EUROPEAN COMMISSION 
Brussels, 7.12.2011 
SEC(2011) 1513 final 
  
COMMISSION STAFF WORKING PAPER 
EXECUTIVE SUMMARY OF THE 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) 1512 final}  
 
 1    1. INTRODUCTION  
This impact assessment is on social businesse s and their financing by private investment 
funds. 
Social businesses are enterprises whose primary objective is to make a social impact. They 
bring innovative solutions to bear on social or  environmental problems. Financial returns are 
ploughed back into the enterprise: a business fo rm brings access to private finance and a 
sustainable footing for the ente rprise. Social entrepreneurs typically also manage their 
enterprises in an accountable and transparen t way, in particular by involving workers, 
customers and stakeholders affected by their business activity.  
Social businesses are growing significantly; alre ady 10% of EU businesses broadly fall in this 
category, employing 11 million paid employees. Their focus on social and environmental innovation means these business are by definition key to smart, sustainable and inclusive  
growth. The vital importance of such growth emerged from the consultation on the Single 
Market Act, which identified social businesses as one of 12 'key levers' for an effective 
relaunch of the single market.  
While investment funds are a key conduit for the funding of social businesses, since they can 
widen and deepen available funding, consultations  with stakeholders have shown that such 
funds are not fulfilling their poten tial. Fragmentation in national rules, and a lack of a clear 
approach across the EU to such funds, is underm ining their emergence, thereby hampering the 
development of a robust social business sector and allowing this sector to develop in an 
uneven fashion. 
This impact assessment examines therefore opt ions for ensuring such funds can effectively 
and efficiently fulful their potential. Given th e EU asset management sector currently had 
more than EUR 8 000 billion of assets under management in 2010, efforts to improve the contributions of this sector to the funding of so cial businesses could re ap strong benefits in 
the future.  
2. W
HAT IS THE PROBLEM ? 
Social businesses are often depe ndent on grants. Investment f unds that can are help them 
address this are however typically small (a round EUR 10 to EUR 20 million in size) and 
thereby stretched, and have developed in a patc hy fashion across the EU (thinly spread, while 
clustering in one or two Member States). M eanwhile, investors seeking to target social 
businesses or the EU social econom y can find it difficult to iden tify and trust the investment 
funds available to them: there is a confus ing proliferation of competing labels and 
designations of funds that purport  to offer investments into soci al entrepreneurship. For funds 
to gain access to investors cross-border is costly  due to fragmentary rules: funds are localised, 
and in smaller markets difficult to get off the ground so as to reach viable sizes. Levels of 
cross-border fundraising are cu rrently low (one estimated put s them at less than 4%). 
These problems are all rooted in the specific qu alities of social businesses: their pursuit of 
social goals through business means raises new ch allenges for investors,  funds and financial 
services intermediarias, and regulators alike.  The impact assessment identified three key 
drivers for problems.  
Key Problem Driver 1: lack of clear and comparable information   
 
 2    Information about social investments and funds  targeting social businesses is difficult for 
investors to use. Understanding and compar ing investment propositions is unnecessarily 
complicated, with competing, contrasting and ove rlapping terminologies, labels and concepts 
emerging. The labels which are developing on a se lf-regulatory basis do not operate across the 
whole EU, and do not help invest ors targeting social businesses in particular to identify 
relevant funds and understand and compare the offerings of these funds. 
Key Problem Driver 2: measuring or assessing social returns is difficult  
Providing information to investors about social impacts is a key challenge related to the social 
mission of social businesses. A profusion of t ools for assessing and analysing social impacts 
or performance are emerging. Competing, contra sting and overlapping approaches raise costs 
for businesses and funds, and make it harder fo r investors to compare different funds or to 
track how well the investments they make  achieve the social impacts promised.  
Key Problem Driver 3: lack of tailoring of fund structur es to needs of social businesses   
National and EU rules governing the fund structur es used for funds targ eting social businesses 
are not always well suited to the needs of these funds, and fragmentation in these rules 
impedes cross-border activity. This  leads to uncertainty for fund managers, a proliferation of 
different fund forms and approaches across the EU, and thereby a less efficient and effective 
market for such funds in the EU. 
3. WHY EU SHOULD ACT , AND CONSEQUENCES OF NOT TAKING ACTION  
If the EU does not act this could forestall th e development of social businesses as a trusted 
model across Europe. Investment funds targe ting social businesses would not achieve the 
scale necessary to make a difference, depriv ing social businesses of heterogeneous and 
resilient funding. In addition, funds would remain  geographically uneven  in dispersal.   
National supervisors would have little guidance in how to assess funds that claim to fund 
social businesses. The Commission's historic e xperience in the area of investment funds and 
recent experience gained in the area of venture capital funds is that in the absence of EU 
coordination, divergent approaches , whether self-regulatory or at the level of national rules, 
would emerge to address the problems identified. This would notably be in relation to the definition of social investment funds and the tr ansparency measures necessary for these funds.  
A common and uniform frame for the sector acro ss the EU can only be set at the EU level; 
this would be efficient for bringing clarity and focus at a vital phase of the secotor's 
development. Carefully calibrated measures now  are likely to be more efficient than 
intervention later. 
4. O
BJECTIVES  
In general, the objective is to ensure social bus inesses and entrepreneurship are able to fully 
contribute to EU growth goals on jobs, social inclusion and c ohesiveness. Social businesses 
are key drivers for such growth, and supporti ng them will help ensure a smarter, more 
inclusive and sustainable EU economy in the future.  
More specifically, investors shoul d be able to have confidence in the investment funds that 
target social businesses, thes e funds should be able to gath er investments from investors 
 
