibility and Socially Res ponsible Investing) could also  contribute to addressing the 
issues explored in this Impact  Assessment. Actions under the Ini tiative have been laid out in 
detail in the Social Busi ness Communication adopted on 25
th October.10 These range from 
introducing as an investment priority "social enterprise" in the scope of actions under the 
future ESF and ERDF regulations, and identifyi ng and developing best practices for social 
businesses or the creation of a database for existing labels a nd certifications of social 
enterprises, to measures aiming to strengthen the professionalism and managerial capacities 
within social businesses.11 Other measures pertain to th e development of a European 
Foundation Statute and measures in relati on to public procurement. Furthermore, 
consideration will be gi ven to a possible simplification of the state aid rules with respect to 
social businesses.  
                                                 
10  See http://europa.eu/rapid/pressReleases Action.do?reference=MEMO/11/735 .  
11  A related initiative ("A European Code of Good Conduct for Micro-credit Provision") has been 
developed successfully in consultation with representatives of the banking and non-banking micro-
credit sectors, as well as with other stakeholders. This comprehensive document aims at providing 
standards and processes that should  lead to meaningful improvements in the op erations and governance 
of micro-credit providers from the point of view of consumers, investors, funders and regulators. to 
provide standards and procedures. See 
http://ec.europa.eu/enterprise/newsroom/cf/_getdocument.cfm?doc_id=6978 .  
 
EN 9   EN • Programme for Social Change and Innovation 
A programme for Social Change and Innovati on has been adopted by the Commission on 
October 6th, in order to improve access to finance fo r social enterprises,  alongside measures 
to support micro-finance. This programme provide s for a financial instru ment for the start-up, 
development and expansion of social enterprise s. This includes a legal definition of social 
enterprise (see section 4.1.1 below).12 
• Single Market Act 
The Commission, in the Single Market Act13 (SMA) undertook to pu t in train several 
measures to ensure investment funds focuse d on funding social undertakings can flourish. 
The current proposal on a European framework fo r social investment f unds is one initiative 
that delivers on that commitment.  
The principal aim is to increase the effectiv eness of the fundraising by social investment 
funds, and to achieve a high level of clarity as to the characteris tics that distinguish social 
investment funds from the wider category of a lternative investment funds. Only funds that 
comply with these characteristic s shall be eligible to raise funds by virtue of the proposed 
European framework for social investment  funds. The Regulation forms part of the 
Commission's Social Business Initiative (COM(2011) 682/2). 
• Existing EU rules on private investment funds 
EU rules on investment funds are already in pl ace. For institutional f unds, the broad focus of 
this impact assessment, AIFMD has introdu ced a new passport, a nd work is ongoing on 
developing detailed implementing measures. For retail funds UCITS IV changes –have 
recently been implemented to improve the efficiency of the Single Market and to strengthen investor protection. Currently, adjustments to  rules on depositaries and remuneration of 
managers are being considered as part of a revision of the UCITS rules (UCITS V).  
Linkages between Commission initiatives under SMA 
Initiative Relationship 
with other intiatives Areas covered Interactions  
Social Business 
initiative Part of SMA Public procurement, 
foundations, red-tape for social 
businesses, public financial support, development of social 
business 'eco-system'  These measures compliment  
measures on SEF.  
Social 
Entrepreneurship 
Funds (SEF) Part of SBI Private  finance for social 
businesses through funds Subject to assessment here. 
Programme for 
social change and 
innovation Part of SBI Public  finance for social 
businesses Compliment  measures on SEF. 
SEF measures increase impact. 
                                                 
12  http://ec.europa.eu/social/main.jsp?langId =en&catId=89&newsId=1093&furtherNews=yes ; and for the 
regulation: http://ec.europa.eu/social/BlobServlet?docId=7148&langId=en .  
13  http://ec.europa.eu/in ternal_market/smact/docs/20110413- communication_en.pdf 13 April 2011 
 
EN 10   EN EIF Fund of Funds Part of SBI Public / Private  finance for 
social businesses. Strongly compliment measures on 
SEF. 
SEF measures increase impact. 
SME Action Plan Part of SMA Public / Private finance, 
development of eco-system for 
SMEs Compliment  measures on SEF. 
SEF measures increase impact. 
Venture Capital 
Funds Part SME 
Action Plan Private finance for SMEs (may 
cover some social businesses) These measures compliment  
meausures on SEF.  
As can be seen from this table, measures  on SEF compliment other measures and could 
amplify their impact too. The impact of the vari ous measures together is  likely to be stronger 
than their impact individual. Notably, measures by the EIF to provide seed finance via fund 
of fund structures to funds ta rgeting social business could strongly complement steps to 
create a EU framework for such funds, by incr easing investments into such funds. Also, EU 
steps to create such a framework could incr ease the effectiveness of the EIF steps, by 
reducing search costs for the EIF fund of funds  and ensuring a readier supply of funding from 
private sources to compliment the public money available via the EIF fund of funds. 
However, while the scale of the impact of measures on SEF may be sensitive to the impact of 
other measures, this impact assessement considers measures on SEF in isolation. 
2.4. Impact Assessment Steering Group  
An Impact Assessment Steering Group was es tablished in July 2011. Colleagues from 
Directorates General Competition, Enterprise an d Industry, Employment, Social Affairs and 
Inclusion, Health and Consumer  Protection, Internal Market  and Services, Taxation and 
Customs Union, the Secretariat General and the Le gal Service participated in the discussions.  
The Group met 3 times ahead of the finalisatio n of this report. Th e group met on 22 July 
2011, 8 Sept 2011, 19 Sept 2011.  
Minutes of the last meeting of the IASG that took place on 19 Sept 2011 are attached. 
2.5. IAB opinion and remarks taken into account 
IAB meeting took place on 9 November 2011. The IAB issued its opinion on 11 November  
2011. Subsequent to this opinion a number of significant modificatio ns were undertaken, 
both in terms of the presentation of the problems and in relation to the options andi the policy 
choice. The resubmitted version of 14 Novemb er contains the following improvements:  
1. In line with the IAB’s request, the wider context of the presen t initiative was presented in a 
more comprehensive manner, clarifying that th e initiative on social investment funds was 
only a small piece in a wider set of initiativ es aiming to address social business.  
2. The modified version of this impact assessm ent report also stresses the crucial importance 
in developing a common understanding of the esse ntial characteristics that would distinguish 
a social business from other undertakings e ngaged in commerce. The report now clearly 
shows the emerging contours of the notions of ‘social business’ (Section 4.1.1) while 
acknowledging that further refinements might beco me necessary as the regulatory framework 
for social business funds takes shape. This  is why the proposed ru les will contain an 
empowerment to further refine th e notion of 'social business'.  
 
EN 11   EN 3. In addition, the modified IA report contains a clearer description of the key features that 
distinguish a social investment funds from the wider category of alternative investment funds. 
In line with the IABs request, the report clarifies that the essential features of a social 
investment fund are linked to the social undertakings it ta rgets, the com position of its 
portfolio (at least 70% of investor capital inve sted in qualifying target  undertakings) and the 
investment tools it employs (equity, quasi-equ ity, debt instruments but no leverage). In 
analogy to the approach taken in  relation to venture capital f unds, the distinguishing criteria 
are therefore threefold and refer to: (i) investment targets; (ii)  investment instruments; and 
(iii) portfolio composition. As with venture ca pital, this IA report concludes that these 
building block define a social investment fund with the requi site level of detail, thereby 
allowing a clear distinction between social inve stment funds and other alternative investment 
funds.  
4. The report also contains additional arguments on why EU action in relation to social 
investment funds is beneficial at  an early stage, before differe nt initiatives develop divergent 
approaches in the area thereb y causing confusion among those wi lling to invest in social 
business and the funds that support their activities.  
5. All policy options are described in further detail, especially w ith a view to their practical 
implementation, effectiveness and efficiency, es pecially with respect to their regulatory 
enforcement.  
6. Throughout the report, additiona l attempts have been made to  reflect stakeholder’s views 
on problems that arise and preferences for different policy options.     
The resubmitted report was further improved fo llowing a second opinion from the IAB, by, 
amongst other things: 
• Including more details on interactions between these measures and other initiatives 
under section 2.3; 
• Including detail on propose d venture capital require ments under section 4.4; 
• Including a new section, 4.7.7, addressing certain risks of early intervention; 
• Clarifying further the phasing of options, thei r interactions, the co sts and benefits of 
the approach to phasing of opti ons, e.g. under sections 6, 7 and 8; 
• Outlining in more depth impacts fo r Member States under section 7.7.4. 
3. KEY CHARACTERISTICS OF SOCIAL IN VESTMENT FUNDS AND THEIR INVESTORS  
3.1. SIF are a key financing tool for social businesses 
Private investment funds are a vital financing ve hicle across all types of  business activity in 
the EU, including for social businesses. At th e end of 2010, the European asset management 
industry managed assets worth around EUR 8 trillion in investment funds.14 
                                                 
14  Source: EFAMA Investment Fund Industry Fact Sheet. This figure is equivalent to over 50% of EU 
GDP and around 33% of global fund assets. 
 
EN 12   EN Social investment funds targeting social busin esses (SEF in this im pact assessment) have 
emerged as a key financing tool for those bus inesses. This development has been supported 
by respondents to the Commission's consultation on social investment funds, since funds are 
a flexible tool of choice fo r making risky investments.  
SEF also act as key intermediaries. As Avanzi , an Italian think-tank, notes "… investment 
funds can play an important ro le because they can minimise the information asymmetry. The 
problem of social businesses is that they don ’t speak the same language of [traditional] 
investors; and these are not eag er to invest time to know more  and eventually understand a 
model that is miles away from their standar d. The market would need specialised players, 
who know their counterparts, th e context in which they ope rate; their logic and their 
approach. In order to became a specialist, one n eed to reach the critical  mass that allows the 
investment needed for knowledge – wh ich is in fact the case of a fund".15 
3.2. Investors are increasingly seeking 'social returns' 
Investors are increasingly seeking to achieve positive social or environmental or other goals 
with their investments. As the Global Imp act Investing Network (GIIN) puts it, social 
investments "aim to solve social or envir onmental challenges while generating financial 
profit".16 The focus on 'social returns' by some inve stors makes SEF a natural target for these 
investors.   
Investments in social business aim to ge nerate positive social  or environmental 
consequences. These externalities can be character ised in a variety of ways – environmental, 
social, or ethical impacts, such as reduced us e of pollutants, jobs for excluded sections of 
society.17 While all business activity produces a range of impacts on society, social 
businesses specifically target positive social or environmental outcomes . These 'social 
businesses' offer a focal point for investors seeki ng social returns. They also offer a chance to 
‘leverage’ the impact of social investments.18 
While investors in social businesses are seeking social returns, this is not to the exclusion of 
financial returns. For instance, while social bus inesses will typically not offer dividends to 
investors, but will re-invest any financial surp luses in the business, this does not mean that 
there will be no financial return for investor s over and above the return of capital.  
                                                 
15  Response to Commission consultation. 
16  Annex I contains more detail on this, including the relations between investments targeting social 
business and other kinds of 'social investment' that have been emerging. See, e.g., EVPA: Social 
Enterprise: From definitions to  developments in practice, EVPA Knowledge Centre Research Paper, 
2010; EBAN White Paper: European Early Stage Impact Investing (EBAN) , June 2011; Monitor 
Industry: Investing for Social & Environmental Impact, A Design for Catalysing an Emerging Industry, 
2009; ClearlySo: Investor Perspectives on Social Enterprise Financing (ClearlySo)  July 2011, 
NESTA: Understanding the Demand and Supply for Social Finance (NESTA1), 2011, p. 10-15; 
NESTA: Growing Social Ventures (NESTA2), 2011; J P Morgan: Impact Investing:  An Emerging 
Asset Class  (JPMorgan), 2010. For a global perspective, see also the GIIN work on social investments / 
impact investing: http://www.thegiin.org/cgi-bin/iowa/home/index.html.  
17  For more externalities and their importance in relation to conceptualising social entrepreneurship, see 
http://www.socialenterpris eportal.org/files/Library/Social-E ntrepreneurship-Felipe-Santos.pdf , p.17-
20. 
18  See NESTA1, p. 12, JPMorgan, p.33. The rise of national sustainable investment forums or SIFs over 
recent years provides an indication of the growing im portance of a wider frame in investment thinking: 
Twelve European countries have SIFs today, a majority of which are members of Eurosif, the pan-
European Sustainable Investment Forum established in 2001.  
 
EN 13   EN Many stakeholders note that investors in social businesse s are happy to make a 'trade-off' 
between expected financial returns and 'social re turns' (which can be characterised as taking 
on more risk for the same returns or lower returns for the same risk).  As the European Social Investment Taskforce notes "
Social investors … seek a financial return – usually the aim across 
the portfolio is to at least recover the capital so that it can be recycled elsewhere, but may charge 
below commercial rates, and overall aim to break even as opposed to generate financial returns."  
The following diagram sets out these dynamics: 
 
 
Source: Adapted from Cheng, 'Access to c apital for social businesses',  p. 17. 
3.3. SEF are currently a small player in  the investment fund sector 
Estimates of the size of the EU market for SEF vary, but current 'best estimates' by the 
European Investment Fund (EIF) are that th ere are around 50 funds verified by them as 
focusing on social businesses, though they no te this could extend up to around 200. The 
average size of the funds is very small – between EUR 10 and 20 million – with only one or 
two exceptions (e.g. BridgesVentures in UK, which is around EUR 115 million). A rough 
estimate based on these fund sizes and numbers of funds therefor e gives a market that could 
be of around EUR 500 million to around EUR 4 000 million (Recent EVPA estimates put the 
'venture philanthropy' market  at around EUR 1000 million).19  
By way of comparison, VC assets under management were around EUR 50 billion and 
private equity (PE) assets under manageme nt were around EUR 500 billion at the end of 
2010 (SEF are mostly a subset of  these figures). Even the most  aggressive assessment of the 
size of the social investment market puts it at le ss than 10% of the size of the VC market, and 
                                                 
19  Presentation from EIF to Commission. For EVPA figures, see http://evpa.eu.com/blog/2011/11/evpa-
releases-first-ever-data-on-vp-industry-in-europe/ . 
 
EN 14   EN less than 1% of the size of the PE market; a more realistic assessm ent would be around 2% 
and 0.2% respectively. 
EVPA note that EU SEFs "are typically be low EUR 20 million in assets, and below the 
critical mass needed to make larger invest ments and to cover th e real costs of the 
management team necessary to run the operation".20 
It is also important to note that social investment funds have a more targeted focus on 
investing in a select group of social enterpri ses which makes them different from the more 
general set of funds that claim to be suppor ting 'socially responsible  investment' (SRI). 
Annex I places the SEF market in th e context of the wide SRI market.  
3.4. Majority of SEF are institutional 
The investor base of SEF is currently largely professional rather than retail, though retail 
funds that in part target social businesses ar e sold, for instance, in the French, Luxembourg, 
Dutch and Belgian markets. The French retail ma rket is large; while the funds are not limited 
to targeting social businesses, in practice fond solidaire often act as conduits for social 
businesses.  
Stakeholders and consultation respondents sugg est that existing inflows are mostly derived 
from high net worth individuals (HNWI), who tr aditionally have been a mainstay of the 
philanthropic sector. As the European Vent ure Philanthropy Association (EVPA) put it 
"social business funds should primarily be opened  to professional and qu alified investors, as 
the social enterprises which they fund will require both funding and non-financial support to 
accelerate their growth".21 The social business' need for 'patie nt capital' sits at the core of its 
demand on capital markets, yet such capital exhi bits low degrees of liquidity and long time 
periods before returns are likely.  
3.5. SEF are thinly capitalised and clustered in only a few Member States 
As mentioned in Section 3.1, average sizes of so cial investment funds are small. The largest 
investment funds are clustered in either France or the United Kingdom. For example, 
BridgesVentures (EUR 115 million) is located in  the UK, Alter Equity, Citizen Capital, NEF 
Capital éthique (EUR 30-50 million) are all locate d in France, and BAC Partenaires, Catalyst, 
and the Social Enterprise Investment Fund (E UR 15-25 million) are loca ted in France (BAC) 
or the UK.   
The only substantial social investment fund domiciled outside these two countries that 
Commission research indicates as exceeding th e EUR 25 million threshold is Karmijn Capital 
in the Netherlands (EUR 50 million).  It appears that the largest Italia n venture capital fund is 
Oltre Capital with only EUR 10 million in assets under management while all the examples 
for Germany (BonVenture, Social Venture Fund) do not exceed EUR 10 million.  Member 
States with a smaller investor base generally have no social i nvestment funds of any notable 
size domiciled in their territories  (there are exceptions, such as a fund operating in Hungary).    
The following table shows some of the most im portant EU social inve stment funds and the 
range of their investment activities: 
                                                 
20  Submission to Commission consultation on social investment funds. Their figures as noted under 
footnote 19 put the median fund size at EUR 11 million. 
21  Submission to the Commission consultation on social investment funds. 
 
EN 15   EN  
 
Source: EIF 
3.6. The target undertakings of SEF are acti ve in a wide range of activities 
While the overall capitalisation of  social investment funds remains very low, the range of 
activities financed by these funds  is extremely diverse.  Soci al business financed by these 
funds covers an area ranging from  the provision of in frastructure in deprived urban areas 

 
EN 16   EN (BAC Partenaires), catering to the needs of energy, the environm ent, education and 
healthcare in deprived areas (BridgesVentu res, Citizen Capital), the provision of 
microfinance to SMEs in deprived areas (Plane t Finance), bio products and fair trade (NEF 
Capital éthique), the provision of goods and serv ices for socially ex cluded sectors of the 
population (Oltre Capital), to the provision of social services (s ocial enterprise investment 
fund).  It is fair to say that  there is an almost inverse re lationship between the breadth of 
ambition pursued by social undertakings and the th in capitalisation of their sponsors.     
The Commission has identified at least four di screte clusters of development in social 
businesses: the UK, with a social investment mark et that has matured in the course of the last 
20 years, partly in reaction to  active public policy; Member States with a social economy 
tradition (such as France); Member States where private sector provision can be characterised as developing rather independently from pub lic policy (such as Germany); and finally, 
Member States without strong developments so  far in either public policy or the private 
sector. A significant proportion of the respons es to the Commission consultation on social 
investment funds were from stakehol ders located in the UK or France. 
 
Examples of social businesses22  
In Italy , a medical centre provides high-level spec ialised assistance to  people in need 
(immigrants for example), particularly in  areas poorly served by public services. 
In Romania , a company with five members of sta ff and five volunteers has been working 
since 1996 to provide cultural se rvices in the Romanian language to approximately 90 000 
blind people by adapting media (especially audio books and films) to their needs. 
In 2004, in France , a business launched an innovative concept of water-free car washing 
services by using biodegradable products and employing unqualified or marginalised staff in 
order to reintegrate them in the labour market. 
In Hungary , a foundation set up a restaurant employi ng disabled staff (40 employees) and 
provided them with training and childcare to en sure the transition to  stable employment. 
In The Netherlands , a company teaches reading using i nnovative digital tools and a method 
based on playing. This method is particularly su itable for hyperactive or  autistic children but 
can also be used for illit erate people and immigrants. 
In Poland , a social cooperative comprising two a ssociations employs long-term unemployed 
and disabled staff. It provides a variety of services: catering and food services, small 
construction and handicraft jobs and employability training for disadvantaged people. 
In Germany , a business organizes exhibitions and business workshops in total darkness. 
Blind guides lead attendees through a completely dark environment, where they learn to 
interact by relying on other senses than sight. 
In Denmark , a business exclusively hires employees with autism spectrum disorder (ASD). 
The business' objective is to tailor a working en vironment for specialist people such as people 
with ASD in order to let them solve valuable tasks for the business sector at market terms. 
In some jurisdictions specific legal forms have been developed so as to aid wider steps to 
support such enterprises, such as 'Impresa a Finalità Sociale' in Italy, or a 'Community 
Interest Company' in the UK. 
                                                 
22  See also box 1, NESTA, Growing Social Ventures  , p. 13. 
 
EN 17   EN PROBLEM TREE 
 

 
EN 18   EN  
4. PROBLEM DEFINITION  
Structural problems in the SEF market impede the matching of supply of  private capital from 
investors with demand for such capital from so cial businesses, so su ch businesses are often 
strongly dependent on public fina nce and investors are un able to allocate th eir capital as they 
might wish.  
4.1. Challenges establishing an operation al definition of social businesses 
4.1.1.  The contours of social business are still emerging 
Over the last decade, a consensus has emerged that 'social businesses'  can be distinguished 
from other types of businesses. Stakeholders have confirmed that social businesses are a 
distinct sub-set of SMEs, but which share spec ific characteristics not shared by other SMEs. 
At the most basic level, social businesses ar e those enterprises that explicitly combine a 
social mission with a financial one, with the social mission as dominant. Often this social mission is enshrined in the undertakings charter of  association and is rath er precise as to the 
field of activities that are covered.  
In terms of delimitating what is a social busin ess and what is not, th e Commission set out, in 
the Communication on Social Business, a definiti on of the term 'social enterprise' to cover 
those businesses for which the social or societ al objective of the comm on good is the reason 
for the commercial activity, often in the form  of a high level of social innovation, where 
profits are mainly reinvested with a view to achieving this social objective, and where the 
method of organisation or ownership system reflects their mission, using democratic or 
participatory principles or focusing on social justice. This same definition was also reflected 
in the Regulation on an EU Program me for Social Change and Innovation 
(SEC(2011)1134).
23 
Three core elements therefore can be seen fo r differentiating a social  undertaking from other 
entities active in the field of commerce:  
• their primary objective is to achieve social impact; 
• the almost complete reinvestment of surplus into the promotion of the social 
business (no dividends); 
• the particular, most often inclusive manner, in which a social undertaking is 
managed vis-à-vis its employees and external stakeholders.  
This definition is broad and in clusive in terms of the determination of what is a social 
objective. Nevertheless, the typology of activitie s that fall under this definition has solidified 
over the last decade. Social en trepreneurship is usually a ssociated with small start-up 
engaged in local efforts. Although they often tack le issues that are of  global relevance (the 
persistence of poverty, access to basic services for marginal groups, social integration of 
people with a disability), the focus of th eir activity is almost essentially local.  
                                                 
23  See COM(2011) 682 final; also for the Regulation on an EU Programme for Social Change and 
Innovation, see http://ec.europa.eu/social/Bl obServlet?docId=7148&langId=en .  
 
EN 19   EN The very breadth of activities and ambitions pursued by social businesses is at once a 
strength, a corollary to innovation, but also a so urce of problems. For ma ny investors entering 
this field, the contours of social business is st ill a large tent where many different activities 
are assembled. Naturally, this gives rise to an initial impression that the concept of social entrepreneurship is still poorly defined a nd its boundaries with other type of economic 
activity remain fuzzy. This conceptual fuzziness i nvites a European approach that consists in 
attempting to provide sharper c ontours and define a well-establis hed core of activities that 
would be deemed social business. In this ma nner, European action could shape the field's 
further development, and on this basis the operational definition above has been adopted 
throughout this impact assessment. 
The possibility of including the definition of social business as one of the problems was 
considered but rejected, as arguably it would impede any action or solution to the identified 
problems. This approach has been confirme d with stakeholders, including fund operators, 
social businesses and invest ors operating in the field. 
The definition set out above will therefore be employed as the legal definition for the purpose 
of assessing options in this impact assessment.  However, it is important that the impact of 
measures introduced on its basis be subject to further assessment and monitoring, precisely so 
that the definition might be refined and develope d in the light of the fu rther evolution of the 
market.  
4.1.2.  Conventional financial intermediari es unfamiliar with social business 
The combination of social and financial goals by social business is its key quality, yet many 
conventional financial intermed iaries are not well prepared to address the concept of 
investing to support a social missi on (this is set out in the next section from the perspective of 
the investor).   
As the European Social Investment Taskforce set it out: "the Financial mechanisms in use 
have been adapted from commercial use and ra rely take into account the ‘social return’ 
element of the investment. Social return is assessed in wildly different ways, by social 
businesses themselves as well as by social inve stors. Investors take di fferent approaches to 
assessing risk, return (financial and social) and how their pricing reflects that. Few are 
transparent about their approac h, making it difficult for social  businesses, among others, to 
assess who is providing what and why. Indee d, the pricing of investment rarely links 
coherently to the expected social return of the investment, leading to confusion".
24  
4.2. Social businesses access to in vestment capital constrained  
Stakeholders widely accept that social businesse s need better finance. The European Social 
Investment Taskforce submission to the Commi ssion consultation on social investment funds 
argued that "lack of access to cap ital is acting as a barrier to  social businesses … achieving 
their social mission".25 
Two issues emerge: a possible overdependence on public finance  and charitable support , 
and challenges  in gaining access to so-called 'patient capital' -- suitably heterogeneous and 
sustainable sources of private fina nce that takes a long-term view. 
                                                 
24  European Social Investment Taskforce (EUSIT) submission to Commission consultation on social 
investment funds/Cheng, Access to capital for social businesses , p. 16 
25  EUSIT/Cheng, p. 9. 
 
EN 20   EN Since social businesses are in almost all cas es SMEs, the financing patterns in the SME 
sector as explored in the VC IA also apply to  them. For SMEs, financi ng typically varies in 
nature and balance as enterprises develop. Entrepreneurs move from informal funding 
(friends and family) through different forms of debt-based financ ing, with a growing 
proportion of equity-based financing then develo ping, before the enterprises are listed (which 
offers initial investors an exit opportunity). OECD data from 2009 showed funding for EU 
SMEs was dominated by lending from banks.26  
However, while the financing mix for social busi ness is to a degree similar to that for other 
SMEs, evidence from stakeholders suggests that there are crucial differences in the balance 
struck between sources and associated funding forms (grants or donations from public bodies, 
foundations, and individuals have a role for social businesses that is more dominant 
compared to conventional SMEs).  
For instance, UK data shows public finance domi nates the sector in that Member State: 
figures27 show that over the last ten years over STR 350 million flowing into the social 
enterprise sector was from public sources, with less than STR 50 million from philanthropic 
and commercial or mixed sources.  
ClearlySo, in a report on financing social en terprises for the City of London Corporation, 
noted "the sector has been heavily depende nt on government and philanthropy, and these 
need reinforcement. The global pools of capita l which operate out of the City of London 
could provide exactly that".28  
The European Social Investment Taskforce underl ine this: "the sector is dominated by grant 
funding, both in terms of the amount of supply a nd the cultural dominan ce of this form of 
funding. … There is a finite supply of char itable money, and insufficient to go round – a 
situation which will only worsen in the coming years. Therefore, the efficient use of those 
funds becomes imperative, to ensure that gr ants are used where most appropriate. … The 
majority of capital fundi ng available is for fixed assets. … There is some evidence of banks 
providing secured lending for more  general purposes, although this of course relies on social 
businesses having assets (or directors being wil ling to provide personal guarantees) – and we 
know social businesses are undercapitalised. The handful of other mechanisms available – 
underwriting, unsecured loans, qu asi-equity, equity – are bare ly used. … Little genuinely 
patient capital/soft loans are available, yet such  finance would seem necessary in a sector in 
which success is rarely achieva ble in the short-term (tackli ng poverty, improving education, 
etc)".29  
Other stakeholders broadly concur: a central  issue for social businesses is their over-
dependency on grant-based or public  financing and their adaptation to it. The transition into a 
'conventional' financial landscape may be par ticularly challenging for social businesses 
compared to other businesses, as these businesses fall between the targets accepted by 
foundations for grants and the enterprises normally targeted by VC.30  
                                                 
26  There is a typical SME 'lifecycle' as an enterpri se migrates through different funding sources as it 
grows and develops. See VC IA. 
27  See: http://www.youngfoundation.org/files/im ages/Growing_Social_Ventures.pdf ; UK data from: 
http://www.socialinvestmenttaskforce.or g/downloads/SITF_10_year_review.pdf . 
28  ClearlySo, Investor perspectives on Social Enterprise Financing , 2011, p. 5. 
29  EUSIT/Cheng, p.16. 
30  The migration through different financing sources can be different for social businesses, as can be 
starting points (for instance, some social businesses evolve out of associations or other cooperative 
groupings, and so can rely on different early funding sources than seen with non-social SMEs). There 
 
EN 21   EN In contrast with the venture capital markets (which are focused on raising equity and quasi-
equity financing), a number of respondents to the consultation noted that a wider range and 
variety of instruments or funding conduits ar e vital for the smooth operation of social 
businesses. For example, the Fren ch Authorities noted the central  role of certain specific non-
transferable debt instruments in the financi ng of social businesses in France. EVPA also 
recently has undertaken a comprehensive market survey for the social business sector, which 
has underlined that the social business sector is hi ghly dependent on grants and other forms 
of non-investment funding. The clear implication is that financing tools designed for social 
businesses are broader in scope than those used by SMEs.31  
As EVPA noted in their submission to the Commission consultation on social investment 
funds, "…social investments n eed to be long-term and pa tient in their nature".  
4.3. Investors targeting social businesses face difficulties 
4.3.1.  Key Driver 1:  Investors face challenges iden tifying and understanding social 
investment propositions 
A common theme in the responses of stakehol ders to the Commission consultation on social 
investment funds was the impact of confusion and a lack of consistent disclosures about 
social investments, even for professional partic ipants already operating in the social business 
sector.  
Core elements of this problem related to investment funds include:  
• difficulties investors face in discerning wh ich funds are truly investing in social 
businesses, given a lack of  common criteria for what such funds might do; and 
• a lack of sufficient consistency in rega rds information on what each fund does: on 
what it will or will not invest in, on its criteria for establishing this and 
methodologies followed, on the degree of s upport it provides to social businesses it 
targets. 
Responses to the Commission Consultation on soci al investment funds have underlined these 
concerns.  
The Financial Services User Group (FSUG) noted: "there is much scope for investors to be 
misled by market operators jumping on th e social business/social investment fund 
bandwagon. There seems to be quite a broad ra nge of social invest ments funds/financial 
instruments. For example: so cial 'impact' bonds; social pur pose companies/funds; social 
investment bonds (SIBs); and some for-profit co mpanies, which claim that their activities 
have a social benefit. FSUG belie ves there is a substantial bit of work needed to ensure that 
categorisations and definitions are right. … It is important that consumers can easily 
recognise, immediately and withou t any doubt, what social bu sinesses and what private 
investment funds in suppor ting social businesses are". 
Finnish public authorities also noted: "There are currently no standard disclosure practices or 
e.g. comparable performance data to present an  investment case, which includes a social 
engagement. Issuers of financial instruments e ither advocate that they  are normal investees 
                                                                                                                                                        
is much evidence of growing work on developing wider understanding and comprehension of the 
investment proposition posed by social entrepreneurs: see, for instance, the Social Investment Manual 
launched recently by the Schwab Foundation fo r Social Entrepreneurship (http://wef.ch/pdf). 
31  http://evpa.eu.com/wp-content/uploads/2 011/11/VP-Industry-data_for-press.pdf. 
 
EN 22   EN and tone down their social nature, or identif y themselves as philant hropic. There should be 
practices to present investment  cases with a middle approac h. This should be done through 
elaborating e.g. the profit dist ribution, investment, personnel or environmental policies. …  
[R]equirements comparable to UCITS Direc tive and AIFMD [are needed], supplemented 
with an obligation to report on investments in social businesses, in particular reporting on 
special features, particularly on how to m easure social performance when not seeking 
financial return on investment s (i.e. non-profit character)." 
The Banque Populaire Caisse d'Epargne (B PCE) also commented: "BPCE accorde une 
attention particulière à la transparence et à la qualité d’une information claire et fiable qui est dispensée aux consommateurs, de plus en plus , intéressés par ce ty pe de produits. C’est 
pourquoi, une action européenne semble néce ssaire pour déterminer les critères qui 
pourraient permettre à une entr eprise de se prévaloir d’un ou plusieurs labels de type 
« entrepreneuriat solidaire »." 
4.3.2.  Key Driver 2:  Measuring or assessing so cial returns is difficult 
Measuring and assessing the soci al returns of investments is central for investors in this 
sector. This reflects the hybrid nature of social businesses and the investor's interest in social 
returns alongside financial returns. 
Yet the EIF have highlighted that there is a "lack  of standard metrics for social performance. 
85% of impact investors have developed th eir own measurement systems (source: J.P. 
Morgan), resulting in a lack of comparability be tween investors and projects". They note that 
"measuring impact appears complex, expensive and subjective". 
In light of this, many indexes or measures of performance for social investments have been 
emerging under self-reg ulatory steps.   
The EIF underline the development since 200 8 of the Impact Reporting and Investment 
Standards (IRIS). (The GIIN in cludes a good resource on this work on social performance 
and reporting: http://iris.thegiin.org/materials
.) 
Different measures tend to focu s on different aspects or appro aches to assessing performance. 
For instance, the Social Return on Invest ment approach (SROI) seeks to measure 
performance in dollar terms, to allow comparis ons across a wide range of different types of 
company. The B-Ratings System uses a matrix approach, focusing on fi ve key stakeholders 
perspectives (consumers, employees, suppliers , the community, and the environment). The 
HIP (Human Impact + Profit) framework also fo cuses in on five areas, this time thematic 
(health, wealth, earth, equality and trust). 
The competition between different measures is illustrated by three indicative and different 
methodologies emerging even within one sector : recent discussion with stakeholders has 
highlighted three methodologies emerging acro ss the housing sector (IPD/ AeDex Social 
Housing Property Index (Nethe rlands), Urban returns (Ger many), Social Return on 
Investment – SROI (United Kingdom, Netherlands)).  
As can be seen, different purposes can drive different approaches.  
There is global work ongoing in this area, with widespread academic and commercial 
attention. The Social Performance Task Force in the US is a good example of the range of 
initiatives; http://sptf.info/resources/sp-initiatives  lists five different strands of work.  
 
EN 23   EN Yet the explosion in research, innovation and competing standa rds itself carries risks and 
leads to problems. This plurality can be confusing for investors, as information can conflict or use similar concepts in different ways, reduc ing trust. Conflicts or overlapping information 
can also undermine the capacity of investors to compare different investment propositions 
where claims about social returns subject to different measurement criteria or methodologies.  
In addition, it can be argued that self-regulation in this area is unlikely to lead by itself to 
consistent or comparable overall approach es, though it may be too early to draw that 
conclusion. The incentives for industry particip ants may not be strong enough to lead to 
sufficient individual or collec tive expenditure on de veloping sophisticated approaches or 
buy-in to using them. 
Consultation respondents noted the importance of addressing potential co nfusion in this area. 
The EIF have reached interim conclusions in favour of supporting and driving forward 
further work in this area, so that there can be precise and objective cr iteria for investment 
decision making on social performance. 
For instance, ALFI noted: "[c]ons ideration of social returns s hould be a key element of the 
investment process (and not ju st a reporting consideration). … Social investors are looking 
for information on the social outcome (“impact”, “performance”, “return”) of their 
investments."  The European Social Investme nt Taskforce also makes similar comments, 
amongst others. 
4.4. The potential of SEFs are not fully realised 
4.4.1.  Key Driver 3:  Existing rules are fragmentary and poorly tailored to the needs of 
SEFs 
The rules under which SEF operate  are not tailored to  the specific needs of such funds, and 
different rules can apply in different Member States or to different types of fund. 
Existing social investment funds  (SEF) typically take the form  of closed-ended funds. (These 
will in the future be Altern ative Investment Funds (AIF) under the AIFM-D but since 
existing funds are small, they mostly fall under the threshold for the AIFM-D so its rules 
would not automatically apply.) 
In France and Luxembourg (amongst a small numb er of other cases), some funds also fall 
under national open-ended fund rules (UCITS-like regimes): these funds typically will have 
reduced levels of investment in  social businesses, will be su bject to more robust regulation, 
and may in some cases be offered (depending on  the fund) to retail investors. The French 
fond solidaire  market has not been included in our a ssessments of the size of the EU social 
investment fund market, as the ta rget of these funds is not al ways social businesses with a 
social mission as defined in the Social Business Initiative. However, some of this market will 
be supporting social businesses.   
In general there are no specific rules  targeted at social investme nt funds (with the exception 
of the fond solidaire  model).   
As analysed under the IA for VC, eight member states have specific ru les applying in relation 
to VC, which have served to fragment the EU landscape for VC funds. For non-VC funds and 
for those member states where VC regimes do no t apply, a patchwork of requirements exists.  
 
EN 24   EN Note under this table all funds are AIF under AI FM-D, but existing soci al investment funds 
would all fall beneath the AIFMD-D threshol d rules so in practice would remain under 
national rules. 
Fragmentation between Member State and EU re gulation applying to di fferent fund types  
Existing requirements Type of fund 
Content Relevance for SEF 
National fund 
regimes (retail) In some larger Member States with more mature 
financial services markets: these regimes typically 
include detailed fund and fund management rules similar to UCITS, but more flexibility in eligible 
assets compared to UCITS.   
Funds of this kind can be found in all major fund markets such as UK, France, Germany, Luxembourg, 
Ireland. 
AIFM-D will impact here. France, Luxembourg have funds 
that are broadly marketed as social 
investment funds under this category; French regulation 
includes specific rules tailored for 
such funds. These funds are not however targeted at social 
businesses as defined in this impact 
assessment and the Commission Social Business Initiative. 
National fund 
regimes  
(institutional) Eight Member States have VC regimes (Austria, 
Germany, Estonia, France, Italy, Portugal, Spain, 
UK). These vary in terms of  content (e.g. on eligible 
investors, portfolio composition, reporting and 
transparency requirements, etc., as set out in VC IA).  In Luxembourg, UK and Germany, amongst other 
larger markets, open-ended institutional funds are 
permitted under relevant regulations that can be used to target social businesses. These regimes can include 
requirements on reporting, qualified investors, fund 
rules in some cases, and so forth.  VC proposal will impact here. 
AIFM-D will impact here. Most of the UK SEF market sits 
under this category; in general 
most SEF in other Member States 
also fall under this category where 
national rules exist.  
Other national rules on managers  Some Member States have rules applying to 
managers (e.g. UK).  On registration, reporting, broad principles.  
Some apply MiFID rules on conduct in some 
contexts. AIFM-D will impact here. Not known, not extensive (only in 
most developed fund markets).  
Other [where 
no national fund 
or manager rules apply] All MS, but content varies significantly. 
Prospectus requirements relating to public offerings; 
national requirements relating to public offerings; company law 
German closed-ended funds currently fall under this 
category. 
AIFM-D will impact here. General requirements apply to all 
existing SEF, as with other funds, 
unless national rules explicitly exempt them. 
As this table shows, rules vary materially and significantly across different member states, 
depending on how existing social investment fu nds are structured. As noted above, evidence 
from stakeholders, including EVPA , is that the vast majority of  social investment funds fall 
either under a national retail regimes (mostly  in France and Luxembourg, though these funds 
vary in the extent that they target social busin esses or are able to target retail investors), or 
under other national regimes as may apply for PE  or VC closed-ended funds (in UK but also 
most other jurisdictions that ha ve social inve stment funds). 
While AIFM-D will apply to all non-UCITS EU asset management, social investment fund 
business will almost entirely fall under the threshold for that framework, and so existing 
fragmentation in national rules will a pply to social investment funds.   
The fragmentation in rules faci ng social investment funds can be summarised thematically: 
 
EN 25   EN Requirement Extent of Fragmentation across EU member states 
Eligible investors Rules vary significantly. 
Under VC, where there are national frameworks these typically set out who might 
be qualified. (Same for other fund types).  Prospectus and MiFID rules apply in some MS or for some fund types.  
Portfolio composition Rules vary significantly.  
Under VC frameworks, different MS have different thresholds for investments 
into SMEs. Otherwise rules mostly (with some exceptions) only apply for retail funds (e.g. 
French  fonds solidaire, which  mostly  follow a retail framework similar to 
UCITS and confine investments into soci al businesses to a 10% slice of the 
overall fund). 
While France has rules specific to social investments broadly understood, these 
rules are not targeting investments into social businesses as such. In other jurisdictions national rules on marketing may apply in regards claims made about 
the portfolio composition, for instance ag ainst misleading claims (a fund must 
invest in the assets it says it does). 
Rules on conduct Rules vary significantly.  
In jurisdictions with non-harmonised retail funds, these rules are often similar to 
UCITS; requirements vary significantly across other fund types and different 
jurisdictions. 
In the future managers will be subject to AIFM-D rules if they fall in scope (are 
large enough). 
Rules on transparency and reporting Rules vary significantly. 
Retail funds are subject to extensive transparency and reporting requirements in 
general, and these are not harmonised (since UCITS funds are not able to be 
SEF). Where such rules contain specific measures regarding social investments 
(e.g. requiring certain disclosures on SR I policies, etc.) these are not harmonised 
at the EU level. 
Other funds or their managers may be subject to reporting requirements, but not currently in all jurisdictions. 
In the future managers will be subject to AIFM-D rules. Those that fall above the 
AIFM-D threshold have to fulfil strong transparency and repo rting requirements. 
Other general 
requirements Rules vary significantly. 
They can include registration or author isation requirements, requirements on 
'fitness and properness' of persons carrying on substantively the business, 
requirements on capital, etc. 
Self-regulatory developments – discussed later in  section 4.6.1 – are likely to contribute to a 
fragmentary picture, even t hough these necessarily do not ca rry the force of regulatory 
requirements. Such fragmentation extends beyond the fragmentati on between different 
Member States and rules applying to different  fund types, so fund managers can be faced 
with competing initiatives even for the same fund or in the sa me fund sector. This is outlined 
above. While Eurosif are actively pursuing great er consistency and coverage in regards 
existing initiatives related to social investme nts more widely, they are not specifically 
addressing the needs of funds investing into soci al businesses as defined here. As set out in 
section 4.6.1, the work of Eurosif, while very valuable, is unlikely to fully address the 
fragmentation issues outlined here. 
Fragmentation has impacts on costs for funds that are the same as those outlined in the VC IA 
(the procedural steps and costs associated w ith raising capital in several jurisdictions are 
described in Sections 5.1.2, 5.1.3, 5.1.4 and 5.1.5 of th at IA). As with venture capital funds, 
the major costs result from the necessity to obtain national distributi on licenses (EUR 20.000-
40.000 per country), the re quirement to entertai n a local presence (EUR 25.000 per year), 
prospectuses (around EUR 40.000 per country). Lesse r costs, that multiplies with the number 
of jurisdictions target ed by the fund, result from the n eed to update various other legal 
documents (e.g., securities legends).  
 
EN 26   EN Proposed rules on Venture Capital 
The Commission has separately been assess ing possible new uniform rules on European 
Venture Capital funds. Under that assessment, measures are considered to set a common EU 
standard and label for such funds, defined as funds with a minimum of a 70% investment in 
SMEs, with these investments made solely by m eans of equity or quasi-equity instruments.  
While social businesses are mostly also SMEs, the SEF sector has grown separately from the 
venture capital fund sector (t hough in legal terms SEF may over lap in form with venture 
capital funds). In addition, the focus the ventur e capital fund sector has been squarely on gaps 
in equity and quasi-equity funding, given the problems EU SMEs face in gathering such 
funding.  
For social businesses, funding solely through venture capital funds could therefore pose 
particular problems and lead to distortions in available finance. Firstly, VC funds would not 
permit non-equity based support from funds to so cial businesses; evid ence from the social 
business sector and existing practitioners in the SEF market has been that a breadth of 
instruments is vital in supporting social busines ses, precisely because these businesses have 
specific funding needs related to the devel opment of innovative financial instruments 
combining public and private investments, or eq uity and debt.  Secondly, the focus point of 
the VC market is on financial returns over the longer term, rather than the achievement of a 
mix of financial and social return s; this difference in focus is likely to undermine the extent 
to which VC funds would be successful in supporting social businesses. 
4.5. Summary of Consequent Problems  
Direct consequences   
Problem drivers one and two  combine to undermine trust  in the social investment market, 
and to reduce competitive efficiency in the market.  
The lack of coherence and coordination in  information provision also increases the 
probability of mis-buying scandals which would undermine trust even further.  
Problem driver three  increases costs for funds, limits th e efficiency of their investment 
strategies (so they can comply with fund rules not tailored for the purposes of SEF) and their 
capacity to grow, and reduces awareness of and take up of  SEF strategies amongst fund 
managers.  
Key consequence: severely restricted cross-border activity The fragmentation in rules across fund types a nd member states correlates with (and likely 
leads to) very low levels of cross border activ ity. Evidence from EVPA indicates that cross-
border activity in the social i nvestment fund market is only 4% . (To provide context for the 
figure of 4% from EVPA: the VC IA noted that  VC funds raised 12% of funds cross border 
between 2007 and 2010, and that this compared poorly with 20% for PE over the same 
period.) 
EVPA underline their view that this is far too low and note th at they believe "distribution 
across Europe should be facilitated to allow Eur opean investors to invest  in other EU country 
funds and/or in funds investing across all of Europe. Innovations in social ente rprise models 
could thus be developed / extended across Europe and the development of EU wide funds is a 
key step in such a process".  
This might imply that the social investment  fund market is currently so small and under-
developed that it has not been able to avail itself of signifi cant opportunities for cross-border 
 
EN 27   EN activity. On the other hand, it might imply that specific barriers apply for social investment 
funds that have a greater impact than for VC more widely.  
The key distinction for social investment funds, compared to VC funds, is divergent 
disclosure and transparency practices across diffe rent jurisdictions, and reduced visibility of 
the funds and clarity as to their identity and nature. 
Secondary consequences 
Continued fragmentation in cap ital pools between Member Stat es limits the potential for 
growth and the extent to which larger, more efficient funds ca n develop capable of driving a 
larger and larger social business sector, par ticularly where local Member State capital pools 
are limited.   
Smaller funds are proportionately more expensiv e to run. In addition, this can contribute also 
to reduced market liquidity, undermining the mark et's capacity to match investors and social 
businesses. This can act as a 'limit' to the emergence and growth of the sector. As noted 
above in section 4.4, investments funds can be vital intermediaries in 'crystallising' an 
investment sector. 
To the extent that such effects occur, the wider consequences are clear: social businesses 
would find it more difficult to secure fundi ng, investors would not be able to find the 
investments they are seeking, or would make investments which do not perform as expected. 
Confidence in the social investment market (a nd investment markets more widely) would be 
undermined, contributing to increasing inefficiencies in capital markets. 
In general terms, in so far as such impacts im pede the emergence of a vibrant social business 
sector, they contribute to reduced levels of sustainable and inclusive growth across the EU. 
SMEs are a core potential driver of growth32 and social enterprises in addition are a key 
component in driving social innovation. Reduced effectiveness in funding these thereby has 
the potential for much wider impacts. 
 
4.6. Evolution of the market without EU action 
4.6.1.  Social investment will not develop as a business model trusted across Europe 
Social investment as a business model will  not prosper without improved quality of 
information. In the absence of a coordinated ap proach on how this information is collected 
and presented, the sector will be weakened by th e proliferation of self-regulatory labelling 
and transparency initiatives.  
While these initiatives increase the volume of  information available, they tend also to 
fragment that information or make it increasi ngly difficult for investors to compare between 
different investment propositions.  This is pa rticular the case where the investors might 
examine propositions from different Member Stat es subject to different national traditions.  
In the absence of a coordinated European appr oach, different labels for different types of 
social investment funds have emerged thr ough self-regulatory interventions. Labels are 
mostly based on self-regulatory initiatives of th e industry such as the label Finansol or the 
                                                 
32  See, for further information, the Impact Asse ssment on Venture Capital [Reference to insert once 
published]., Annexes I-II. 
 
EN 28   EN label Novéthique in France, or the Lux Flag Label on Microfinance in Luxemburg.  However, 
although these labels share ce rtain common features (e.g. transparency as regards the 
selection of the investment targets), the criteri a for granting the label vary for instance as 
regards concrete elements of the investment st rategy of the funds. This variety in approaches 
is likely to create confusion for investors. Furthermore, th ese labels are limited in their 
geographical scope and not easily recognisable for investors in other coun tries. Finally, they 
do not specifically address the i ssue of investing into social businesses – as in the case of 
Luxembourg, labels are more linked to the wider field of socially responsible investing or 
microfinance and do not allow the precise identi fication of social und ertakings targeted.  
Alongside these national approaches, there are al so industry led pan-Eur opean initiatives to 
create a label for social investments such as by Eurosif.33 Eurosif has also developed a logo 
which investment funds, which adhere to the crit eria for the use of the label. However, this 
label is not specifically dedicate d to investment funds investi ng into social businesses, and 
does not help investors identify such funds. It  is also a non-binding self-regulatory tool; 
therefore, divergent approaches by Member St ates are not excluded. Furthermore, Eurosif 
works in partnership with the national networks for social investments, which also have the 
task of promoting the label; th ese national networks have deve loped different approaches to 
the Eurosif criteria. Therefore, despite the common basis provided by  Eurosif the labels 
remain restricted to the respective national context. 
4.6.2.  Social investment funds will not achieve the scale necessary to make a difference 
The current legal framework harmonising the ru les on social fundraisi ng discourages social 
investment fund managers from raising capital on a European basis. Capital sources remain 
confined to national investors – for social investment funds  domiciled in smaller Member 
States this will often lead to an extremely narrow investor base. Funds that operate in such 
Member States do not, therefore, benefit from access to a large, liquid and integrated financial market and will face difficulties in increasing the relatively small sizes of current 
social investment funds (on average these funds do not exceed €10-20 million). These small 
sizes are not conducive to deeloping the nece ssary sectoral specia lisation that social 
investment demands.  
At present, raising investment capital for soci al business across border entails a cumbersome 
and costly process, which (as with Venture Capital Funds) includes: identification of the 
suitable regime for potential investors, creation of complex parallel fu nd-raising structures, 
submission and approval of sales prospectuses, foreign registrations or authorisations, the 
establishment of a local distribution office and on-going regulatory compliance processes 
involving a multitude of host Member States. 
Such formalities, coupled with the small size and therefore limite d financial and human 
resources available to the average social inve stment fund, effectively skew the cost vs. 
benefit analysis against seeking capital beyond  the fund's home jurisdiction. This makes it 
hard for social investment fund managers to  achieve sufficient economies of scale, which 
results in too many small funds with a subopt imal size of assets under management. In 
consequence, not enough capital or other funding is available for indivi dual social businesses. 
Due to the wide variety of business ventures  to which social investment funds could 
contribute, small funds are currently too thin ly spread to achieve optimal outcomes.  
                                                
 
33  Eurosif are an organization active at the European level – composed of members at the national level – 
that is seeking to coordinate the provision of inform ation related to socially responsible investing. See  
 
EN 29   EN The scale of the inefficiencies caused by the fr agmented regulatory framework is difficult to 
capture and quantify, however the anecdotal evid ence cited in Section 4.4 indicates that the 
cost and complexity of fund-raising in multiple jurisdictions often outweighs what a small 
fund operator can afford, both in relation to  financial and personnel resources.  
As a consequence of fragmentation, various in efficiences can be expected to continue and 
grow: (i) larger social investment funds, in terms of assets under management, are likely to 
remain concentrated, essentially in two Member  States with a relatively large domestic 
investor base (the preponderance of larger so cial investment funds identified in this IA 
involve France and the UK34); (ii) SEF funds operate wi th capital commitments that 
essentially equate to a single or small number of investment projects (€ 10-20 million); (iii) 
as  consequence of the low capital commitments, social investment funds can either not invest in more than one project or need to spread their inve stments so thinly that they cannot 
maintain the necessary level of  involvement with the social target undertaking; (iv) the 
absence of better endowed funding infrastruc tures is detrimental to the more rapid 
development of a social investment sector; (v) the absence of a privately funded social 
investment sector prevents tackling persista nt poverty and wealth di sparities in Europe 
(which risk to be increased as a c onsequence of the fi nancial crisis).  
4.6.3.  Potential social investors will not invest in social investment funds 
The complexity and costs associated with de veloping and providing relevant information for 
their investors by social investment funds reduces  choice. Investors currently have a choice to 
donate to charities, engage in  philanthropy or invest in soci al investment funds. The latter 
alternative supports a strong e xpectation that the investment  will be dealt with in a 
commercial manner with an aim to maximise social impact.  
The current regulatory complex ity around fundraising, will lead to lowe r capital inflows to 
social investment funds which, in turn, leads to  less opportunities for portfolio diversification 
for potential investors. Furthermore, the lim ited amount of supply side opportunities reduces 
competition among social investment fund managers. Less competition impacts investors who may be faced with higher pl acement transaction fees and, ge nerally, less opportunities to 
achieve social impact with their investments.    
4.6.4.  Social business will have fewer funding sources 
In the absence of policy action in  favour of larger privately financed social investment funds, 
social business has fewer altern ative sources of capital to draw  on. Instead of being able to 
select from a larger pool of competing, sufficiently capitalised and highly specialized social 
business funds that operate across borders to ach ieve size and economies of scale, social 
business will remain overly dependent on charity or public finance. The alternative of private 
'patient capital' will not be exploited sufficiently , especially since public financing is subject 
to budgetary constraints and aust erity measures adopted within the context of the 'sovereign 
debt' crisis.  
This absence of more diverse sources of financin g will lead to higher cost of finance, and less 
resources that social business can dedicate to achieve the desired soci al impact. Less funding 
for social target undertakings decreases the soci al impact that these undertakings can have on 
society.  
                                                
 
34 See Section 3.5 above.  
 
EN 30   EN Last, but not least, the geographic imbalance in the supply of private funds for social 
investment will persist. As this impact assess ment demonstrates, social investment funds are 
centred in a few big Member States - all larg er funds are essentiall y domiciled either in 
France or the UK. In consequence, Member States with a smaller investor base essentially have no social investment funds of any notable size domiciled in  their territories. As social 
investments are predominantly local, this implie s that social undertakings in these countries 
will remain precluded from access to privat e capital supplied via the investment fund 
channel. Their heavy dependence on public grants will persist.   
4.6.5.  National supervisors will have little guidan ce in how to assess social investment 
claims 
In the absence of EU action to bring greater consistency in the essential characteristics of 
social investment funds, public authorities,  in allowing a private placement by social 
investment funds, will have to make compre hensive assessments of these funds, their 
managers and the often heterogeneous regulatory  requirements that such  funds would need to 
comply with. This is especially true for, but  not limited to, the cross-border marketing of a 
foreign-domiciled social i nvestment fund.        
4.6.6.  The European economy will be le ss diverse and less resilient 
Without EU action, the supply of finance by social  invesmtent funds to social businesses will 
remain far below an efficient scale. The sheer heterogeneity of rules with which such funds 
would need to comply with, especially in cases  of fundraising in multiple jurisdictions, would 
deprive the European economy of the potential benefits of the in crease in financing for social 
business that is associated with specialised social investment funds. An economy that does 
not cater to the population at the margins of society risks uph eaval and will be less resilient to 
withstand financial and societal ‘shock events’, such as the financial crisis or a potential 
severe downturn in mainstream economic activity.    
A lack of coordinated action in this field would lead to – (i ) lack of capital commitments 
preventing capital from professi onal and institutional investors to  flow more efficiently to 
undertakings that produce the desi red social impacts (ii) high tr ansaction costs and lack of 
liquidity for endeavours in the social field, (iii) a less diversified and le ss innovative financial 
system for the social sectors and (iv) foregone  opportunities to pool risk in order to achieve 
social impact, (v) a less resilient economic in frastructure, (vi) dimi nished capacity to 
withstand economic and societal tension.  
4.7. What is the added value of early EU ac tion in relation to the above problems 
Apart from tackling the issue of  market fragmentation in the field of 'private placements' 
outside a social venture fund's home jurisdiction (this problem is akin to the one faced by the 
venture capital industry), the cr eation of a fully fledged EU fr amework for social investment 
funds is motivated by a preven tive approach - trying to addre ss certain issues before they 
emerge into full view. This is particularly true  for the pre-emptive intervention in relation to 
the classification of social undertakings, the definition of benchmark criteria for measuring 
social impacts and the creation of a harmonised 'EuSEF' label. If the European legislator 
waits too long before clarifying and harmonising su ch matters at EU level, it might be very 
difficult to retrieve the situation at a later stage.   
The pre-emptive approach is motivated by severa l considerations: (i) hi storic experience in 
the area of investment funds a nd (ii) recent experience gained  in the more mature area of 
venture capital funds and (iii) experience in the field of inve stor protection.   
 
EN 31   EN 4.7.1.  Historic experience in the area of investment funds 
The European legislator did not  await significant proliferation of divergent retail schemes 
before embarking on the UCITS regulation. As early as 1985, a common approach to investor 
protection was taken in UCITS. Action in harm onising the key features of retail investment 
funds were therefore taken alread y in the run-up to the creati on of a single market by the end 
of 1992. The wisdom of this approach is borne out by the difficulty that the legislator would 
have faced in creating a common UCITS brand, if this task was left for a stage when Member 
States have acted unilaterally and thus have created national preferences and entrenched 
regulatory cultures. Experts in the field of i nvestment management services would converge 
in agreeing that a common UCITS brand coul d no longer have been introduced, with any 
promise of success in take-up, at  a later stage, say in 2000.   
Experience therefore militates in favour of ear ly action, when markets are still emerging and 
when differences in regulatory cultures have  not yet taken hold. Especially when regulation 
at EU level aims to launch a new market (such as UCITS did for pan-European retail investment funds which were safe  and liquid enough to be suitabl e for all retail clients across 
Europe) intervention has to be times carefully so as to achieve maximum effect and take-up
 
in the market.  This issue of potential take-u p is crucial for voluntary schemes, such as 
UCITS, which coexist alongside national sche mes and apply only to those operators who 
wish to engage in cross-border activities.   
To a large extent, the early su ccess of the UCITS brand (which  has lost none of its appeal 
over the three decades of its operation) can be at tributed to the fact that national regulators 
had not, in 1985, developed signi ficant and divergent approaches on their own. Also, there 
was no jurisprudence in place that would ha ve given rise to reticence over the new 
investment fund rules. While it is appreciate d that experience in emerging markets is a 
valuable tool in formulating a regulatory re sponse, waiting too long risks increase the cost 
and effort of adapting national schemes to the pr oposed EU approach.  Also, waiting too long 
makes it more difficult to integrate the EU a pproach into established national ways of 
conducting fundraising in respect to  social business. All of th ese factors will make early 
adoption of the new rulebook and its  ultimate take-up by the rele vant economic operators less 
likely, especially if the scheme is not imposed on  all investment funds th at exist at the time of 
adoption, but is one that provides new ex traterritorial marke ting and distribution 
opportunities once an investment fund co mplies with the new rulebook.     
4.7.2.  Recent experience gained in the area of venture capital funds 
Examples for a possible baseline scenario (sho uld no pre-emptive action be taken) can be 
gleaned from events in the area of venture ca pital: already eight out of 27 Member States 
have established different and mutually incomp atible schemes to foster the promotion of 
venture capital funds.  As described in the IA  report on venture capital funds, many of these 
schemes – essentially on account of their limita tions in terms of territorial reach - have 
produced little effect in establis hing bigger and more diversifie d venture capital funds. On the 
contrary, as national fund schemes only facilita te private placements to investors in the 
respective national territories, the proliferat ion of national schemes has resulted in a 
proliferation of small funds that  operate at sub-optimal sizes.  
In addition, several of the venture capital sc hemes examined in the IA report on venture 
capital funds face additional limita tions as to the eligible invest ment targets: often a fund that 
wants to benefit from the special rules on vent ure capital placements needs to invest all or a 
certain percentage of its aggregate capital commitments in companies active nationally or in 
 
EN 32   EN certain (eligible) regions within a Member Stat e. All of these constraints have resulted in 
national venture capital schemes having little result and often ve ry low take-up. For example, 
stakeholders report that the constraints pl aced on venture capital  funds by the German 
WKBG (investments only in entities with less th an € 10 million in annual turnover, less than 
10 years of existence and registered office in Germany only) have led to no venture capital 
fund taking up the opportunities associat ed with compliance with the WKBG35.  
4.7.3.  Experience in the field of investor protection 
Another example concerns 'packaged' invest ment products offered to retail customers 
(PRIPS) where certain Member St ates have forged ahead with particular approaches to 
investor protection.  Evidence for the fragmentati on of investor protection in this area is the 
fact that packaged products are regulated di fferently, in dependence on which channel of 
distribution is used. For exampl e, insurance products have di fferent requirements from those 
that are offered by banks or  by the asset management i ndustry. Different rules apply 
depending on whether such products are offered as investment funds, investments packaged 
as life insurance policies or retailed structured products, in cluding bank deposits where the 
return is exposed to the performance of assets or reference value other than an interest rate.    
This fragmentation has prolifer ated despite the fact that 'packaged' investment products aim 
for the same result: to provide investment opportunities for retail clients. In these 
circumstances, it has proven very difficult, if not impossible, to 'turn back the wheel' and create a common and coherent EU view on the disclosure rules applying to packaged 
investment products offered by different supplie rs in the financial services industry.   
On the other hand, there are important opportuniti es associated with early intervention in a 
nascent marketplace, the devel opment of which the European pol icymaker wishes to foster. 
These include: (i) the early establishment of a trusted notion of what  constitutes a 'social 
undertaking'; (ii) an early appro ach to avoid investor confusion;  (iii) an early  opportunity to 
decisively influence (and harmonise) metr ics for social impact assessments.    
4.7.4.  An early approach on 'social busin ess' provides a dis tinct profile to this  sector      
As explained in this IA report, a first step in identifying a 'social business' is to have recourse 
to certain essential features which, also in the stakeholder community, are already used to 
distinguish social businesses from other lines of commerce.  An operational definition of 
social business would rely on three planks: (1 ) Social goals or impacts are part of the 
undertakings articles of associ ation; (2) a majority of the surplus achieved by the undertaking 
is reinvested in the social business; and (3) the undertaking is managed in a transparent and 
accountable manner, involving employees, cu stomers or other stakeholders.   
This definition sets out the core parameters of  what makes a social business different from 
other commercial actors; an early agreement on these features as differentiating criteria 
would allow European policy to shape the field's further development, give it a distinct and 
operational profile and, on this basis, allow for a more rapid development of the sector and 
the financing tools that are at its disposal.  
4.7.5.  An early approach pre-empts investor confusion  
In addition, as potential inve stors are confused by the prolif eration of so-called social 
investment propositions, labels, certificates and other means to promote the social credentials 
                                                
 
35  Cf. Section 5.1.1 of the IA report on venture capital.  
 
EN 33   EN of various investment strategi es, this confusion must be a ddressed early on and before it 
becomes a serious disincentive ag ainst investing in the social business sector. Already, there 
are signs that social business is  struggling to gain investors at tention and that the divergent 
investment policies offered under its tent are leading to invest ors holding back (see potential 
investor's statements in Section 4.3).   
If this confusion were not a ddressed at this early stage, European policy forfeits an 
opportunity to create clear rules on what a social investment  strategy should be, what the 
characteristics of a social investment fund should be (e.g., portfolio composition, investment 
tools and target undertakings) and how the de sired social impacts ar e measured. Clear and 
transparent EU rules on these matters would cr eate investor confidence and be an incentive 
for more funds being channelled into social  investment. Waiting until the market develops 
these criteria on its own might have serious repercussions on the attractiveness of investing in 
social business.     
4.7.6.  An early approach allows common metrics for the measurement of social impact  
In this respect, the IA report concludes that a fi rst step would be to require social investment 
funds to give an account of thei r investment strategies, screeni ng criteria for selecting target 
undertakings and their criteria for measuri ng the social impacts achieved by their target 
undertakings. On this basis, measurement t ools and methodologies to precisely determine 
social impacts can be developed. Here again, if disclosure requirements are allowed to 
develop in an uncoordinated manner, they will be of little value as a basis for developing a 
common approach to social impacts and th e metrics used for their measurement. 
4.7.7.  Risks of intervention 
While it is clear that there are risks related to  a failure to intervene now – and higher costs 
with intervening later – there are also of  course risks with any early intervention. 
Notably, shaping a market now as it develops could lead to distribut ional impacts, supporting 
social businesses and the funds investing in them that fall within the scope of the new 
approach, while reducing support for those that do not fall within the scope. This militates in 
favour of a wide definition of the scope of the initiative – supported by monitoring, 
evaluation and better specificati on of the scope over time to ensure its appropriateness. On 
this basis it should be possible to mitigate such risks of intervention over time, as the market 
evolves and grows.  
Another notable possible risk relates to an intervention reducing levels of philanthropic 
giving, channelling such towards investments. SEF however can be seen as an additional 
channel for such giving: the choice over how to give and where to give remains, as it should, a personal matter. Indeed, better  clarity in relation to SEF s hould in practice enable those 
wishing to undertake philanthr opic activities to do so in a more effective manner. 
4.8. EU’s right to act and justification for acting 
The 17 June 2010 European Council endorsed the Commission proposal for a Europe 2020 
Strategy for jobs and smart, su stainable and inclusive growth. Social enterprises can act as 
drivers of a social change by offering innovativ e solutions and therefore and therefore make a 
valuable contribution to mee ting the objectives of the Euro pe 2020 Strategy. The European 
Council’s conclusions call for the mobilisation of  all EU instruments and policies to support 
the achievement of these objectives. Measures to improve the quality, clarity and comparability of information about such investments as a means to further develop the 
 
EN 34   EN market of social investment funds and to  better channel money to social businesses 
constitutes an important step towards achieving these objectives.   
According to the principle of subsidiarity laid  down in Article 5(3) of  the Treaty, action on 
EU level should be taken only when the aims envisaged cannot be achieved sufficiently by 
Member States alone and can therefore, by r eason of the scale or e ffects of the proposed 
action, be better achieved by the EU.  
The key added value of EU action is better c oordination and coherence compared with action 
purely at the Member State level.  In additi on, given the development of EU rules already on 
fund transparency, EU steps in this regard ar e likely to be more e fficient and potentially 
effective than steps at the Member State level.  
In addition, EU action would provide a basis fo r and impetus to the emergence of a stronger 
and more effectively regulated social business sector, a key priority for the EU. This is 
particularly important given the nascent form of  this sector: action by the EU now is likely to 
be more efficient than action later, after in creasing divergences in national or sectoral 
approaches to transparency.  
Increasingly investors are looking to achie ve positive social outcome through their 
investments beyond the generation of  financial returns. Investment funds targeted at social 
enterprises are one important form of such inve s t m e n t s .   I t  c a n  b e  o b served that different 
labels, designations, descripti ons and understandings are emerging across Member States for 
such types of investments. Such differences lead to investor confusion and can therefore 
impede efficient flows of money to social enterprises. They also create an obstacle to the 
further cross border development of the market for social investment funds. 
A response by Member States to increase the cl arity, comparability and credibility of the 
information on social investment funds is nece ssarily limited in its geographical scope and 
cannot be compared with or substitute a coordi nated or systematic response on the EU level. 
Furthermore, investment funds, and more par ticularly transparency requirements for such 
funds, are now regulated under EU law to creat e a Single Market for investment funds 
(Alternative Investment Fund Managers  Directive 2011/61/EU (AIFMD)). These 
requirements limit the possibility of Member Stat es to act on a national level in relation to 
transparency measures also for investment funds investing into social enterprises.  
In respect of cross-border access to investors inte rested in investing in social businesses, the 
VC IA outlined how a solution based on action by Member States had already been tested, 
and failed to achieve the intended goal.36 The conclusion that only targeted action on the 
European level can address the existing regulatory fragmentation of European venture capital 
markets along national lines and identified wea knesses in existing EU law stands also for 
funds targeting social businesses  
The principle of proportiona lity as articulated  by Article 5(4) of the Trea ty will be at the heart 
of this initiative. The European market for f unds investing into social business is still young 
and developing. Unnecessary burdens to the social enterprises themselves should also be 
                                                 
36  It notes: "[b]acked by the Member States, Th e Commission proposed in 2007 mutual recognition of 
venture capital funds by Member States as the way forward in the short term to reduce the regulatory 
fragmentation of venture capital markets in the EU. However, in a report of December 2009 the 
Commission concluded that this process based on mutual recognition has not contributed to a reduction 
of the fragmentation of venture capital markets in the EU and has not brought the expected results." 
 
EN 35   EN avoided. Given the underlying objective, the success of this initiative will to a large degree 
depend on achieving the right balance be tween proposed rights and obligations. 
5. OBJECTIVES  
5.1. General objectives 
(a) The contribution of social businesses and en trepreneurship to EU goals on inclusive, 
sustainable growth should be fully realised.  
(b) Social businesses should be able to flourish across the EU and fully take part in the 
benefits of the single market. 
5.2. Specific objectives 
(a) EU investors should have confidence and trus t in the social investment funds offered 
to them. This requires that such funds ha ve defining characteristics differentiating 
them from other alternative investment funds. 
(b) Social investment funds shoul d have better access to inte rested investors across the 
EU.  
(c) Better allocation of existing capital to social businesses. 
5.3. Operational objectives 
(a) Improve clarity and comparabilit y of social investment funds. 
(b) Improve tools for assessing a nd analysing social returns. 
(c) Ensure regulatory frameworks across EU  are proportionate and effective for 
maximising  fundraising opportunities for social investment funds. 
6. IDENTIFICATION OF POLICY OPTIONS  
Policy options on content will be examined separately from the issue of instruments that 
might be used for delivering these options. 
Policy options on content are presented with th e principal aim of establishing a framework 
defining the essential ch aracteristics differentiating social  investment funds from other 
alternative investment funds. This  differentiation is introduced at four distinct levels: (i) the 
group of investors that are eligib le to invest in social invest ment funds; (ii) the clarity and 
comparability of investment strategies pursued by social investment funds; (iii) the tools to 
measure social impacts to be achieved by target undertakings of social investment funds; and 
(iv) the regulatory framework most conducive to increase the capital inflow to social 
investment funds.      
Policy options are identified against each of the three operational objectives outlined above. 
However, these options interact strongly and overlap with one another. They are kept 
separate for analytic purposes, to clarify the most effective and efficient package of 
interventions. In particular, measures to impr ove transparency combine with steps on analysis 
 
EN 36   EN of social returns, while measures to ensu re proportionate and efficient fund frameworks 
would entail steps on transparency, as disclo sures and reporting requirements are also a key 
element of fund frameworks.  
Voluntary nature of measures : given the youthful nature of  the SEF market, all options 
identified are being conceived as voluntary in na ture. That is, the intention is to create new 
opportunities or conduits for fina ncing, not to impose or disrupt  existing ones. The options 
identified here should complement existing stru ctures, and should be developed in a carefully 
phased way so as to allow unintended conseque nces and possible disr uptions to existing 
business to be monitored and addressed.  
Phasing of options : also, given the youthful nature of the SEF market, all options will be 
considered in relation to measures that might be usefully taken now and measures that might 
need to be taken in the future. 
Definition of social businesses: For the purpose of assessing opti ons, the definition set out in 
section 4.1.1 is employed as a legal definition of the target undertakings for investment funds. 
However, it is important that the impact of measures introduced on its  basis be subject to 
further assessment and monitoring, precisely so  that the definition might be refined and 
developed in the light of the fu rther evolution of the market.   
6.1. Options in relation to eligible investors 
Objective  Options identified 
G1 No policy change  
G2 Align with the approach identified in the VC IA : The VC IA supports an approach for 
VC funds whereby VC funds are opened to certain groups of qualified investors (family 
offices, angel investors, sector experts, wealthy individuals) and professional investors as defined in MiFID. This harmonises d ifferent notions on how to determine who are 
qualified investors under existi ng national VC regimes, applying some key criteria to 
exclude retail investors. 
G3 Align with MiFID rules on professional investors : As the VC IA has set out, MiFID 
classifications of investors exclude certain qualified investors typically investing in 
venture capital in some of the national VC regimes. G – Types of 
investors to be addressed 
G4 Include retail investors
: Retail investors are a potential future growth area for SEF. 
However, developing options for improving the EU SEF market that target retail 
investors raises particular challenges. 
 
6.2. Options on transparency on investment strategies related to social business 
A1 No policy change 
A2 Develop a non-binding approach on information that should be provided about 
investments targeting social businesses:  More consistency and harmonisation in 
identifying social inves tment strategies could be ac hieved through dialogue with 
stakeholders, workshops to be hosted  by the Commission, memoranda of 
understanding and codes of conduct. The topics to be covered in the various 
stakeholder for a would be possible additional criteria that could be applied to distinguish social businesses from other forms of commercial activity, investment 
strategies and portfolio composition of social investment funds, the screening of 
social business, continuous monitoring of social impacts.  A – Improve 
clarity and 
comparability of 
social 
investment funds 
A3 Establish a EU label or brand for social investment funds and linked measures on 
transparency (phased approach ): This would entail establishing a common 
designation for EU SEF, and applying consistent criteria for transparency for all 
funds using the designation. This option would also require that the social investment fund entertains a regular dialogue with the target undertakings in relation to the 
 
EN 37   EN latter’s social goals and the measurement of their impacts. This option therefore 
interacts strongly with the selection under objective C (steps to create a common EU 
framework for EU SEF would include standardising the notion of what a EU SEF does), and practically entails determining a common standard for the investment 
strategies of EU SEF. [Common portfolio for EU SEF of a high percentage of 
committed capital into social businesses]. A phased approach can be envisaged: the designation and transparency requirements 
would not need to be strongly harmonised in all respects initially, but standardisation 
could be developed and assessed in the future if necessary.   Information covered would include: the fund's investment objectives and strategy for 
delivering on those objectives (for instance the kinds of social businesses it will focus 
on, the extent to which the fund concentrates on supporting such social businesses or combines such investments with other investments); how the fund goes about 
choosing social businesses to invest in and how these investments are made and 
monitored; any support or other activities undertaken to aid the social businesses; and assessments of possible social impacts, to aid comparisons of different 
investments.   
Options are mutually exclusive. 
6.3. Options on the measurem ent of social impact 
B1 No policy change 
B2 Establish a forum or group for stakeholders to coordinate development of tools on 
social impacts 
B3 Launch a study assessing possible approa ches to assessment and analysis of social 
impacts for investment funds 
B4 Set common measurement approach  for social impacts across EU B – Improve 
tools for 
assessing and 
analysing social 
impacts  
Note options 2 and 3 are not mutually exclusive.   
6.4. Options on an European regulatory fr amework for social investment funds 
C1 No policy change 
C2 Encourage development of funds targeting social businesses under existing 
frameworks : Funds would be encouraged to target social businesses under the 
proposed VC passport, but without any tailoring of that regime for the purposes of 
SEF. This Option would essentially entail that registered venture capital funds could also use the venture capital passport to target social business. The qualifying 
investment tools would, however, be limite d to those permitted under the VC passport 
(equity and quasi-equity issued by unlisted SMEs).  
C3 Develop targeted amendments to existing frameworks : Under this approach, targeted 
amendments could be proposed to existing EU asset management frameworks, 
notably the framework established for venture capital funds. Building on the rules on investment targets, portfolio composition, el igible investors that were developed in 
the IA on venture capital, a special chapt er on ‘social venture capital could be 
introduced. Instead of targeting unlisted SMEs in the early phases of their development (achieved by requiring equity  investments), the chapter dedicated to 
social ventures would target social undertakings. The latter would be defined 
undertakings whose primary and statutory objective was the pursuit of social impact, whose business strategy consisted in the widest possible reinvestment of profits (no 
dividends) and whose organisational structure reflected social inclusion of employees 
in matters of defining business policies. In analogy to venture capital funds, the social investment fund would need to invest at least 70% of capital committed by investors 
into such social undertakings. As social undertakings are defined as a tight category 
of undertakings, investment tools could target these undertakings at any stage in their existence and comprise equity, quasi-equity or debt instruments.        C – Ensure 
regulatory 
frameworks across EU are 
proportionate 
and effective for 
maximising  
fundraising opportunities 
for social 
investment funds 
C4 Create a standalone EU regime alongside the VC regime, including passport for social 
investment funds : This would establish a bespoke EU framework, containing the core 
 
EN 38   EN rules needed to ensure an effective EU-w ide passport for EU SEF. Since SEF can be 
considered a sub-set of VC funds, this stand-alone framework would be modelled on 
the same essential features as that for ve nture capital (see Option C3 and the IA on 
venture capital funds). The essential challe nge of a stand-alone framework would be 
a definition of social business as the intended investment target that allows 
differentiating those businesses from other undertakings in the area of production and commerce. The key elements of  this definition would be the same as those described 
in Option C3 above.  
Options are dependent on options A3, A4, B2 and B3 under Objectives A and B. 
7. ANALYSIS AND COMPARISON OF POLICY OPTIONS  
7.1. Options on types on inve stors to be addressed  
Identified options 
G1 No policy change  
G2 Allow investments from certain High Net Worth Investors and other professional investors as under 
MiFID rules 
G3 Align with MiFID rules on professional investors 
G4 Include mass-market retail investors 
 
Effectiveness of options 
These general options impact all other options. Ther e are two levels to options in this area.  
The first level  relates to the extent to which SEF w ould solutions should be developed for 
retail investors. The consultation revealed  rather mixed views on this point.  
Many stakeholders considered that retail acces s will be important for the further development 
of the SEF market and that retail investors s hould not be excluded from  the participation in 
the development of the market. More specif ically, a few stakehol ders including one key 
Member State in the current market, took the vi ew that retail cross-border access should be 
specifically facilitated through targeted adjustments to the UCITS retail framework. (The 
UCITS retail framework, as set out in Annex II I, is not currently used for funds targeting 
social businesses).  
However, other stakeholders thought that the UCITS framework and its key rules designed to 
ensure the retail suitab ility of UCITS funds, for instance regarding risk diversification, 
liquidity and redemption rules, would not be an appropriat e framework for investment funds 
targeting social businesses. So me noted immediate challenges  with developing a common EU 
retail fund regime, e.g. as rega rds appropriate liquidity and redemption rules in order to 
ensure efficient funding fo r social businesses.  
Given that social investment f unds have the potential to be high risk, low return investments, 
other stakeholders were concerned about prov iding for retail access to such funds, and were 
sceptical as to whether the necessary investor  protection measures could be calibrated in a 
way which did not undermine the efficien cy of financing social business.  
The VC IA has also outlined how investments targeting SME entrepreneurs – which have a 
similar profile to investments in social businesses -- have  typically been viewed as per se  
unsuited to mass retail access. The same case holds for investme nts into social businesses as 
 
EN 39   EN a subset of SMEs. This is mostly due to their illiquidity (the need fo r long-term investments 
or 'patient capital' necessary to support the de velopment of a social enterprise), but also due 
to the uncertainty (risk) that ch aracterises such investments.  
As EVPA put it in their consultation response: "due to the inherent characteristics of these 
types of investments (requiring  both patient capital and capac ity building suppor t) and their 
underlying investees, EVPA believes that they ar e best served through close-ended long-term 
funds managed by professional teams and in tu rn funded by institutional investors with a 
clear investment mandate to do so and/or other professional and qualified investors."  
On this basis, this impact assessment has ruled out option G4 at this stage, but notes that this 
should be considered for future development as  the SEF sector becomes more mature. Given 
the investor protection issues raised, a regime for retail i nvestors may need to include 
additional rules. 
The second level of issues relate to the choi ce between the two remaining options – G2 and 
G3. These follow the same logic as examined in  the VC IA, since, as noted, the market for 
SEF can be seen as a specific s ub-set of that for VC funds. That  is, the key investors in SEF 
are high net work individuals, business angels  and venture philanthropists – restricting 
permitted investors solely to professional investor s as under MiFID, or t hose that can elect to 
be classified as such under MiFID, would pot entially narrow the invest or base for SEF too 
strongly, undermining take up and effectiveness of  any new measures on SE F. On this basis, 
the same conclusions stand under the same cons iderations and based on the same evidence as 
set out more fully in the VC IA: broader invest or base necessary for driving take up, without 
generating material regulatory costs compared to current conditions; option G2 is preferred. 
Efficiency and stakeholder analysis 
Costs / Benefits  
Investors Funds Social Businesses Society 
G1 n/a n/a n/a n/a 
G2 + reflects current state 
of play in SEF market (same as VC market) + builds on existing 
frameworks + ensures can use 
lightweight / efficient 
fund structures + +  
G3 - would restrict HNWI 
investors, key source of 
capital - reduced capacity to 
target high net worth 
indivuduals (HNWI), 
could undermine efficiency of funds 
- reduced uptake of any 
new regime - lower capital flows  
G4 - short term: investment 
propositions may be too 
risky / illiquid for retail investors  
+ longer term: could be 
strong source of growth in future - short term: investment 
funds to target retail 
market more complex, more costly  
+ longer term: could be 
strong source of growth in future - short term: investment 
funds to target retail 
market more complex, more costly, reduced 
efficiency in targeting 
social businesses + longer term: could be 
stron source of growth 
in future - risk over investor 
detriment greater, may 
undermine further development of sector at 
this stage 
+ longer term: could be stron source of growth 
in future 
Magnitude of impact as compared with the baseline scenario: ++ strongly positive; + positive; – – 
strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable  
 
EN 40   EN Summary of analysis 
Policy 
option EFFECTIVENESS EFFICIENCY  COHERENCE 
G1 
0 0  
G2  +  + Aligns with approach for VC funds outlined in 
the VC IA 
G3 - -  
G4 - -  
Magnitude of impact as compared with the baseline scenario: ++ strongly positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable  
Option G2 is preferred, for reasons related to coherence with the approach adopted for VC 
funds more widely, and to reflect the current predominant role of HN WI finance in this 
market. 
 
7.2. Options for Objective A – Improving cl arity and comparabilty of investment 
propositions 
 
Identified options 
A1 No policy change 
A2 Develop a non-binding approach on information that should be provided about investments targeting 
social businesses 
A3 Establish a EU label or brand for social investment funds and linked measures on transparency (phased 
approach) 
 
Effectiveness of options 
Existing fund regulation and national require ments already require transparency and 
disclosures for investors and supervisors.  
As set out in the problem description, ther e is already work underway within the fund 
industry on self-regulatory steps to improve transparency and cl assification of funds and to 
seek to provide effective inform ation about the investment strate gies of those funds that are 
targeting social investments.  
Option A2  seeks to build on these existing self-regulatory and national initiatives, for 
instance by providing fora for improved dial ogue to better coor dinate these.  
In so far as stakeholders engage with this pr ocess, this could lead to a greater degree of 
consistency and coherence across competing transparency approach es. It could also minimise 
cost impacts of change for market partic ipants, though remaining competing approaches 
would likely lead to continued inefficiency (e.g. for funds supporting multiple approaches or 
developing their own, for social businesses). 
 
EN 41   EN However, there would be no guarantee that frag mentation would be reduced, which would in 
turn lead to continued confus ion amongst investors. Consultati on respondents unde rlined that 
conflicting and patchy information continue  to threaten to undermine confidence, 
comparability and trust. Many products claim to offer 'social' benefits or to target social outcomes, but as the problem analysis above no ted, investors face difficulties in assessing 
these claims or comparing between these products.  
Notably, experience from other areas in the fund industry is that while self-regulatory 
measures can be effective in tackling issues in isolation, across the EU divergences would 
continue and these would reduce the scope fo r integration and emergence of cross-border 
activity. 
Option A3  is a stronger intervention. Unlike A2, it w ould create an easily  identifiable EU 
SEF designation. The only funds  that could use the designa tion would be those that 
predominantly focus on investments in social bu sinesses, which means this is a simple but 
strong tool for focusing atten tion on such funds and introducing clarity into the SEF market. 
A designation of this kind would provide a stro ng focal point for market intermediaries and 
fund providers, investors and social businesses.  This would effectively increase potential 
investment flows.  
The use of the EU SEF designation would be supported by wider transparency requirements: 
to use the designation, a fund would need to make availabl e wider information about its 
purpose, the target undertakings it invests in, the criteria for choosing these undertakings, the 
regular dialogue the fund entert ains with the management of  these undertakings on their 
social impact, the techniques it  uses, and its approach to su pporting the businesses it invests 
in.  
These requirements would fall under the supervisi on of the competent authorities, as further 
coordinated by ESMA, to ensu re the necessary compliance with these requirements.  
Given the developing nature of the EU SEF ma rket, a phased approach can be envisaged, 
whereby only common foundations are laid down at this stage (a flexible framework and 
principles on transparency), to be followed by more detailed measures on the content and 
presentation of such information as these ma y become necessary. (Such measures would be 
subject to separate impact assessment). This  coordination at the Community level under a 
staged approach could provide an impetus to further work, helping steer it towards common 
goals, without forcing standardisation at this stage. 
Establishing a common designati on and supporting disclosure meas ures entails risks related 
to the determination of the scope and supervisio n of the designation, as it would be important 
for the credibility of the designation that it was widely seen to apply on ly to an appropriate 
set of target businesses, and to gua rd against regulatory arbitrage. 
Such risks can be mitigated, as in other areas  of the financial services, through supervisory 
support, with clear and strong re sponsibilities for national and EU supervisory authorities, 
building on capacities that have been develo ped in regards other sectors of the asset 
management sector.  
In addition, a staged approach supported by careful monitoring and ex poste  analysis could 
reduce risks by allowing for careful calibra tion and harmonisation of criteria for the 
application of the designation in  the light of experience.   
 
EN 42   EN One advantage of a labelling approach would be synergies with other steps being taken on the 
Social Business Initiative more widely, incl uding on the provision of public money directly 
to certain investment funds that are targeting social business. A label would highlight such 
investment funds and confirm their value as  conduits for funding social businesses.  
All labelling requirements – irrespective of their source in self-regulation, national rules, or 
EU rules – entail costs for social businesse s themselves, not only for fund managers. The 
businesses ultimately are the source of much of the information that needs to be provided or 
verified under different approaches. A comm on approach to labelling in this area, 
coordinated or set at the EU level, could th erefore reduce costs for social businesses by 
reducing competing claims on them. However, the calibration of detailed requirements needs to be carefully undertaken with full consultation with social businesses themselves to ensure 
minimal negative impacts. 
Efficiency and stakeholder analysis 
Costs / Benefits  
Investors Funds Social Businesses Society 
A1 n/a n/a n/a n/a 
A2 + Some increased 
comparability of 
information  
+ Some better comprehension 
+ Leading to greater 
trust - Inconsistencies remain 
in approach, reducing 
trust ≈ Improved consistency 
reduces costs  
+ Self-regulatory 
approaches may minimise costs of 
change for firms 
- Continued costs assessing information 
approach  
? Costs where conflicting standards 
remain in place, e.g. in 
cross-border context ≈  Greater consistency 
may reduce costs when 
becoming investment 
ready - Costs for social 
businesses in meeting 
information needs  ? Lack of alignment in 
requirements  ≈ Greater support for 
social business sector 
≈ Improved efficiency 
in allocation of capital 
A3 ++ Strong focal point, 
stamp of approval on 
market segment 
+ Easily communicated + strongest basis for 
ensuring growing 
consistency and comparability in 
information 
- Common label could 
increase risks if not 
strongly policed ++ Strong focal point, 
stamp of approval on 
market segment 
+ more consistent / defined requirements 
could streamline work 
of investment firms +/- Costs for fund 
industry implementing 
label and supporting 
transparency 
requirements (direct costs only borne where 
business case can be 
made for individual funds) 
- Common label could 
increase risks if not strongly policed  ++ Strong focal point, 
stamp of approval on 
market segment 
+ Greater support for 
social business sector 
- Costs for social 
businesses in meeting formation needs  
- Common label could 
increase risks if not 
strongly policed  
 ++ Strong focal point, 
stamp of approval on 
market segment 
+ Greater support for 
social business sector 
+ Improved efficiency 
in allocation of capital - Common label could 
increase risks if not 
strongly policed 
 
Magnitude of impact as compared with the baseline scenario: ++ strongly positive; + positive; – – 
strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable  
 
Summary of analysis 
 
EN 43   EN Policy 
option EFFECTIVENESS EFFICIENCY  COHERENCE 
A1 
0 0  
A2:  +  
 +/- 
 Inconsistent with options under C to create 
framework for EU SEF 
A3 ++ 
 +/- 
 Greatest likely support for SBI and SMA 
objectives 
Consistent with options under Objective C  
Can be developed in a phased approach 
Magnitude of impact as compared with the baseline scenario: ++ strongly positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable  
 
Given that option A3 is likely to drive the greatest impacts in  terms of improved clarity and 
comparability, it is the preferred option.  
7.3. Options for Objective B – Improve tool s for assessing and analysing social 
impacts 
Options related to improving tools for assessing  and analysing social impacts are linked to 
those on improving transparency more generally. Information on social impacts is crucial part 
of disclosures about social investments. The focus under th is objective is on developing 
better and more coordinated and widely appli cable tools for assessing and analysing such 
information, so as to allow better comparab ility and clarity in th e information provided 
'upstream' under options under Objective A. 
Measures envisaged under options B are not a pre-condition, note, for the transparency 
measures under Objective A.  They provide a basis for further developing the impact of 
options under Objective A. 
Analysis and comparison of options 
As noted in the problem description, ther e is currently a plurality of competing 
methodologies developing for assessing the soci al impacts of investments. Improving 
confidence in and comparability of information in this area can be considered a key driver of 
growing trust in social investments and unders tanding of and familiarity with the social 
investment sector. Such developm ents could also raise competitiveness and efficiency in the 
market.  
The plurality of methodologies reflects a rapid growth of academic, industry and regulatory 
thinking. This is an area where approaches ha ve been evolving quickly. It may be that 
heterogeneous approaches are necessary for as sessing social returns, which vary depending 
on the kinds of social businesses in question. Qu alitative assessments co uld well be a strong 
part of the way forwards. To this end there are potential risks associated with moving too 
quickly to harmonise all details on common fr ameworks without str ong supporting work on 
their content or the extent to which ha rmonisation of measures is possible.  
It seems clear therefore that further work is  needed on social performance measurements. 
Options B2 and B3 offer two approaches to facilitating just such  further work. A study 
commissioned by the Commission under option B3 would offer a good, independent way of 
establishing the state of the art and the pr ospects for developing common approaches to 
 
EN 44   EN measurement for the purposes of investment fund disclosures. Such a st udy could be used by 
the Commission to assess the value of further additional steps, including the formation of a 
stakeholder group or forum as set out under option B2. 
As noted, option B4 would appear to carry too many risks at this time for the standard-setter.  
Summary of analysis  
Policy option EFFECTIVENE SS EFFICIENCY COHERENCE 
Option B1: No 
policy change 0 N/A N/A 
Option B2: 
Establish a forum 
or group for 
stakeholders to 
coordinate 
development of 
tools on social 
impacts +/ ≈ 
+ Builds on existing 
measurement / rating 
work); organic growth 
- May not strongly reduce 
overlapping or competing 
measurements / ratings  ≈ 
Continued competing and 
uncoordinated approaches 
could continue to drive 
costs for social businesses Consistent with options 
under objectives A and C, 
especially under a 'phased' 
approach 
 
Option B3: Launch 
a study assessing 
possible 
approaches to 
assessment and 
analysis of social 
impacts for 
investment funds +  
+ Builds on existing 
measurement / rating work 
organic growth 
- May not strongly reduce 
overlapping or competing 
measurements / ratings  ≈ 
Continued competing and 
uncoordinated approaches 
could continue to drive 
costs for social businesses Consistent with options 
under objectives A and C, 
especially under a 'phased' 
approach 
 
Option B4:  Set 
common 
measurement 
approach now for 
social impacts across 
EU - 
+ Common framework 
ensures greatest 
consistency in approach  
- Framework may need to 
be too high level to 
achieve consistency in 
approaches at this stage 
-- Risks increase for 
standard setter over 
maturity / quality of 
measurement techniques - / ≈ 
Costs for industry from 
changes 
 Consistent with options 
under objectives A and C, 
but not under a 'phased' 
approach 
Magnitude of impact as compared with the baseline scenario: ++ strongly positive; + positive; – – 
strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable  
Both options B2 and B3 are preferred. Step s consistent with both options should be 
developed further in order to facilitate further developments in this vital area, and to better 
establish the scope for future harmonisation of measures.  
 
EN 45   EN  
7.4. Options for Objective C – Ensure reg ulatory frameworks across EU are 
proportionate and effective for maximising   fundraising opportunities for social 
investment funds 
Identified options 
C1 No policy change 
C2 Encourage development of funds targeting social businesses under existing frameworks 
C3 Develop targeted amendments to existing frameworks 
C4 Create a standalone EU regime alongside the VC regime, including passport for social investment 
funds. 
 
Effectiveness of options 
Note – all of these options follow the preferred option under G – G2, a regime for 
professional and qualified investors only. 
Option C2  has significant limitations. Existing EU frameworks – UCITS and AIFM-D – are 
not proportionate for SEF for a number of reasons. In regards UCITS, the eligible assets rules 
mean that this framework does not permit SEF that target social bus inesses. As regards 
AIFM-D, this framework is designed to addres s systemically important funds using complex 
investment strategies and investment instru ments. SEF are by comparison extremely small 
and do not use complex instruments or strate gies. (Mostly they operate without using 
leverage, for instance).  
The argument in this case is identical to that  set out in the VC IA: the implementation of 
AIFM-D will not put in place a framework that will be effective in addressing the cross-border problems faced by the SEF market: opting in to AIFM-D is likely to disproportionate 
for SEF managers (these managers will almost en tirely be 'sub-threshold' in relation to their 
SEF business, given the sm all size of the funds).  
The VC framework might be relevant for some SEF. As set out in the VC IA, the preferred 
framework would: 
• introduce a simple registration, as a basis for a EU-wide passport; 
• introduces a common notion a nd designation for these funds (each fund must invest 
70% in the equity or  quasi-equity of  unlisted SMEs, and each fund should not 
employ leverage); 
• sets some common standards for the conduct of business and organisation of the 
fund managers; 
• sets some common transparency and reporti ng requirements on the features of these 
funds; 
• requires cooperation and coordination amongs t relevant competent authorities, and 
requires deregistration of VC fund managers  where they are not compliant with the 
legislation. 
 
EN 46   EN As this outline shows, however, the VC framew ork is restrictive in terms of the forms of 
investment it intends to allow (equity and quasi -equity only) (and it also does not specifically 
address the specific transparency and reporting n eeds of SEF and their i nvestors, as addressed 
above under option areas A and B). This means th is framework would not be useful to all 
SEF, so its benefits would be curtailed for some.   
As the EIF have noted: "Social enterprise funds  serve their investees through a wide range of 
instruments of traditional eq uity, hybrid structures, and de bt products including micro-
finance instruments especially in the start-up phase. The funding needs of social enterprises 
range from start-up capital to growth and expa nsion type capital for funding projects and/or 
associated working capital but in a different way than that applied to traditional private equity 
or venture capital funds’ investees." 
In addition, the VC and existing fund frameworks  do not address the is sues addressed above 
under options for objectives A and B: they do not  contain specific rule s on transparency in 
relation to particular investment strategies (suc h as venture capital or social business), and do 
not allow an efficient 'ring fence' of SEF from  other kinds of funds. Attempting to deliver on 
objectives A and B whilst working with the VC  and existing fund frameworks as they are 
would likely increase confusion and fail to eff ectively demarcate and identify SEF from other 
fund types. (Even if legislation was brought in to address the designati on of a SEF in a cross-
cutting manner). 
In these circumstances, Option C2  will suffer from enforcement complexities that are linked 
to the fact that the distinct group of SEF will have to be subsumed within the more general 
rules that apply to venture capital. Trying to evaluate whether a part icular SEF respects the 
confines of the venture capit al ‘rulebook’ will take up considerable regulatory resources. 
Supervision issues may not be very prevalent in relation to the determination of the SEF’s 
portfolio composition, or the eligible investment  instruments, but the proper identification of 
a social enterprise will require considerable expertise. It is exactly in this respect, that a combined approach will give rise to potential  regulatory arbitrage an d attempts to offer a 
non-qualifying fund under the EU SEF label.  
Option C3 , while more ‘made-to-measure’ for SEF, still has important drawbacks.  While it 
might appear theoretically pos sible to create a bespoke SEF framework inside the general 
rules applicable to venture capital, the risk re mains that the specific ‘SEF’ chapter would not 
be sufficiently separate to provide social invest ment funds with a profile  that is sufficiently 
distinct from venture capital. As mentioned throughout this report, while venture capital and 
social business share some important features (b oth sectors are made up almost exclusively of 
unlisted SMEs that have an insufficient financin g mix), important differences exist (the need 
to define to give ‘social busin ess’ very clear contours and th e concomitant need to develop 
transparency tools in relation to social inve stments and metrics to measure social impact). 
The need to provide detailed rules on these di fferentiating aspects militates in favour of a 
stand-alone legal framework for SEF.    
It should also be noted that Option C3 will suffer from enforcement complexities that are 
comparable to those described in relation to  Option C2. Trying to differentiate between 
venture capital and social busin ess propositions will take up considerable regulatory 
resources. Supervision issues may not be very pr evalent in relation to the determination of the 
SEF’s portfolio composition, or the eligible  investment instruments, but the proper 
identification of a social enterprise will require considerable expertise. It is exactly in this 
 
EN 47   EN respect, that a combined approach will give ri se to potential regulatory arbitrage and attempts 
to offer a non-qualifying fund under the EU SEF label.  
Finally, the signal that a bespoke, stand-alone initiative on SEF can gi ve to the investor 
community and society at large should not be u nderestimated. The benefit for a vibrant social 
business market may not be fully exploited if SEF does not have a stand-alone platform with 
tailor-made rules that make a dis tinction between venture capital firms and social business.       
Option C4  would likely have the greatest impac t: taken together with options under 
objectives A and B, this would establish a cl ear notion of EU SEF with a proportionate 
regime applying. As it exhaustivel y addresses all aspects relevant  for the emergence of a true 
social business fund, notably investment targ ets, investment instruments, portfolio 
composition and the tools used to measure social impacts, it stands the best chance of creating a specific platform for maximising poten tial positive benefits fo r social businesses, 
society, SEF and investors.  While not entirely avoiding the issue of regu latory arbitrage that 
arises in relation to Option C3, the creation of a stand-alone rule book that pertains only to EU 
SEF will pose the stark choice for a fund to either register as fund compliant with the rules on 
venture capital or with those on SEF.   
As already noted, a phased approa ch may be envisaged, given th e youth of this sector and 
uncertainties over potential take  up of proposed changes, notably in regards cross-border 
business. A framework would be established at this stage as a foundation for future growth, 
while the take up of that framework, impact on existing business, and proportionality of the 
elements of the framework, would be carefully monitored and made subject to ex-post analysis. 
Efficiency and stakeholder analysis 
Costs / Benefits  
Investors Funds Social Businesses Society 
C1 n/a n/a n/a n/a 
C2 - use of VC framework 
may limit range of 
different forms of 
funding available ≈ change to investment 
options  - existing fragmentation 
in rules, costs would 
continue  
- use of VC framework may limit range of 
different forms of 
funding available + not disruptive 
- Possible investor 
confusion as there might 
be no bright line 
between SEF and VC  - lower impact on cross-
border trade 
- use of VC framework 
may limit range of different forms of 
funding available  
+ not disruptive - potential for regulatory 
arbitrage between VC 
and SEF (VC funds 
could misuse SEF label 
as their target company’s social goals 
are not clearly 
circumscribed ≈ more widespread, 
sustainable social 
business sector across 
EU; however contribution  of SEF 
sector likely sub-
optimal Benefit for a vibrant 
social business market 
not fully exploited if 
SEF does not have a 
stand-alone platform with tailor-made rules 
that make a distinction 
between venture capital firms and social 
business 
C3 ~ emergence of a 
European notion of what constitutes a social 
investment fund is not 
optimal when SEF become a sub-category 
of VC funds   
 - Clarity as to 
investment strategy, portfolio composition 
and target companies 
does not emerge so clearly when integrated 
into the general VC 
framework  - Social business will 
still lack a distinct framework and profile if 
integrated into VC rules 
- possible regulatory overlaps and frictions 
when SEF and VC are 
contained in the same  Benefit for a vibrant 
social business market not fully exploited if 
SEF does not have a 
stand-alone platform with distinct profile 
 
EN 48   EN - Possible investor 
confusion as there might 
be no bright line between SEF and VC   ‘rulebook’ 
- potential for regulatory 
arbitrage between VC and SEF (VC funds 
could misuse SEF label 
as their target company’s social goals 
are not clearly 
circumscribed 
C4 + emergence of a 
European notion of 
what constitutes a social 
investment fund increases investor 
confidence and 
willingness to invest in SEF 
+ access to wider range 
of SEFs (range of markets, more efficient 
specialisation) 
+ SEFs cheaper 
(Benefits likely to be 
long term rather than short term) + Clarity as to 
investment strategy, 
portfolio composition 
and target companies (70% in business that 
follow the above 
described ‘social business’ strategy) 
provides EU SEF with a 
clearer profile   + more vibrant SEF 
market leads to better, 
more varied financing 
+ more vibrant SEF market leads to richer, 
deeper eco-system 
+ may facilitate access to wider / deeper capital 
pools (e.g. for 
geographically disadvantaged social 
businesses) 
- may lead to additional 
reporting, other costs 
? may be disruptive  (Benefits likely to be 
long term rather than 
short term) + more vibrant social 
businesses 
+ inclusive, sustainable 
growth and jobs (Benefits likely to be 
long term rather than 
short term)  
Magnitude of impact as compared with the baseline scenario: ++ strongly positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable  
 
Summary of analysis 
Policy 
option EFFECTIVENESS EFFICIENCY  COHERENCE 
C1 
0 0  
C2:  -  
 - 
 Needs of SEF not fully coherent with existing 
regulation (AIFM-D, UCITS), limiting 
effectiveness 
Limits to extent to which VC framework is 
fully coherent with goals of SEF (i.e. 
permitted investment instruments, designation 
of funds) 
C3 ≈  ≈   
C4 ++ 
 + 
 Coherence with SBI and SMA commitments 
Coherence with VC by following – in most 
part – same structure, minimises impact 
Consistent with options under Objective A 
Magnitude of impact as compared with the baseline scenario: ++ strongly positive; + positive; – – 
strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable  
 
Option C4 is preferred. A standalone passport for SEF offers greater effectiveness, efficiency. 
It is particularly coherent with Co mmission objectives under the SBI and SMA. 
 
EN 49   EN 7.5. Choice of instruments 
Option C4  must take the form of legislation in orde r to ensure the basis for rights to passport 
(market) cross-border can be achieved. The choi ce of instrument should be consistent with 
that adopted for the VC framework; see the IA  for that initiative for a discussion of the 
instrument.  
Option A3 could in principle either th e take the form of a reco mmendation or a legislative 
instrument (Directive, Regulation).  
There is however a very  strong dependency  between option C4  and option A3 – a new 
fund framework would entail  a label and linked transparency measures, so that prima facie  
the instrument required for option C4 should also be used for delivering option A3. This is particularly the case in regards a label att ached to rights afforded to funds under a new 
legislative framework as under C.  
A recommendation could be used for transpar ency measures to reduce fragmentation and 
achieve greater consistency and comparability in information, thereby raising comparability 
and clarity. For such a 'soft-law' interven tion there would be some scope for further 
development and the EU would retain the option of hard law intervention later if this proved 
necessary. Such an approach could thereby take  due account of the f act that the social 
investment market is still emerging and developing.
37 However, as a soft-law intervention, 
there would be limits on the scale of benef its, due to likely variations in national 
implementations. This could increase confusion.  
For this reason, a legislative in strument seems appropriate fo r all aspects of delivering on 
option A3.  
Legislation for transparency measures coul d take a 'framework' approach, allowing for 
detailed implementing measures or supportin g technical standards and guidance to be 
developed where needed for ach ieving tailoring and adaptati ons, as and where necessary. 
Establishing common EU re quirements through binding m easures could also reduce 
inconsistencies, and hence compliance costs. Al so legislative measures could better guard 
against regulatory arbitrage.  
As to options B2 and B3 , further work needs to be undertaken on how existing informal 
structures could be used to establish a forum or arena for further debate amongst 
stakeholders. If there is a need for a more fo rmal instrument this would be accompanied by 
further IA work. Launching a study would follow the normal Commission procedures. 
7.6. Summary of Retained Options 
 
Option Description 
G2 Allow investments from certain High Net Worth Investors and other professional investors as 
under MiFID rules 
                                                 
37  It has also been argued that non-binding rules can have the same political and social effects and benefits as hard law. Borchardt, G. M. and Wellens, K. C., Soft Law in European Community Law, 
European Law Review, 1989. 
 
EN 50   EN A3  Establish a EU label or brand for social investment funds (with supporting transparency 
measures) 
B2 and B3 Establish a forum or group for stakeholders to coordinate development of tools on social 
impacts 
Launch a study assessing possible approaches to assessment and analysis of social impacts for 
investment funds 
C4 Develop passport regime for European Social Investment Funds, based on VC passport  
 
As noted, option A3 and option C4 fit together and practically should be delivered together, 
to provide a single pack age in the form of a new legislat ive instrument (under the VC IA a 
regulation is proposed). (Op tions under B2 and B3 can be developed separately.) 
As noted, this would be a voluntary regime . No fund would be forced to follow the regime, 
including funds already being sold cro ss-border under existi ng arrangements.  
Those who wish to use the new passporting right s and/or label themselves as a 'European 
social investment fund ' would be required to follow the regime. The key content of these 
requirements would be: 
• the fund manager would need to register in  order to market his funds throughout the 
EU;  
• for each EU SEF, the fund manager would fo llow simple portfolio investment rules 
(the fund would be invested at least 70% in social busi nesses, and would avoid the 
use of leverage at th e level of the fund); 
• the fund manager would need to follow some  key rules on his conduct of business 
and organisation;  
• competent authorities would need to coordi nate and cooperate th eir supervision of 
the funds and mangers, and would have the power to deregister any manager who is not complying with the requirements of the framework; 
• for each fund, the manager would need to make available key information as regards 
the social investment, as set out in the option description. These requirements are 
likely to have impacts for social busin esses themselves as well as the fund. 
There are therefore two crucial distinctions w ith the VC passport regime. First, EU SEFs 
would be able to invest thr ough a wide range of instruments,  so as to reflect financing 
innovations in the social business market that distinguish this market from the wider SME 
market. Second, EU SEFs would be required to comply with specific transparency measures 
related to their social objectives. 
Phased approach 
 
EN 51   EN Given the youthful nature of this market , measures for improving transparency, the 
understanding and communication of social return s, and the proportionality and effectiveness 
of fund rules should be taken in a careful and incremental fashion.  
There are two ways in which this can be achieved:  
• Detailed measures should be developed subj ect to further analysis in regards their 
appropriate content, as is possible th rough the legal technique of Level 2 
implementing measures. These will be subj ect to separate impact assessment, and 
developed with the benefit of advice from  the European Securities and Markets 
Authority (ESMA). Such measures should be developed so as to be readily open to 
review and assessment in the light of expe rience in the development and application 
of the framework.  
Such measures can be envisaged in particular  in relation to detailed requirements on 
transparency and reporting, including on the possible c ontent and presentation of 
these, and on the clarifica tion of the criteria for iden tifying social businesses.  
The calibration of such detailed requiremen ts needs to be carefully undertaken with 
full consultation with social businesses themselves to ensure minimal negative impacts on them. 
• The design and implementation of some m easures should be phased, with certain 
steps taken now and other steps reserved  for the future once the market has 
developed further.  
The aim at this stage should be to set in place a broad, principles-based framework, 
rather than resolve all detail on all elements.  
This then can be used as a platform for ongoing debate with stakeholders on the best 
overall development of this sector, and can be elaborated or adjusted over time as the 
market evolves and innovates. To support this, robust commitments to review and 
monitoring and ongoing work are necessary. 
Measures envisaged under options B2 and B3 are not a condition, note, for the 
transparency measures under option A3.  Transparency measures  can be developed and 
will be efficient without harmonising at this stage the methods on measuring social impact. 
As evidenced by work in other areas on disclosu re (e.g. PRIPs), more standardised disclosure 
as such will already increase reliability of information. Within the phased approached as set 
out above it will be possible to lay down a common framework which can then complimented 
by more harmonised methods on measurement at a later stage.  
Summary of timing of measures and their content 
Proposed solution Option 
Now Level 2 measures  Future development Magnitude of 
impact 
G2 – Investors Institutional investors + 
some HNWI  Assess measures / scope 
for widening for retail 
access? 
A3 – Label Set common framework 
for  EU label 
Content: 
Common designation for Set out precise 
application of criteria on 
which social businesses 
are in scope Assess measures / scope 
for widening for retail 
access? Significant over 
longer term. 
 
EN 52   EN EU SEF that meet 
minimum standards (70% 
investment in social 
businesses) 
A3 – 
Disclosures Common principles for 
disclosures, but not 
complete standardisation 
of content 
 Set out details on 
application of principles Increased standardisation 
of information 
 
Content: 
Stronger standardisation 
of disclosure 
requirements, specification of content of 
these disclosures and 
mechanisms for 
supporting reporting.  
Build on work on social 
returns. 
  
Assess new measures to 
support widening for 
retail access? 
B2, B3 – 
Social Returns Study / working group May feed in to Level 2 
measures in the future? Standardised measures 
comparable across all 
Funds? Medium to 
significant over 
longer term. 
C4 – SEF passport 
regime New passport attached to 
EU label – does not 
displace existing funding 
conduits, but adds a new 
conduit  Assess measures for 
widening for retail 
access? Incremental 
now; medium 
over longer 
term. 
 
7.7. Cumulative assessment of preferred options 
7.7.1.  Assessment of take-up of the proposed EU framework for SEF 
An essential consideration in st ructuring the preferred instrument  is the maximisation of take-
up by fund operators and their sponsors. Ther efore, the regulatory framework for social 
investment funds should be caref ully conceived so as to provi de the maximum expectation of 
take-up by the relevant operators. Several considerations are rele vant in this respect: (i) the 
rules on portfolio composition should be ambitious and realistic at the same time; (ii) the qualifying investment instruments should corres pond to the identified financing needs of 
social business; (iii) the creati on of a sufficiently large investor  base; and, last but not least, 
(iv) the creation of a framework where investor s can trust social inve stment propositions and 
the stringency with which their success is monitored. In order to demonstrate the efficiency 
of the policy choice, the fours as pects will be assessed in turn.  
7.7.1.1.  Ambitious, but realistic ru les on portfolio composition 
The issue of the optimal composition of a soci al business fund's portfolio will evolve in 
parallel to the debate on the optimal portfolio  composition of a ventur e capital fund. Many of 
the considerations of the ventur e capital IA report will therefore be relevant in the context of 
the social business fund as well. As with ve nture capital, a key concern in devising the 
appropriate fund regulations for social busines s funds is to make these funds sufficiently 
distinct from other investment propositions in the alternative fund sector. Should the 
envisaged regulatory framework fail to achieve the requisite level of distinction, investors 
will not trust it and unscrupulous fund operators are prone to use the sp ecial social business 
framework as a tool to circumvent the st ricter rules on opera ting conditions, reporting 
 
EN 53   EN obligations, valuation or  risk management that  they would have to comply with under the 
AIFMD.  
Therefore, a very high percentage of capita l committed by socially motivated investors 
should indeed be invested in those businesses th at qualify as social businesses that fulfil the 
essential characteristics of such businesses, as de scribed in on assessing Section 4.1 of this IA 
report.  A high percentage is necessary to comply with the very specific expectation of this particular investor group. Ideally, therefor e, 90% of all capital committed to a social 
investment fund would be invest ed in social businesses. This  would leave the fund operator 
with a 10% margin to manage daily liquidity  needs (liquidity in relation to a social 
investment fund is not comparab le to that required of other alternative investment fund as 
social investors constitute patient capital that remains invested during the entire lifetime of 
the fund which is usually seven to ten years).  
But, as pointed out in the IA report on ventur e capital, there are some important drawbacks to 
a 90% investment threshold. In pa rticular, stakeholders point to the fact that initial take-up 
might be maximised if the investment target  was somewhat below 90%. Especially in an 
initial phase, the sponsors of a social busin ess fund will need more latitude in their 
investment policies. They will also need to establish an imag e of reliability and, despite the 
expectation of predominantly soci al return, of a certain profita bility of their funds. This is 
because even socially motivated investors remain interested that their ca pital is professionally 
managed and that there will be some return on invested capital at the end of the commitment 
period.  
These considerations militate in favour of gr anting the social venture fund a higher degree of 
latitude in respect of their investment portfolio . It is therefore proposed that at least 70% of 
capital committed by investors is invested into social businesses, the remainder being at the 
fund manager's disposal to manage liquidity of  the fund but also to enhance its initial 
profitability.  
On the other hand, the lower threshold of 50% of committed capital dedicated to social 
business would dilute the profil e of a social investment fund. Dilution would r un counter to 
the stated aim to increase the distinct identity  of a social investment fund and differentiate 
such funds from the wider population of altern ative investment vehicles. This is because 
many alternative investment funds  would be tempted to align th eir investment policies with 
this threshold without developing the experi ence and dedication nece ssary to fulfil the 
envisaged profile of a social investment fund. In  this context it should not be forgotten that a 
social investment fund plays an important role in providing  expert advice and managerial 
competence to many of the social businesses it inve sts in. this focus on the social business, its 
success and also the monitoring of the intended social impacts, might be lost if the 
investment quota would be lowered to 50% of investors capital.   
In light of these consideration an invest ment quota of 70% seems, on the one hand, 
sufficiently ambitious to create a distinct pr ofile differentiating a so cial investment fund 
while, on the other hand, providing a realistic expectation that the pr oposed scheme will 
command a high initial take-up by specialised fund operators.  
7.7.1.2.  Qualifying investment tools need to corre spond to the identified needs of social 
business 
As this IA report describes, the investment needs of social business are somewhat more 
differentiated than those in the area of vent ure capital. As section 4.1.2 of this IA report 
explains, a wider range of instruments than equ ity or quasi-equity is necessary to ensure the 
 
EN 54   EN operation of a wide variety of so cial business. While it may be the case that some social 
businesses are start-up ventures th at are most heavily dependent on the 'patient capital' that an 
equity investment provides, other social enterp rises might find themselves at other stages in 
their lifecycles where recourse to debt instru ments would provide a more suitable financing  
tool.  
Therefore, while the analogy with the venture capital rules on equity investments might be 
tempting to delineate a clear and distinct profile for social inve stment funds as well, current 
business practice in the social business sector relies also on debt and even, as the French 
example cited in Section 4.1.2 shows, on non-tran sferable debt instruments. On the other 
hand, as the rather narrow circumscription of what  constitutes a social business, coupled with 
a reasonably ambitious percenta ge threshold of investment s in such businesses (70%) 
provides criteria which allow a distinction between social investment funds and other 
investment vehicles that purport to engage in 'socially responsible' investments, the additional criterion of clearly delineate d investment instrument does not appear indispensable to 
characterise a social  investment fund.  
In light of these considerations, initial take-up
 by operators and sponsors of social investment 
funds would be enhanced by allowing a variety of debt instruments as qualifying investment 
tools for social investment f unds without risk of diluting th eir distinct characteristics. A 
decision is therefore taken to a llow that a social investment fund may invest in securitised 
and un-securitised debt instruments, issued by a qualifying portfolio undertaking and shall be 
allowed to grant medium to long term loans to such undertakings.   
7.7.1.3.  A sufficiently large investor base 
Another essential tool to maximise initial take-up of the proposed framework for social 
investment funds is that the proposed rules crea te a funding vehicle th at is accessible to a 
sufficiently large group of socially motivated in vestors. As this repor t demonstrates, take-up 
for the proposed funding vehi cle can be enhanced by openi ng this vehicle to a group of 
investors that goes beyond the group commonly de scribed as professional investors in Mifid, 
Annex II.   This broader scope of investor s would comprise other groups of socially 
motivated investors such as social investme nt entrepreneurs, fami ly offices; wealthy 
individuals, industry sector e xperts, angel investors under two conditions: these investors are 
sufficiently apprised of the investment risk  associated with social business and their 
minimum initial investment is not below EUR 100.000.  Including these investor groups 
would augment the potential soci al investor base by at least 15% to 18%. This is because 
wealthy individuals currently account for around 10% of all social investments, family 
offices 5% and asset managers for another 3%.  
7.7.1.4.  Creation of investor trust 
As this report shows, the measurement of social  impacts is important bu t metrics and tools in 
this area are still at an early phase in their development.  Take-up of a proposed scheme can 
therefore be enhanced in  two distinct ways.   
First, the new framework can enhance investor confidence by requiring basic elements of 
transparency in relation to the investment stra tegies pursued by social investment funds. Such 
elements would comprise the following:  
 
EN 55   EN – a description of the investment strategy a nd objectives of the EU SEF, including a 
description of the types of  the qualifying portfolio undertakings and the process and 
criteria which are used for id entifying and selecting them;  
– the positive social outcome being targeted by the investment policy of the EU SEF, 
including where relevant, projections of such outcomes as may be reasonable and 
information on past performance; 
– the methodologies which will be used to measure social outcomes; 
– a description of the assets other than  qualifying portfolio undertakings and the 
process and the criteria which are used for selecting these assets unless they are cash 
or cash equivalents; 
– a description of the risk profile of the EU SEF; 
– a description of the proce dures by which the EU SEF ma y change its investment 
strategy or investment policy, or both. 
These requirements would also be subject to supervision by competent authorities, 
coordinated further by ESMA, in order to ensure compliance. This will also help to increase 
the trust in these increased requirements. 
Secondly , parallel work should be carried out in  developing commonly accepted and uniform 
metrics for the measurement of social impact s. These developments are undertaken largely 
with the aim of making social investment pr opositions comparable on their respective merits. 
Such tools would therefore have to focus on impacts such as 'outreach' (e.g., how many 
people are covered by a particular business, ho w many people with difficulties in accessing 
the labour market have been employed by a so cial business, how many people with certain 
disabilities have received goods a nd services by social businesse s that have enabled them to 
participate in society, e.g., in terms of acces s to higher education, vocational training or 
health care).          
With this phased  approach, consisting of an immediat e set of requirements that ensure 
transparent screening and selection of soci al undertakings, followed by a more in-depth 
development of assessment methodologies to  measure social impact, the immediate 
framework for a substantial take -up, also from the investor's perspective, is achieved.  In 
order to ensure the sustainabl e nature of the initial take-up, it is important to stress the 
coordinated work that will ta ke place, by virtue of delega ted acts the Commission shall be 
empowered to adopt, to develop more comparable m easurement tools.                 
7.7.2.  Benefits  
Fund Industry  
A new European brand and passport would contri bute to increased i nvestor confidence and 
activity, while providin g new marketing opportunities for th e sector, and so contribute to 
greater fund flows. (The new labe l in particular might be expect ed to have a strong effect of 
this kind). This could improve economies of s cale and thereby reduce costs for the funds that 
succeed in attract ing capital.   
A more effective cross-border market would support these impacts, and help such funds 
develop a strong identity across the EU. The VC IA estimated that a 1% increase in cross-
 
EN 56   EN border trade in the VC market more widely would result in an additional EUR 50 million 
investments being directed to SMEs in given year or the additional amount would increase 
the amount invested to existing SMEs.38  
Improved trust in the sector c ould have strongly positive bene fits for fund inflows, though 
these are difficult to model given uncertainties. Growing trust could be 'catalytic' – spurring 
the emergence of financial intermediaries with expertise and knowledge of the needs of social 
businesses, of information and exchanges so th at social businesses themselves can prepare 
themselves for investments and are aware of th e funding options available to them, and, with 
this, growing understanding and appreciation on th e part of investors of  the options available 
and the differences between them. Better descri ptions of and ultimately pricing of the 
positive externalities targeted by social busine sses are central to this. For this reason, the 
eventual fruition of steps on options B2 and B3 would be central to maximising this benefit. 
Benefits are expected to be in cremental to begin with. In th e medium to long term, as the 
market matures, the advantages of a common framework are likely to become increasingly 
substantial (as experienced in the developmen t of the UCITS fund 'bra nd' over almost three 
decades). 
More efficient passporting of funds may par ticularly benefit funds operating in small 
domestic markets, by allowing these funds to  draw on investments from larger, better 
capitalised national markets. It is not expected  that the location of f unds themselves will be 
impacted, as these in general tend to be lo cated close to the social businesses they are 
investing in. 
Investors 
Improved labelling and transparency would aid investors in id entifying appropriate 
investments, allowing for more efficient capital  allocations and better investment choices. B2 
and B3 could lead to the emergence of a new a sset class, as some evidence suggests that 
assets that focus on positive externalities are not  correlated with many ot her traditional assets. 
Growing trust in relation to the social inve stment market would also likely to wider 
availability of and marketing of products, and thereby more choice for investors who seek to 
make social investment part of their wider investment strategy.  
Improved cross-border trade would likely cont ribute to a more vibrant and competitive 
market, with a wider range of options availabl e to investors. This could also allow better 
scaling of funds and ther eby economies of scale. 
The scale of such benefits is difficult to assess  at this stage. Benefits are expected to be 
incremental to begin with, but could be substantial as the market matures.  
Social Businesses  
A vibrant cross-border social  business investment market, could significantly improve the 
investment capital available to social busine sses. Improved transparency and greater trust 
would also support and contribute to the em ergence of a more robust and effective eco-
system supporting social businesses. This would help this sector develop the necessary forms 
and mechanisms for supporting soci al businesses, and social busin esses in identifying sources 
of capital and exploiting these. 
                                                 
38  Based on last 4 years' average of VC investing €5bn on annual basis to approximately 3.000 SMEs. 
 
EN 57   EN Since investment funds targeti ng social businesses typically pl ace reporting requirements on 
those businesses, coordination and reduced over laps or conflicts in  reporting obligations 
across the EU for the investment funds could reduce costs for social businesses themselves, 
and lead to the development of a more robust eco-system s upporting social businesses in 
satisfying common reporting obligations. 
The scale of such benefits is difficult to assess  at this stage. Benefits are expected to be 
incremental to begin with, but could be substantial as the market matures.  
Wider benefits:  impact on sustainable and inclusive growth, environmental impact  
The likely wider 'social impacts' of m easures are of central importance.  
Social businesses act as 'multipliers', that concentrate on developing and delivering 'positive 
externalities'. Social businesses are defined in terms of their concentration on and capacity for 
delivering such social 'impacts'. These busines ses focus on addressing th e social challenges 
brought on by exclusion, poverty, disability, stretched public services, and environmental 
challenges, such as regards dwindling resour ces, pollution, and climate change. Supporting 
those businesses seeking to fi nd innovative and sustainable solu tions to these challenges 
offers therefore a direct opportunity for building EU capacity for positive social, 
environmental and economic development. 
One of the challenges being addressed in this IA  itself is the difficulties currently faced in 
assessing such externalities.  Developing and facilitating to ols for assessing and analysing 
social impacts is one of the options highlighted here as a preferred next step. Once such work 
has been developed to fruition better tools for outlining and assessing the social impacts of 
investments in social businesse s will naturally be possible. 
A thriving social business sector across the EU ca n be expected to direc tly contribute to more 
sustainable, inclusive, and e nvironmentally sound growth.   
The scale of such benefits is difficult to assess at this stage. For the VC IA it was estimated 
that for every additional EUR 1 billion, around 10.000 jobs might be created.39 Given social 
businesses are also SMEs, this estimate could hold for EU SEF. The quality of the impact of the investment needs also to be taken into acco unt: social businesses seek to provide jobs and 
growth that are strongly inclus ive, strongly sustainable.  
Benefits may be incremental to begin with, but could be substant ial as the market matures.  
7.7.3.  Costs 
Fund Industry 
Transparency measures would incur direct  compliance costs for the fund industry.  
These costs relate to changes to systems and procedures for ga thering and providing 
information, and costs related to the publicat ion of information (including redrafting of 
information).   
Disclosure costs for firms have typically been se en as major costs. Data  collected on costs of 
the introduction of key investor  information disclosures for UCITS funds estimated one-off 
costs of between EUR 290 and 730 million (dependi ng on factors that remained open at that 
                                                
 
39  [Reference to be inserted to final VC IA]. 
 
EN 58   EN time).40 This is for an industry of around EUR 7 tr illion; for perspective, these one-off costs 
were around 0.016% of assets under management. However, these are estimates for measures 
applying to the universe of UCITS funds which required co mplete replacement of (retail 
facing) investor disclo sures for these funds.  
Transparency measures would not require wholes ale revision and replace ment of disclosures. 
In addition, 'business as usual' or national or self-regulatory costs will be incurred already in 
the area of transparency. Requirements already apply on all funds to provide fair, clear and 
not misleading information in relation to their strategy and objectives, and to report on their 
performance. Those funds targeting social busin esses already need to provide information in 
the area covered by option A3. Self-regulatory initiatives also currently are likely to be 
applied.  
Greater consistency and harmonisation of  transparency meas ures under a common 
framework could therefore reduce costs for f unds over time, particularly where they are 
operating across different markets, as they would have greater certainty over what is required 
for them, and an eco-system of supporting prof essionals and service providers would likely 
become available familiar with the common standards. Developing common transparency 
measures in a phased manner (as intended for the preferred options) could reduce impacts on 
existing funds, by allowing these to make use of a common framework with minimal changes 
at this time. Under such an approach costs of greater standardisat ion of transparency 
measures could be absorbed into exis ting ongoing costs of updating and reviewing 
disclosures, with little incremental impact.  
However, funds might in face some possible a dditional data collection and analysis costs 
related to social performance in particular. Such costs can only be fully assessed in the 
context of detailed implementing measures as may be developed in the future, and should be 
subject to additional impact assessment at that time. 
Importantly, the funds impacted by a new Europ ean social investment fund framework would 
only be those that chose to use the new framework and label, a nd existing funds that chose to 
ignore the initiative would not be impacted. Complying with these proposals would be a 
business decision for the fund.  
Note, that registration and notification requi rements under option C4 are expected to be 
minimal in cost impact and cer tainly lower in cost than cu rrent arrangements, as under the 
assessment in the VC IA.   
Options B2 and B3 would incur no direct  costs for the industry. Any proposals for 
harmonisation of methodologies that emerge from  such work would of course need to be 
subject to impact assessment. Option B2 migh t however incur some marginal costs for 
industry participants who wish to participate. 
Investors 
It would not be expected that  investors would bear  additional costs, though costs borne by 
funds could be passed onto investor s through higher charges to the fund. 
Supervisors 
                                                 
40  CSES study on costs for the UCITS industry from introduction of Key Investor Information document 
proposals. 
 
EN 59   EN New requirements might increase costs for supe rvisors, including ensuring cooperation in 
ensuring effective supervision of funds that make use of the EU SEF designation and cross-
border marketing possibilities.  However the assessment of this depends on the relevant 
benchmark: as the SEF market develops, it is  likely that competent authorities would be 
increasingly subject to costs related to em erging problems in the market; acting now to 
coordinate the market is likely to reduce su ch costs over the long term by providing for a 
common platform from the beginning. 
Option B2 might incur some marginal costs fo r public authority participants who wish to 
participate. 
Social businesses  
New requirements could increase costs for soci al business who wish to receive funding from 
investment funds subject to more stringent transparency and reporting requirements. (The 
passport under C3 itself would likely have  no cost impact on social businesses). 
Costs would be driven mostly by requests for re ports and data related to the transparency 
measures, and would include associated systems or data gathering costs. However, it is 
unlikely that these costs would be incrementa lly larger than those borne under business as 
usual, as social businesses that seek to make themselves investment ready are already subject 
to costs associated with satisfying investors in precisely the areas of reporting envisaged 
under the preferred options identified here. The measures envisaged here can be considered 
more as providing for a common platform or  foundation for future harmonisation, in the 
interest of establishing a more coordinated approach to supporting social businesses through 
investment funds.  
This coordination could indeed serve to re duce costs for social businesses. Greater 
consistency and legal certainty as to requirements would aid so cial businesses in identifying 
the steps needed to become 'investment ready' and overcome possible overlapping or 
competing requirements from different social rati ngs entities or other financial intermediaries 
as may currently apply. The extent of impact here depends on the extent to which the financial eco-system that supports social busin esses seizes the opportun ities presented by the 
new European social investment fund framework. This is difficult to assess. 
Options B2 and B3 would incu r no direct costs for social businesses. Any proposals for 
harmonisation of methodologies that emerge from  such work would of course need to be 
subject to impact assessment. Option B2 might how ever incur some marginal costs for social 
business participants who wish to participate. 
The phasing of identified measures is vital, as it allows for the cost impacts for social 
businesses of different approaches to be car efully taken into account as more detailed 
harmonising measures are developed or consid ered alongside the growing maturity of the 
market. 
7.7.4.  Impacts for other stakehol der groups, Employment, SMEs, and Third Countries, 
including assessment of  administrative burden 
As noted these proposals can be expected to have net positive impacts on employment, SMEs 
(given most social businesses are SMEs), and, indirectly, on the environment (mediated 
through the environmental mission of certain soci al businesses). Also, as noted, quantifying 
the scale of such impacts is not possible at this  stage, given that step s to improve investment 
 
EN 60   EN fund transparency and cross-bo rder marketing only influence the evolution of these wider 
developments indirectly. 
Note, the value of investments in entrepreneurship is clearly established, as a frame for this: 
according to latest research (outlined in the VC IA) it is estimated that an increase in equity 
investments of 0.1% of Gross Domestic Product (GDP) is statistically associated with an 
increase in real GDP growth of 0.30 percentage points. Early-stage investments have an even 
bigger impact of 0.96 percentage points. 
In relation to third countries, the application of  steps in the EU to improve transparency is 
envisaged as a voluntary regime, which would not constrain acce ss to EU capital markets for 
third country social investment funds. While funds investing in social businesses are likely to 
concentrate on investment targets located in EU, the options identified here would not 
constrain funds from pursuing inve stment targets outside the EU. 
Administrative burden 
In regards administrative burden, improved transp arency measures imply better data flows in 
the investment market for social businesses, and these could entail certain costs over and 
against business as usual costs for both SMEs and investment funds. These would relate to 
record keeping, information ga thering, and information analys is. Greater consistency in 
requirements could however lead to some reduc tions in costs for some social businesses. 
As a voluntary regime costs would only be bo rne those seeking access the funding that the 
regime makes available. Evidence from the e volution of the microfin ance funding market, 
and the development of labelling and transpar ency measures in that area (such as under 
'Luxflag' quality standards as devel oped by the Luxembourg fund industry),41 seems to 
suggest that benefits are considered to outweig h costs from the perspective of the funds and 
funding recipients. Market evidence suggests such  labels have not faced difficulties in 
acquiring members (informal estimates suggest Luxflag may cover 20% of the microfinance 
fund market).42 Participants in the Luxembourg initiative support this view, but have not been 
able to confirm specific details on the scale or  nature of the costs of complying with the 
quality standards. 
The issue of reporting costs for social busin esses was addressed a bove under section 7.7.3. 
For further details, see Annex V. 
Impact on other fund types and investment sources 
EU SEF do not directly compete with other types of conventional investment funds, given 
their specific focus on providi ng investors with a way of co mbining social and financial 
returns. EU SEF may compete however with cert ain kinds of 'social investment' funds that 
are seeking to offer such a combination, but whic h are not directly limited to targeting social 
businesses. They may also compete with nation al funds that are not designated as EU SEF 
but are targeting social businesses.  
Given the incremental expected impact of th e measures assessed here , and also given the 
existing scale of the SEF market and the exte nt to which EU SEF currently compete on an 
unlevel playing field (facing particular costs as se t out in the problem definition in this impact 
                                                 
41  http://www.luxflag.lu/MIV_listingProcedure.htm. 
42  Source: ALFI. 
 
EN 61   EN assessment), the consequential impact of the measures to support th e SEF market on these 
other kinds of funds is expected to be minima l. In addition, it can be argued that building 
trust in the SEF market will in practice be co mplimentary for all other social investment 
propositions, bringing greater tr ust and clarity to this market sector. A better founded SEF 
market would also be less likely to have unintended impacts on conventional investments. 
In terms of funding within the SME sector, it is not expected that these measures would have 
any material impact on the VC market more wide ly, given the specific focus of the measures 
here on funds targeti ng social businesses. 
While the development of a more vibrant SEF market in the EU might lead to reduced 
philanthropic giving, evidence from the UK – a de veloped market in th is respect – does not 
support such a conclusion. As noted above, it is possible growing tr ust would in practice 
enhance a complimentary and integrated approa ch on behalf of investors and donors, and in 
practice foundations and other charitable organsiations are key investors in EU SEF. 
Impact on EU budget 
This initiative will have no impact on the EU budget. 
Impacts on Member States 
Providing an EU-wide framework for access to i nvestors for SEF could have some impacts 
on specific Member States. In general, it is e xpected that funds would remain 'local' to the 
social businesses they support, with some sm all exceptions. The closeness of funds to the 
businesses they support – supported by the close relations between SEF and venture capital 
and 'business angel' activities – implies that this 'localness' would not change rapidly or 
materially. However, the measures envisaged in  this impact assessment would allow for SEF 
to draw on investments more wide ly. This can be expected to allow viable SEF to exist in 
smaller Member States, so long as they are able  to find willing investors elsewhere. Evidence 
from discussions with stakeholders, includi ng EVPA, suggest that th ere are investors who 
will be willing to operate in this way – cross-border. To the extent that this is the case, then, the measures could see increased investment flows between Member States to the benefit of 
small funds in Member States without current SEF activity.  
There is little evidence to suggest this woul d harm existing SEF activity in Member States 
where this sector has been deve loping already in a strong fashi on. As the market evolves, its 
geographic dispersion should however be subject ed to further assessment, to ensure the 
benefits of this sector extend across the EU and an effective single market in capital exists to 
the benefit of the sector. 
8. S
YNERGIES AND RISKS 
8.1. Effectiveness of phased approach 
As set out in section 7.6, a 'phased' approach to the various selected options is envisaged. 
Under this approach uniform rules as are necessa ry to establish a EU notion of SEF would be 
established now. These would govern the use of the designation, and ensure effective 
transparency around the designation.  
Additional steps would then be envisaged to fu rther elaborate and standardise the disclosures 
and the application of the criteria for the iden tification of social bu sinesses to existing and 
 
EN 62   EN emerging forms of such businesses. These would include work to devel op level two measures 
(implementing measures) within the frame and timing set for the coming into effect of the 
new uniform rules, which would be subject to  further impact assessment work. They would 
also include further steps, s ubject to further assessment and analysis work, to develop and 
deepen methodologies for the calc ulation of social performance and to assess the grounds for 
widening access to the EU SEF to retail investors. 
This approach allows a proportionate impact to  the growth and development of the market, 
while effective and efficient measures to be taken now to address the problems identified in this impact assessment. While initial impacts might be incremental, the development of a EU notion of SEF and stronger invest or trust and confidence in this  brand, could strongly aid the 
emergence of the social business sector in the EU, and lay the basis for much greater impacts in the future on this sector, for instance through measures to widen access to retail investors.  
A phased approach could, in theory, lead to  additional costs du e to sequential and 
incremental changes over time. The approach en visaged here would however be to build on a 
framework over time, and to not wholly re place existing requirements with new ones 
incurring wholesale costs of change for all exis ting funds. This is partic ularly relevant given 
the way in which future refinements and change s might impact existing funds: grandfathering 
and transitional provisions can be designed so  that new requirements apply only to new 
funds. Any steps to apply new requirements shoul d of course be subject to additional and 
separate impact assessment, so as to consider  any such future costs.  In practice, a phased 
approach is appropriate for a growing a nd developing market, as it should allow 
proportionality of measures. 
8.2. Interaction with parallel proposals on Venture Capital 
As has been noted throughout th is report, the notions of i nnovative SMEs and SMEs that 
have set themselves the goal to work as a soci al undertaking overlap, at least to some extent. 
Both types of enterprises tend to be small a nd medium sized and face issues in obtaining the 
requisite level of 'patient capital' that remains invested for a seven to ten year period. This implies that there are strong s ynergies between this work to support social businesses, and 
steps on improving the EU framework for vent ure capital funds. Social businesses are 
effectively a sub-set of SMEs. 
However, there are a series of  distinguishing features that prevent social businesses from 
being the primary targets for a typical ventur e capital fund. The notion of "social business" 
comprises a broad range of companies that aim to achieve 'social returns' over and above the 
generation of profit. This ambition, as stresse d throughout the IA repor t, requires dedicated 
reporting and disclosure require ments tailored demonstrating the social investment strategy 
as well as tools and methodologies to measure social impacts. Both elements are not in 
evidence when investments are consid ered into venture capital funds.   
In addition, the expertise to support a social  business will often be different from that 
required to advise start-up entitie s in the venture capital field. Investors in social business are 
often going to be different to those under the wider VC work. Indeed social business and 
venture capital investments, although someti mes overlapping, can be  seen as largely 
complementary; the promotion of one type of investment does not dimi nish funding available 
for the other.    
Finally, while social businesses are also SMEs, and the funds targeting social business also 
operate beneath the asset-based thresholds of  Directive 2011/61/EC, the range of eligible 
 
EN 63   EN financing tools proposed in the Regulation on Social Investment Funds go beyond equity 
finance - the typical instrument  for start-up enterprises in th e technology sector. Apart from 
equity finance social undertaki ngs also have recourse to othe r forms of finance, combining 
public and private sector financ ing, debt instruments or small loans. The proposed rules on 
social investment funds theref ore provide for a larger range of qualifying investment tools 
that are available for soci al investment funds.   
The proposed fundraising framework for Social Investment Funds is th erefore construed to 
be complementary to the proposed framework on Venture Capital Funds. Both proposals aim 
to achieve different goals and both proposals, if adopted, will coexist as autonomous legal 
acts in mutual independence.  
8.3. Interaction with the gen eral rules on alternativ e fund managers (AIFMD) 
Social Investment Funds focus on providing equity  or debt finance to social undertakings but 
typically do not meet the asse t-based threshold that defines the passport available for large 
fund managers under Directive 2011/61/EC (on Alternative Investment Fund Managers). 
More extreme still than venture capital funds, where 98% of managers operate beneath the 
threshold, this IA report has not identified a single social busines s fund whose aggregate 
assets under management would exceed the AIFMD threshold (as Section 3.3 points out, the 
biggest social business fund (Bridge s Ventures) manages assets of around € 115 million).       
In addition, the transparency issu es raised by investme nts into social busi nesses are distinct 
from the general reporting oblig ations that are provided in th e area of both venture capital 
and in the wider range of alternative investment  funds. Social investme nts target a form of 
‘social return’ or positive so cial impact. The proposed rules on social investment funds 
therefore contain special sections that focus on information pertaining to social impacts, their 
measurement and the strategies employed to foster their achievement.  
The proposed fundraising framework for Social Investment Funds is th erefore construed to 
be complementary to the genera l rules covering alte rnative investment funds (AIFMD). The 
special framework on social investment fu nds, being confined to sub-threshold fund 
managers, is entirely autonomous to the gene ral rules and therefore avoids any regulatory 
friction between the two sets of pass ports and their respective conditions.  
8.4. Interaction with work under the Soci al Business Initiative more widely 
The steps explored in this impact assessment clearly have very str ong synergies with other 
steps to improve the wider eco-system for so cial businesses, addressing professionalism, 
capacity and infrastructure building, awaren ess of funding and grow th opportunities. These 
have been set out in the Comm unication on Social Business.  
Of particular relevance in this regard wi ll be the Programme for Social Change and 
Innovation, under which a dedicated instrument will be estab lished in order to improve 
access to finance for social enterprises. This  will provide for grea ter public funding.  EU 
funding is expected to leverage  funding from other sources. 
In addition, the new Regulation for the Eu ropean Social Fund (2014-2010) lists "Social 
Enterprises" as an investment priority. Memb er States can, for instance, set up a specific 
investment fund and use their ESF funds  for social enterprise support.  
Linked to this are possible steps by the EIF to provide public money through a fund-of-funds 
structure to specific funds that ar e targeting social businesses.  
 
EN 64   EN Steps on transparency and a label for privat e investment funds, and on improving measures 
on social returns or impacts, should be coordina ted so as to ensure the greatest degree of 
coherence between different initiatives.  
8.5. Risks linked to creating a EU brand for SEF 
A specific risk relates to the possibility, thr ough the label and passpor t, of creating a EU 
brand that could be tarnished if strong measures  are not in place to ensu re it is protected from 
mis-use.  
This could occur where the funds able to us e the label or passpor t are not sufficiently 
delineated or transparent, so that investors mis-understand what the label is seeking to 
indicate (for instance, funds that do not invest a majority in social businesses labelling 
themselves under the label). It could also occur where the labe l is not suffici ently clearly 
developed. 
The positive impact of a new European soci al investment fund label and institutional 
passport, with supporting transp arency and performance analysis  measures, depends therefore 
on their careful development in full dialogue with  stakeholders and experts, and careful and 
strong ex post  monitoring and assessment.  
This is a key reason for adopting the phased approach identified above. The key to any 
meaningful action resides in the establishmen t of transparency on investment strategies, 
screening of investment targets and a tri-part ite dialogue between investors, SEF managers 
and target companies on the way in which soci al impacts are achieved.  The phased approach, 
based on exacting reporting standards on the screening of social businesses and the 
evaluation of their social impacts, is also a key reason for ensuring measures are effectively 
supervised and enforced by nati onal competent authorities.  
This is an area characterised by new concepts and analytic tools. C oordinating developments 
effectively will therefore depend on a care fully calibrated approach, building on the 
established concepts and consensus. Measur es on information that do not cohere with 
emerging needs of investors or social businesses would likely ha ve little impact, as they 
would be discarded in favour of  more relevant approaches.  
On the other hand, if disclosure  requirements are allowed to develop in an uncoordinated 
manner, they will be of little value as a basis for developing a common and calibrated 
approach to social impacts and the metrics used for their measurement. 
Common approaches to the application of the definition of 'social business' and careful 
supervision of funds that target these busine sses are therefore of paramount importance.  
8.6. Risk associated with early action 
As mentioned above, a key plank of policies pur sued in relation to the establishment of a 
tailor made framework for social investment funds is motivated by a preventive approach - 
trying to address certain issues before they em erge into full view. This is to some extent 
different to the 'catch-up' approach that th e parallel initiative on venture capital funds 
pursues. As explained in Section 4.8 ("the valu e of early EU action) there is considerable 
merit in adopting a pre-emptive approach, esp ecially in markets where the EU regulator 
pursues the positive goal of establishing an innovative and well -recognised investment 
vehicle that will coexist as a European alte rnative alongside existing national schemes. In 
 
EN 65   EN support of early intervention, Section 4.8 cites the experience gained with the early 
establishment of a UCITS vehicle for retail investments.  
Nevertheless, a complete analysis of risks must also comprise the risk that early intervention 
crystallises the emerging marketplace and prevents  innovation in the regula ted field.  There is 
a risk that early action, when markets are still emerging and wh en differences in regulatory 
cultures have not yet taken hol d, prevents other promising approaches from emerging. 
However, as the envisaged European framework is conceived as an additional framework that 
will exist alongside national or emerging fr ameworks, this risk appears remote.  
An additional risk is that premature action will limit initial take-up of the new funding 
framework. If the new framework m eets with little take-up, there is the concomitant risk that 
average fund sizes are not increased and economi es of scale foregone. However, this risk is 
more than eclipsed by the reverse risk that the absence of a harmonised approach will lead to 
little change in the already small sizes of th e present generation of SEF that have been 
described throughout this impact assessment. In addition, as Secti on 7 explains, the key 
parameters of the envisaged fund framework have been tailored so as to maximise take-up.   
A further risk is that the rules on eligible investment targets (soc ial undertakings) is too 
narrow and prevents certain valuable businesses fo rm being eligible. This risk is linked to the 
emerging nature of the concept of 'social undertaki ngs'. This risk is addr essed by the fact that 
the notion of social undertaking is currently de fined with reference to three key parameters 
that are sufficiently generic to comprise a vast array of undertakings and fields of activity. As 
the proposed rules on SEF in othe r respects (e.g., loca tion of the target, absence of turnover 
requirements or requirements on the duration of corporate existence) not very prescriptive, 
the risk that socially valuable undertaki ngs are excluded from th e scope of eligible 
investment targets appears rather remote.      
9. MONITORING AND EVALUATION  
In line with the objectives underpinning the Commission's po licy choice, the post-adoption 
monitoring and evaluation will focus on three issues: (1) has the new framework established 
a sufficiently precise European notion of what constitutes a social investment fund investing 
primarily in 'social business'; (2) has the ne w framework contributed to a common regulatory 
approach governing clarity and comparability  of investment proposals offered by social 
investment funds; and (3) has the new framework contributed toward the improvement of 
tools to analyse social returns.  
Harmonised European notion of what constitu tes a 'social entrepreneurship fund' and 
'social business'         
A core plank of the Commission's monitoring activities in relation to the regulatory 
framework for social investment funds will c onsist in verifying whether the operational 
provisions adopted are specifi c enough so that investments channelled through the new 
regulatory framework reach the intended  beneficiaries (social business).  
– It is therefore important to monitor that the investment st rategies of those funds that 
operate under the EU passport are sufficiently tailored toward the acquisition of equity 
stakes or debt instruments issued by busin esses that have a pr oven track record in 
achieving the targeted social impacts (see so cial impact monitoring below) and that the 
 
EN 66   EN portfolio composition of a social  investment fund reflects the regulatory target percentage 
(70%).  
– Should empirical data gathered as part of this monitoring (monitoring will be conducted in 
cooperation with ESMA who is tasked with keeping a register of  registered social 
investment fund managers) reveal that the c hosen portfolio composition is not optimal in 
creating a workable notion of a European so cial investment fund, the regulatory target 
percentage in favour of investments in soci al business might be revised. Revisions might 
lead to both an increase (to 90%), or a decr ease (to 50%) of this target percentage.  
– Should empirical data reveal that the description of the target undertakings is not 
sufficiently precise in relation to the intended social impacts, the essential characteristics 
defining a social undertaking (i .e., (i) statutory goal of achie ving social impact over and 
above profit, (ii) large-scale reinvestment of surp lus into the social business and (iii) 
socially inclusive governance of the ta rget undertaking) will be reviewed.  
– Should empirical data reveal that the avai lable investment instruments (equity, quasi-
equity and debt instruments) are not sufficient to provide fi nance to social undertakings, 
the Commission, in cooperation with ESMA, shall review the range and breadth of 
qualifying investment tools.  
– The Commission will also monitor that the a pplicable rules adequately reflect the 
evolution of the social investment sector. In this respect, the Commission will regularly 
assess whether the core definitions underpinning  a social investment fund's eligibility for 
the new EU passport evolve in line with ch anging business practices, at European and 
international levels.  
A review date is envisaged f our years from the new rules coming into force to assess their 
effectiveness in targeting social businesses. 
Clarity and comparability of so cial investment propositions  
With respect to the emergence of an enhanced clarity and comparability of social investment 
propositions, the Commission will  regularly assess the succe ss of the cross-border fund-
raising passport, both in terms of  increased investor contributions  to social investment funds 
and in terms of aggregate capital raised by such funds  across national borders.  
– The Commission, in close cooperation with ESMA ( who will be tasked with maintaining a 
central register, publicly accessible by intern et, which lists all soci al investment fund 
managers registered in the Union in a ccordance with the proposed Regulation ), will 
monitor the amount of fund ma nagers that are registered  as operating a qualifying 
'European social entrepreneurship fund'  (EU SEF) in the European Union.  
– With a view of enhancing the effectivenes s of the registration-based passport, the 
Commission and ESMA will also monitor 'de-registrations' and their probable causes.  
– The Commission, in cooperation with ESMA a nd the social invest ment sector, will 
regularly assess the impact that th e European passport rules have on: 
o the amount of capital raised by th e social investment funds;  
o the financing mix available to social businesses;  
 
EN 67   EN o The average size of assets under management  in a social investment fund; and  
o the compliance costs (especia lly in relation to social impact measurement and 
reporting) related to the ne w social investment fund. 
– The Commission shall furthermore assess regular ly whether, or to what extent, the EU 
passport scheme is misused to raise capital for investments, beyond the permitted portfolio 
threshold, that do not target 'social undertakin gs' within the parameters of the proposed 
rules.  
– The Commission will also assess whether the cr eation of a special regulatory framework 
for social investment funds (that would ot herwise operate within the framework of 
national private placement, possible rules on ve nture capital funds or within the rules of 
the AIFMD) has led to re gulatory arbitrage.   
A review date is envisaged f our years from the new rules coming into force to assess their 
effectiveness in improving the clarity and comparability of investment propositions. 
Measurement of social returns  
The Commission will monitor whether and to what  extent the work launched as part of the 
proposed Regulations have improved the developm ent of metrics to captu re the incidence of 
'social returns'.  In this context:   
– The Commission, in close cooperation with ESMA  and the national aut horities that will be 
responsible for supervising compliance with the new EU SEF fundrai sing passport, will 
monitor externalities achie ved with social investme nt funds in terms of  
- Environmental impacts (e.g., re duced use of pollutants);  
- social impacts (e.g., jobs created for socially marginal groups, products and 
services offered for socially marginal groups); 
- ethical impacts (e.g., jobs created for peopl e with a disability, special products 
or services offered that cater to people with a disability). 
Measures to develop better met hodologies will be assessed over  the following years, to feed 
into the envisaged review date four years fo llowing coming into force of the new rules. 
 
EN 68   EN  
GLOSSARY  OF TERMS 
 
Abbreviations 
AIFMD Directive on Alterna tive Investment Fund Manager 
ALFI  Association of the Luxemburg Fund Industry BPCE  Group BPCE (Banque populaire/Caisse d'épargne) 
Eurosif  European Sustainable Investment Forum 
EBAN   The European Trade Association fo r Business Angels, Seed Funds, and other 
Early Stage Market Players 
EVPA  European Venture Philanthropy Association 
FSUG  Financial Services User Group 
GEM  Global Entrepreneurship Monitor GIIN  Global Impact Investing Network 
IA  Impact Assessment 
MFI  Microfinance Institution NGO  Non-governmental organisation 
KPI  Key Performance Indicators 
OECD  Organisation for Economic  Co-operation and Development 
SB  Social Business 
SIB  Social Impact Bonds SEF  Social Investment Funds 
SRI  Socially responsible investment 
STR  Pounds Sterling SME  Small-medium enterprise 
VC  Venture Capital 
UCITS  Undertakings for collective inve stment in transferable securities 
 
EN 69   EN Definitions of terms  
Asset allocation 
A fund manager’s allocation of hi s investment portfolio into va rious asset classes (e.g. stocks, 
bonds, private equity). 
Asset class 
A category of investment, which is defined by the main character istics of risk, liquidity and 
return. 
Capital market 
A market in which long term capital is raised  by industry and commerce, the government and 
local authorities. Stock exchanges*  are part of the capital market. 
Closed-end fund 
A fund with a fixed number of sh ares. These are offered during an initial subs cription period. 
Unlike open-end mutual funds, closed-end funds  do not stand ready to issue and redeem 
shares on a continuous basis. 
Fund-of-funds 
A fund that invests in other investment funds. 
Listed company 
A company whose shares are traded on a stock exchange. 
Microcredit/Microfinance sector 
Small loans, usually smaller than €25 000, gr anted most often by sp ecialised in stitutions. 
Social enterprise 
An enterprise whose primary objective is to achie ve social impact rather  than generate profit 
for owners and shareholders. It operates in the market through the production of goods and 
services in an entrepreneurial and innovative way, and uses surpluse s mainly to achieve 
social goals. It is managed in an accountable  and transparent way, in  particular by involving 
workers, customers and stakeholders  affected by its business activity.  
Social entrepreneurship funds 
Private investment funds that ta rget as their core invesetment activity th e funding of social 
enterprises, whether through e quity investments or by buying debt instruments or providing 
loans. 
Social investment 
Investments – whether directly or through financial instrument s such as funds -- that are 
oriented towards social as well as financial outcomes.  
SME – Small and medium-sized enterprises 
 
EN 70   EN Under European rules an SME should have le ss than 250 employees, an annual turnover not 
exceeding EUR 50 million, and/or an annual bala nce sheet total not exceeding EUR 43 m. 
Stock exchange (stock market) 
A market in which securities are bought and so ld. Its basic function is to enable public 
companies, governments and local authorities to raise capital by selling securities to 
investors. 
UCITS - Undertakings for Collective Investme nt in Transferable Securities (acronym in 
EU legislation) 
Investment funds (for retail a nd institutional investors) that  are harmonised at EU level. 
Venture Capital (VC) 
Investment in unquoted companies by venture cap ital firms who, acting as principals, manage 
individual, institutional or in-house money. In Eu rope, the main financing stages included in 
venture capital are: early stag e, covering seed and start up, and expansion. Strictly defined, 
venture capital is a subset of  private equity. Venture capital is thus professional equity 
coinvested with the entrepreneur to fund an early stage (seed and st art-up) or expansion 
venture. Offsetting the high risk the investor takes is the expe ctation of higher than average 
return on the investment. 
Venture Capital Funds 
Investment funds which inve st into venture capital. 
 
EN 71   EN ANNEX  I -- EMERGENCE  OF A SOCIAL  INVESTMENT  MARKET 
 
A 'social investment market' has taken shape in Europe over the last decade. The market brings together investors and investment ta rgets, either through the 'linkage' provided by 
financial intermediaries or directly.   
 
Diagram 1: Key players in an emer ging social investment market 
 
A social investment market have been emer ging which shares similar features to other 
financial markets: investors seek to place capi tal with investment targets, and financial 
services entities broker or manage such investments.  
Key financial intermediaries operating in the so cial investment market  include certain niche 
banks, venture philanthropy funds , social investment funds and bespoke venture capital 
funds, funding consultancies and intermediary  platforms, and emergent social stock 
exchanges. These intermediaries typically mana ge and broker investme nts through financial 
instruments (including investment funds) th at act as conduits. Funding can range from 
conventional investments (whether equity or de bt based), to grants or donations where no 
return of capital is made, to mixed instrume nts that combine these other instruments in 
innovative ways. 
Indications are that many of these intermediari es are specific operato rs who concentrate on 
the social investment market, separate from  conventional financia l services providers. 
Broad types of social investment 
This is an emerging sector, so there is a great degree of variet y in the vocabulary or concepts 
used for describing the field, the strategies that can be adopted, the targets of investments that 
can be selected, and the instruments that can be used.  
 
EN 72   EN • Conventional investments  typically take the form of different kinds of investment 
funds, direct or indirect inve stments through securities or certificates (taking either 
equity or debt/bond forms), or a wide ra nge of emerging structured products.  
• The most currently most widespread form of investment with a social aspect is 
'socially responsible investment' (SRI) .  (Such investments are typically in the 
form of investment funds and can be seen as part of the particular company's CSR strategy).
43  
Investments of this type range from what are termed 'negative SRI' (investments that 
apply a variety of criteria to rule out cer tain investments through a simple screening 
process, e.g., avoiding companies that do no t fulfil certain CSR / ESG criteria), to 
'positive SRI' strategies (seeking out specific companies that actively pursue goals in line with the overall investment stra tegy being targeted, offering a more 
concentrated and intensively managed product).
44 
These overlap strongly with conven tional investments. Those making SRI 
investments will typically do so with in consistency with a focus purely on financial returns, though some positive SRI strategies  may entail a stronger focus on social 
returns than is consistent  with normal conventional investments. The investment 
targets of SRI are not necessarily firms that possess a social, environmental or 
ethical 'mission', though they may be. For instance, SRI target s could include a 
conventional for-profit company that fulfils  certain criteria, e.g. relating to its 
governance structures. (Such firms might fa ll under category 5 in diagram 3 below). 
• A more specific form of investment  than SRI has emerged, termed ' impact 
investment '.   
These can either specifically targets ente rprises or businesses (outlined in more 
detail in the next section)  that have as their primar y mission social, ethical or 
environmental goals, or focus more on iden tifying and achieving specific outcomes  
and leave the investment targets more open.
45 Both of these kinds of social 
investment overlap with SRI,  and can under some interpreta tions be viewed as forms 
of SRI. 
The impact or social investment categor y extends beyond the lim its of conventional 
investment, to reflect the importance of soci al returns for these investments, and the 
fact that social returns do not form part  of the typical conventional investment 
decision process.  
Social entrepreneurship funds, as set out in this  impact assessment, can be characterised as a 
form or subset of impact investments.  
                                                 
43  See http://ec.europa.eu/enterprise/policies/sustai nable-business/files/csr/new-csr/act_en.pdf . . 
44  See Eurosif 2010 survey of European SRI lands cape: http://www.eurosif.org/research/eurosif-sri-
study/2010. 
45 Given that such investments focus on outcomes the strategies could in principle be neutral as to the 
formal nature, governance or other aspects of the investment target, and might not always be a form of 
SRI as conventionally understood. However, strong and convincing methodologies for assessing impacts and demonstrating the effectiveness of the st rategies in supporting the identified impacts might 
be particularly necessary for such strategies where th is is the case, alongside clarity as to the outcomes 
being sought be the strategy. 
 
EN 73   EN Note that neither SRI investment nor impa ct investing, as conventionally understood, 
concentrate on targeting of social businesses,  as defined in this impact assessment and 
as determined in the Commission's Social Business Initiative.  
What social businesses are targeted? 
Discussions with stakeholders show that a spec trum of enterprises focus to varying degrees 
on 'social returns' and are already targeted by so cial investors precisely  for their provision of 
such returns.   
In general terms, these enterprises are most typi cally classified according to their 'mission' or 
focus.46 They extend all the way from foundations, ch arities or trusts (e ntities which are not 
run for-profit, and typically will fall under spec ific national rules rela ting to not for-profit 
entities), through a range of type s of business that target a social mission but also seek 
commercial success, up to businesses that do not directly target a soci al mission, but instead 
have a normal commercial mission.  
 
Diagram 2: Investment targets in the so cial finance market [After CAF et. al.] 
Note that all of these entities could be ta rgets to a degree for i nvestors or investment 
intermediaries seeking to achieve social returns w ith their money.  
However, since investors are, by definiti on, not purely philanthr opic donors but seek 
investment returns, their focus is likely to mostly concentrate on categories 3, 4 and 5, or 
enterprises in such categories are likely to fo rm the bulk of any investment portfolio, since 
only these categories provide investment returns.  
Social businesses  – the focus of this impact assessment – are those enterprises that explicitly 
combine social returns with financial returns, but with social returns as the dominant mission 
of the enterprise.  
Two vital distinctions exist that are im portant for this impact assessment.  
• The first is between investing  and making donations or grants . Investments are 
characterised by the expect ation of a return of cap ital and on capital (however 
modest this might be).   
                                                 
46  See, e.g., NESTA2 p.12,  ClearlySo p.14.   Adapted from CAF Venturesome: Financing the Big Society  
(CAF),  2009. 
 
EN 74   EN • The second is between (mass-market) retail investors  and institutional investors . 
In general terms, retail investors are less able to take on financial risks, and in 
addition financial instruments or services targeting retail investors are subject, at 
both national and European level, to more  stringent regulatory requirements for 
purposes of protecting the in terests of those investors.  Such requirements carry 
costs. 
 
Who are the investors? 
Different investors have typically  different expectations and needs in relation to such trade-
offs. The following broad classes of  potential investors in social  businesses can be identified: 
 
Mass market Typically have low risk tolerance or appetite. 
May need high degree of liquidity  (e.g. access to savings due to 
unexpected changes in circumstances).  
Some appetite for investments that ta rget social returns and willingness to 
forgo financial returns for this purpose.  Some view the retail market as the 
most likely to grow over the longer term. Retail investors 
High net worth Mainstay source of philanthropic capital and demonstrated early interest in 
social investments. Currently a core capital source for social investments 
(see EVPA, EBAN). 
May have higher risk tolerance, less need for liquidity. May have access to 
non-retail investment products due to profile. 
Institutional investors  Some institutions possess missions that call for social investment (or 
donations) on their own account. 
Institutional investors may also invest as intermediaries for other clients, 
or as part of products to be offered to other clients. 
Foundations / trusts or value or faith-based investment networks Source of philanthropic capital,  grants, loans and investments. 
Public bodies Source of grants, loans, seed investments, loan guarantees, tax and other 
incentives. 
 
Estimate of growth of market 
There are contrasting estimates on future potential for growth in this sector. For instance, the 
growth of the wider SRI market has been very  strong – Eurosif calculate EUR 5 trillion of 
assets under management could be assigned to this market in 2009, which is a large 
proportion of total assets under management  (EUR 9 trillion in funds as of 2009).47  
This might imply great potential; however a mo re prudent analysis w ould consider the rapid 
growth in the SRI market only as a loose proxy for corresponding growth of social business. 
Following SRI principles can be considered as  'good prudent investment practice' for all 
investors, and investment funds that target accr editation as SRI as simply seeking to follow 
best practices themselves. However, it would be fair to assume that the rapid growth in the 
SRI market reflects a broader in terest amongst investors of a ll types in taking non-financial 
aspects of investments into account when taking investment decisions. Investment funds 
targeting social businesses coul d be expected to benefit from  a wider appreciation of and 
understanding of the role of non-fina ncial aspects of investments.   
                                                 
47  See http://www.eurosif.org/research/eurosif-sri-study/2010. 
 
EN 75   EN Estimates from JPMorgan are that an 'impact investment' asset class (which would include 
investments targeting social businesses, but would extend wi der than this to include 
investments in ordinary businesse s that might exhibit positive ex ternalities) could hit between 
USD 400 billion and USD 1 trillion globally by 2020.48 The EU proportion of this could be 
around EUR 100 billion and EUR 242 billion, once a rough adjustment for the scale of the 
EU asset management sector has been made.  
The experience in the French market with gr owth in investment flows into so-called épargne 
solidaire is also indicative of str ong potential. This sector has grown rapidly: according to 
AFG: "en 2010, l’encours de l’épargne solidaire  représente 3,15 milliards d’euros soit une 
augmentation de 31% par rapport à 2009". This gr owth is partly trigge red by the adoption of 
measures to promote active distribution of social  investments: "l'épargne  salariale représente 
désormais la moitié des encours de l’épargne solidaire, avec des montants en progression 
rapide (+100% en 2009, +50% en 2010), atteignant 1,5 milliard d’euros au 31 décembre 2010".
49 While the scope and focus of these inve stments is not totally equivalent to 
investments into social business, the growth of épargne solidaire  suggests a potential of 
growth in the social business sector. .  
Another proxy for a possible evolution of the SEF sector is the growth trajectory of 
microfinance funds, which in thirty years has gr own into a global sector with approximately 
USD 6.6 billion assets under management;50 this trajectory is in step with JPMorgan 
estimates. 
                                                 
48  See JPMorgan p. 6. 
49  AFG response to Commission consultation on Social Investment Funds. 
50  Microcredit services represent USD 50 billion worldwide, with 15,000 microfinance institutions 
(MFIs) serving more than 150 million clients. Microfinance funds link international capital investors to 
these MFIs – there are 103 such funds worldwide, with USD 6.6 billion of assets under management. 
Investors in these are primarily institutional invest ors, foundations, NGOs or networks (42%), with 
retail investors providing 34% and Development Finance Institutions 21%. Analysis draws on figures 
from Technical note on microfinance funds,  11.12.2009, submission by Action Group 'Microfinance 
funds' of European Micr ofinance Platform during debate on the AIFMD. 
 
EN 76   EN ANNEX II -- FEEDBACK FROM CONSUL TATION ON SOCIAL INVESTMENT 
FUNDS 
General 
The Commissions' initiative is welcomed  by the majority of respondents.  
Stakeholders stress that this is a very important initiative/action at the EU level given the fact 
that this is an emerging market. EU action is mostly warmly welcomed as a sign that the EU 
supports this specific market and many stak eholders underline growing appetite for 
investments into this sector a nd support for steps to help th e emergence and growth of the 
sector.  
Stakeholders are keen to engage  further as thinking develops. 
Responses show a wealth of (hetereogene ous) experience and strong engagement; many 
however seek further dialogue and time to conti nue to think through issues, options and next 
steps. 
Respondents stress that since the market structur e is developing in this emerging segment that 
the Commission should act very carefully and se ek to deepen its insights further before 
drawing strong conclusions. They advise the Commission to engage in further research and 
investigation and dialogue with stakeholders in order to estb lish better the emerging needs of 
this market. The Commisison should not move t oo quickly so as to have unintended impacts 
on the market. 
A number characterised this se ctor as being now similar to the early years of the venture 
capital sector. A number underlined how social  businesses do not only ne ed capital but also 
other non-financial support; addres sing matters at the EU level could trigger wider steps to 
support social businesses and have a positive impact on the development of the market. A benefit of taking steps at the the EU level w ould ultimately be, however, the leverage this 
could give to social businesses, allowing su ccesses to more easily be replicated across 
Europe. 
What is a social business? 
Respondents noted a lack of clarity or transparen cy with respect to what a social business or 
enterprise is. It was underlined that there wa s much heterogeneity at present: for instance, 
different investment tools or market segmen ts use different terms or understand the same 
terms in different ways. This creates a major challenge for investors; those who are seeking 
to invest in this market can become conf used and end up mistrusting the terms used by 
different parts of the industr y. This can reduce or limit inflow s of capital. For this reason, 
many of the respondents have underlined their view  that transparency is extremely important, 
information (to investors) about what a social business is precisely doing or standing for is 
vital, as is clarity from funds and investment vehicles over their strategies, role and actions in 
this regard. 
The Commission's definition was felt by a number of respondents to be not precise enough or 
as was seen to cover the wrong areas; it was recognised that the pace of changes in the 
emerging market made this difficult. Some re spondents claimed that if the Commission took 
too restrictive a stance, there would be a risk  that important and va luable businesses would 
not be covered; however some respondents argu ed in favour of a tightly defined definition 
along the lines exposed in the consultation pa per. Views varied on how a definition could 
 
EN 77   EN work; for instance, some felt that public author ities across the Member States should be the 
final arbiters.  
Related to this topic is  the question about re-distribution of  profits: most larger industry and 
public authority stakeholders emphasized that re -distribtuion of profit should not be excluded 
because this could have a negative impact on inve stors' appetite to invest (limiting as it would 
investment returns). It was noted that inve stors would vary in regards the return on 
investment they would be seeki ng in the social investment sect or; for this reason transparency 
on the outcome or return on investment was s een as being of fundamental importance in 
developing the sector further. Some (smalle r) respondents stressed that allowing for re-
distribution raised the risk that interventions  would not focus strongl y enough on the core aim 
of social businesses (the social mi ssion), diluting overall effectiveness. 
Mismatch between supply and demand 
It was noted by a number of respondents that so cial businesses do not have effective access to 
finance because of an under-developed market structure or a lack of  appropriate market 
infrastructure in the social market area. It was felt that investors might be willing to invest in 
social businesses, but do not find appropriate  tools or do not have sufficient information. 
Note that some respondents felt that supply of capital was less of a problem than demand: 
that the targets for social investment could be difficult to locate / engage. 
SRI  
Some respondents noted it was very important to be  clear as to the dis tinctions between this 
work on investments in social businesses and wi der 'socially responsible investing' steps. 
Small market 
A number of respondents noted a lack of interest  on behalf of major financial players due to 
the small size of the market and its particul arities (low levels of  liquidity, possible low 
returns, lack of a visi ble track record, lack of familarity with market players and concept of 
social return, etc). This hampered market infr astructure development and reduced levels of 
instutional investment. 
Is an investment fund the appropriate tool fo r dealing with challe nges faced by social 
businesses?  
A few respondents felt that action on European funds was not needed; to this view the market 
was predominantly local, so no cross-border issues arose, while it was also questioned 
whether investment funds were the most rele vant funding tool. Issues with funding from 
banks, for instance, were highlighted. 
Most respondents however appreci ated the focus on investment funds, and considered this a 
relevant and appopriate focus. It was underl ined often, however, that non-financial support 
for small social entrpreneurs was likely to be as important if not  more important than 
financial support. 
Retail vs institutional investors 
Many respondents viewed re tail access as important in  the long run, noting that: 
 
EN 78   EN • institutional investors (such as pension funds) may not be  allowed to invest into 
social businesses due to their fiduciary duties / focus on fina ncially competitive returns on 
investment; and 
• retail investors are more likely to be committed to supporting social businesses. 
The concept of a passport for retail invest ors was thereby welcomed. However, many 
respondents also noted a number of  issues with retail access:  
• the focus should be on "sophisticated" high net worth individuals, because these are 
more able to take the risks and possible lo sses linked to these kinds of investments; 
• the high risk and low return on investment  made such investments less suited to 
retail retail investors – th ey should not be encouraged to invest in such funds, or, where they 
do, necessary safeguards must be in place, notably disclosure steps to en sure awareness of the 
specific features of these investments and what they entail;  
• encouraging retail investors to  invest in such funds might run counter to other policy 
initiatives designed to provide great er retail investor protection; 
• the requirements of developing products for a mass retail market would not well 
match the financial and non-financial needs of the social business sector itself. 
Appropriate fund framework? 
Many respondents noted that the AIFMD fram ework was likely to be  too burdensome or 
costly for small social investment funds. Give n investor protection requirements in UCITS, a 
number of respondents argued th at a new framework might be best. In this regard, some 
respondents noted that the Comm ission should be vigiliant in setting up new structures so 
that they could not be used to circumvent  requirements under other frameworks (notably, 
AIFMD). 
Some respondents outlined that  the Commission's work on ve nture capital might offer a 
useful framework also for encouraging investments into social businesses. 
For a number of respondents including one Me mber State changes to UCITS should be 
contemplated as a way of raising investments in social businesses. Such changes might be 
relatively minor, for instance by allowing a certain pr oportion of non-transf erable securities 
to be held, for instance through the 10 percen t limit foreseen for non listed assets. Views 
varied on how easy this might be in technica l terms. Some believed that UCITS could be 
used in this way without making changes; othe rs noted that Commissi on has taken the view 
that the 10% limit is restricted in its effectiveness in this regard. 
For some other respondents, it was felt that th e risks of making change s to UCITS, and in 
particular altering its qualities as a liquid a nd transparent retail fr amework, would be too 
great. It was noted that social  business need patient capital, which typically might best be 
delivered through closed-ended rather than ope n-ended (such as UCITS) fund structures. 
EU label 
Respondents supported the idea of EU interventi on to reduce confusion and improve trust in 
the sector. 
 
EN 79   EN Some respondents noted however that it might be too early for the Commission to develop a 
specific label, since the market is still buildi ng up infrastructure and there is not yet common 
understanding to what a social business is.  It was felt that public steps should not dominate 
or force the process, but should follow a nd support developments in the markets. 
It was also noted that there was a risk that without strong supervisi on and controls a label 
could be misused to "whitewash" investments th at are not appropriately 'social', potentially 
undermining the whole sector. 
Transparency for investors was underlined once again, e.g. via a clear statement in marketing 
documentation that social investment funds ma y offer less liquidity and a different risk 
profile than more traditi onal investment funds. Transparency to investors in these points are 
crucial to avoid invest ors being disappointed. 
Measurement of social performance 
Respondents noted that valui ng and evaluating performance of investments in social 
enterprises was difficult. Currently investment funds develop their own standards to measure 
social impacts, as no common defined standard s exist yet; transparency is vital so that 
investors can make their own assessments (to a degree institutional and qualified investors 
might be expected to have the ability to enquire further if not satisfied). 
The Commission should also take a closer look at market devel opments in this area, before 
taking steps itself; this is an area where market  developments need to mature more first. 
Elements of a possible future fund framework 
Many respondents had also some concrete ideas as to some the possible elements of a fund 
framework to be developed in the long term . These ranged from suggestions as to the 
percentages of the fund por tfolio to be invested into soci al business (e.g. 30 percent) to the 
frequency of redemptions as well as technical sugg estions as to how to d eal with the fact that 
returns might be lower than for traditional investments.  
Tax treatment or other incentives 
Many respondents were in favour of tax ince ntives and gave different views on how to 
structure these/who should profit from these (e.g.  the investor or the social business.). Tax 
incentives were considered a good tool for boos ting the market; financ ial guarantees were 
mentioned as another form of public incentive. 
It was also underlined that establishing practical access to distribution was extremely 
important. 
 
EN 80   EN ANNEX  III -- CURRENT  EUROPEAN  FUND  REGULATION 
 
The EU fund landscape is alr eady very well established a nd mature, including, under the 
auspices of the Undertakings for Collective Inve stment in Transferable  Securities (UCITS), a 
strong and demonstrably successful cross-border  framework for retail funds.  Steps are under 
way, under the Alternative Investment Fund Mana gers Directive (AIFMD ) to also introduce a 
cross-border framework for institutional funds. 
 
All investment funds in Europe will fall unde r EU laws on funds (following implementation 
of AIFMD). They will fall either under UCITS (which provides for a retail passport) or AIFMD (which provides an in stitutional passport for Alternat ive Investment Funds (AIF)). 
Options for a future regime for venture cap ital (VC) is also cu rrently being assessed. 
 
Note that while in general retail funds are UC ITS and institutional funds  are AIF, in certain 
Member States there are existing 'non-UCITS'  retail frameworks in place alongside UCITS. 
These non-UCITS retail funds are normally only distributed nationa lly, (under national 
regimes that are often mostly the same as UCITS).  While these funds will be AIF under 
AIFMD – which provides a mechanism for an institutional passport in some circumstances, 
they have no retail passport. 
 
Due to the nature of SEF, these mostly currently take the form of what will be in the future 
AIF: there is no EU 'retail' passport that can be used currently by social investment funds. 
The UCITS framework is designed for retail cust omers, and in practice most investments in 
social businesses and enterprises are currently  not possible under this  framework. This is 
mostly due to requirements in the UCITS framewor k related to the liquidity of eligible assets 
– investments must take the form of transferable  securities, and this limits the capacity of 
UCITS to invest in social ente rprises as these are starting up. 
 
While SEF would currently be AIF, most are like ly to fall beneath the threshold for the full 
requirements of the AIFMD to apply (i.e. for unleveraged funds, EUR 500 million in assets 
under management). They would th erefore currently fall mostly under national rules. To gain 
access to the AIFMD passport funds would have  to opt to comply into the full AIFMD 
regime. The AIFMD regime is designed to a ddress systemic risks raised by large and 
complex hedge funds, and is not suited to the needs of small SEF that use no complex 
investment strategies.  
 
An additional fund regime – designed to provid e a passport for venture capital funds without 
requiring them to satisfy the strict obligations linked to the AIFMD passport – is currently 
being developed. It is likely that SEF could make  use of this venture capital passport, which 
allows for cross-border marketing to professional investors, but th e regime is not fully suited 
 
EN 81   EN to their needs (as set out in this impact asse ssment), notably in regards permitted investments 
and transparency measures. 
 
Assessment of Regulatory Barriers 
Institutional  While the EU fund landscape (followi ng implementation of AIFMD) lays a 
strong basis for a single market for institutional i nvestors, this framework is not tailored to 
the needs of smaller SEF. It includes re porting, organisational a nd conduct of business 
requirements suited to addressing risks related to large hedge funds, rather than small long-
only equity funds. As with venture capital,51 costs for social investment funds in making use 
of the AIFMD passport are likely therefore to be disproportionate. No stakeholders operating 
funds in the EU institutional market have indicat ed that they would seek to make use of the 
AIFMD passport by 'opting' in.  
In practice, therefore, there is  currently no cost effective cr oss-border regime suited to the 
needs of SEF. These would rely instead on ex isting national private placement regimes and 
agreements for cross-border a ccess.  (Fund of fund structures and other forms of financial 
engineering could however mitigate some of the difficulties of access identified). 
Retail There are currently limits to the developmen t of a single market accessible for retail 
customers seeking to invest in SEF.  
This is largely by design. The investor protec tion measures necessary for ensuring the broad 
suitability of a fund for retail customers pla ce important limitations on the kinds of risk 
exposure that an investment fund can take on. Sp ecifically, the measures ensure that the fund 
invests in assets which allow for a high degree of  liquidity and a transparency in the pricing 
of the fund. 
The nature of the SEF's participation in social  businesses – where such funds are wholly or 
mostly invested in social busin esses – could undermine these featur es. Participations in social 
businesses – as with other small enterprises – are likely by definition to be illiquid and 
difficult to price. For this reason social inve stment funds targeting social businesses would 
typically not take th e form of a UCITS. 
Retail access to such funds would therefore mostly be under national rules, subject to specific 
measures to address the additional possible sour ces of risk for the retail investor created by 
investments in social businesses.   
 
                                                 
51  [Reference to be inserted once published]. 
 
EN 82   EN ANNEX  IV -- ISSUES  WITH  INVESTMENT  FUNDS  WHEN  FUNDING  SOCIAL  
BUSINESSES   
 
 Stakeholders and consultation respondents have  highlighted a number of emerging issues in 
their view with the developm ent of investment funds targeting social businesses: 
 
Stakeholder Specific problems raised 
Investors 
 • Confusion over what is on offer / what 'social' means or connotes – 
mistrust in competing labels for products, competing marketing  
• Difficulties comparing products / offerings, reducing competition 
• Products do not offer clarity as to ex tent/nature of social returns or 
extent/nature of financia l risk and/or return. 
• Market nascent, so track records may not exist. 
• For retail investors, retail funds ta rgeting social businesses may not be 
available or allowed under national rule s. UCITS rules establish a regulatory 
barrier to a EU passport for re tail social investment funds.  
Social 
Businesses 
 • Lack of awareness of diffe rent options for funding: 
• Social businesses can face spec ific challenges in getting 
'investment ready' (See discussi ons in EVPA, EBAN, NESTA1 and 
NESTA2, ClearlySo; issues here are si milar to those raised for SMEs in 
relation to Venture Capita l funding; however the specific 'social' nature of 
social businesses is considered to raise additional challenges) 
• Existing networks or infrastructu res might not be well adapted to 
identifying social busine sses and supporting them. 
• Orientation is towards grants rather than capital markets. 
• Not enough 'patient capital' availa ble (i.e. long term investments 
focused on the needs of the business to drive social returns, with strong 
practical support).  
• Status or legal form can sometimes limit options for gathering 
investments – charitable status might  creates tax advantages, but prevent 
issuance of equity for gatheri ng growth capital, for instance. 
 
EN 83   EN Fund & 
financial 
intermediaries 
 • Immature networks / infrastructure targeting social business, coupled 
with a lack of sensitivity to the need s of social businesses -- difficulties 
finding and assessing investment targets.  
• Normal sources of investment may shun social businesses; costing / 
pricing of social return as  opposed to financial return.  
• Competing versions of concept of  'social' returns can impede 
transparency, trust in market: no shar ed answers to how funds might best 
pursue, document and demonstrate social 'value for money' from 
investments?  
• Advisors not aware of options, no t informed on concept of 'social 
returns'.  
• Rules on the kinds of assets retail f unds can invest in (at national and 
EU levels) can strongly limit their ab ility to target social businesses. 
• Inconsistencies in rules in different MS fragment retail market, limiting 
access to cross-border / singl e market pools of capital.  
 
EN 84   EN ANNEX  V – ESTIMATING  ADMINISTRATIVE  COSTS  AND  BURDENS   
 
The Commission Impact Assessment Guidelines de fine administrative costs as "the costs 
incurred by enterprises, the voluntary sector, pub lic authorities and citizens in meeting legal 
obligations to provide informa tion on their action or production, ei ther to public authorities or 
to private parties." 
The preferred options emerging from this imp act assessment include stronger standardisation 
and prescription at the EU level of informa tion to be provided to  investors by social 
investment funds, and measures on providing information to comp etent authorities in return 
for a right to market a fund cross-border. Under the Guide lines legal requirements on 
information disclosure to investors, as in the form of a financial prospectus, qualify as 
administrative costs.    
Following the Guidelines, the key areas of cost s for funds are likely to be from use of 
external advisors to fill in expertise gaps, putting into place systems in both human resource 
and IT terms for gathering and analysing data, and man hours for drafting and compiling 
information for investor disclosures.  
As noted, existing transparency requirements at EU level requir e disclosures of the fund and 
on its investment strategy, and business as us ual costs related to marketing the fund will 
inevitably incur costs precisel y in the areas outlined above. Different expectations from 
investors may well accentuate these costs (leading to overlapping information being 
expected, and so costs raised delivering the information, e.g. under Eurosif-style guidelines – 
which can vary by Member State, trade body gui delines related to social investments or 
impact investing, etc.)  
Given the nascent form of the social business sect or, it is difficult to assess the scale of these 
different factors in order to estimate the incremental administrative costs and burdens 
pursuant to steps to enhance tran sparency measures.  As noted, th is initiative is a voluntary 
initiative: costs are only likely to be borne by those who believe the business case is such that 
marketing benefits outweight these costs. Exis ting labelling measures – such as Luxflag – 
incur comparable costs by standardising in formation requirements, and indeed include 
membership costs for the agency maintaining the label.52 Market evidence suggests such 
labels have not faced difficulties in ac quiring members (informal estimates by the 
Commission suggest Luxflag may cover 20% of the microfinance fund market).53 
What might be the impac t of Level 2 measures? 
This impact assessment considers possible fram ework measures, to be  supported at a later 
date by detailed implementing measures and technical standards a nd guidelines. Specific 
implementing measures and technical standa rds could have material cost and burden 
consequences, notably in the area of the measurem ent of social performance or impacts. This 
impact assessment does not seek to justify any sp ecific standardisation or approach in such an 
area; such measures would necessarily be subj ect to further impact assessment work and 
supporting study work.  
                                                 
52  http://www.luxflag.lu/MIV_listingProcedure.htm. 
53  Pending confirmation from Luxflag. 
 
EN 85   EN ANNEX VI – SUMMARY OF IA 
 
Objectives Proposed solution Problems 
Operational Specific General Now Later Why current rules not 
good enough? Magnitude of 
impact 
Basic EU label  
(c.f. energy 
labelling) Full EU label 
Consider applying to 
some retail funds? Lack of clear and comparable 
information Improve clarity 
and 
comparability  of 
social investment 
propositions 
Common 
framework, but not 
fully standardised  Increased 
standardisation of 
information Significant over 
longer term. 
Social 
performance 
hard to assess Improve tools for 
assessment and 
analysis of social 
returns  Raise confidence  Increased levels 
of investment  in 
social enterprises 
Study / working 
group Standardised 
measures comparable 
across all funds Medium to 
significant over 
longer term. Emerging market Æ market failings  / regulatory failings  
Regulatory 
barriers / costly cross-border 
fundraising / no 
proportionate 
fund rules  Ensure EU fund 
regulations (cross-border) 
reflect needs of 
SB Better access  of 
institutional investors to range 
of funds Ensure efficient 
and effective single market
 New passport 
attached to EU label – does not 
displace existing 
funding conduits, 
but adds a new 
option Consider developing 
for retail use? Self-regulation 
inconsistent across EU. 
 
MS regulation likely to 
develop in different 
ways as market grows.  
 
MS regulation does not 
currently address 
transparency needs.  
 
EU-wide label not 
emerging 
 
 Incremental now; 
medium over longer term. 
 
 
Over medium term, different pa rts of package support one anothe r – emergence of strong EU brand supported by common rules and m easures of social impact, similar to emergence of UCITS 
brand.  Start by setting in place facilitating measures, which set a foundation which can be built on. More effective / efficie nt to do this at start rather than wait for fragmentation in growing 
sector.