 3    throughout the EU in a cost-efficient manner, wh ile social businesses themselves should be 
able to efficiently raise capital.  
To achieve these specific objectives, three opera tional objectives can be identified, targeting 
the problem drivers outlined above:  
– improve clarity and comparability of social investment propositions; 
– improve tools for assessing and analysing social impacts; and 
– ensure regulatory frameworks across EU are proportionate and effective for 
maximising fundraising opportunities for social entrepreneurship funds. 
5. OPTIONS  
Options were identified and assessed for each of the operational objectives separately, though 
these options are cummulative and to a degree de pendent on one another. Initial options were 
also assessed in regards the best way of ci rcumscribing the investors for whom the other 
options would be tailored. 
General – Options on eligible investors 
Description of options 
G1 No further action. 
G2 Allow investments from certain High Ne t Worth Investors a nd other professional 
investors as under MiFID rules. 
G3 Align with MiFID rules on professional investors. 
G4 Include mass-market retail investors. 
The investment market targeting social busin esses currently mostly takes the form of 
institutional funds, with much funding coming from  'high net worth' individuals and 'business 
angels', as in the Venture Capital market. This is  largely due to the risk profile and liquidity of 
such investments – they represent a long-term commitment. However, growth in the future 
could well be strongest from the mass retail market.  
In order to ensure effectiv e take-up by existing investors and a proportionate regime, and 
given the current development of the market, op tion G2 is preferred at this stage. Future 
review should however consider possible m eaures to widen access for retail investors. 
A – Options on improving clarity and comparability 
Description of options 
A1 No further action. 
A2  Develop a non-binding approach on in formation that should be provided about 
investments targeting social businesses. 
 
 4    A3 Establishing a EU label or brand for so cial entrepreneurship funds (EU SEF), with 
linked transparency measures. 
Options A2 and A3 both could improve the clar ity and comparability of information about 
social investments targeting social businesse s. Option A2 would follow non-binding steps to 
this end, seeking to facilitate coordination in  self-regulatory and national steps, while option 
A3 would establish a EU approach, by introducing a label ('European soci al entrepreneurship 
fund') with associated quality standards, which could only be us ed by funds that comply with 
common disclosure obligations and a common f und profile (i.e. predominant investment in 
social businesses). Under A3, a common framew ork could be established for information on 
the kinds of social businesses individual funds w ill invest in and the support offered to the the 
social businesses targeted. Information would also be provided on possible impacts of the 
investment. 
While a label as under option A3 requires care in  making sure it is strongly enforced and not 
misused, it could stand the best chance of  improving the clarity and comparabilty of 
information and trust and confidence in investme nt funds targeting social  businesses. It would 
provide a strong 'seal of approval' to the identified social business sector.  Option A3 was thereby preferred.  
B – Options on improving tools for a ssessing and analysing social impacts 
Description of options 
B1 No further action. 
B2  Establish a forum or group for stakeholde rs to coordinate deve lopment of tools on 
social impacts. 
B3 Launch a study assessing possible approaches to assessment and analysis of social 
impacts for investment funds. 
B4 Set common measurement approach now for social impacts across EU. 
Option B4 was discarded because of the risks to th e standard setter at this stage. The emerging 
and evolving nature of tools for assessing and analysing soci al impacts suggests options 
directed towards encouraging and facilitatin g further research and dialogue would be 
preferable. Options B2 and B3 were both prefe rred. (They are not mutually exclusive). Note 
that while option A3 is not dependent on these options, progress on them could in the future feed into further standardisati ons of disclosures under option A3. 
C – Ensure regulatory frameworks across EU are proportionate and effective for maximising 
fundraising opportunities for social investment funds 
Description of options 
C1 No further action. 
C2  Encourage development of funds ta rgeting social busi nesses under existing 
frameworks. 
 
 5    C3 Develop targeted amendments to existing frameworks. 
C4 Create a standalone EU regime  including passport for EU SEF. 
Options C2 was discarded. Existing EU framew orks are not tailored to emerging funding 
needs of social businesses, so this approach, while having very low cost implications, would also be very limited in its effectiveness. Opti on C4 was preferred to op tion C3, as it showed 
greater effectiveness in supporti ng social entrepreneurship f unds; cost impacts for the two 
options would largely be similar (they differ mostly in regards legislative forms rather than content of measures). 
Summary of overall proposal 
Uninform rules as under option C4 would combine with transparency measures and a label as 
under option A3, to establish a common EU notion of social entrepreneurship funds. To 
ensure effective take-up, the fund managers woul d be able market designated funds across the 
EU once they had completed a simple registra tion procedure (this woul d offer a passport to 
fund managers for this purpose that do not r eceive one under the AIFM-D). Each fund would 
need to be predominantly invested in social businesses, and avoid the use of leverage. Some 
general rules on the conduct of business and or ganisation of the manager would apply, and 
steps would need to be taken on reporting and transparency, including on the social 
performance of the funds. Competent authoritie s of Member States would be required to 
supervise the funds and wit hdrawal the registeration of  non-compliant managers.  
The approach is staged and incremental, a llowing for greater standardisation of social 
performance measurements and possible extensi ons to retail investors in the future. In 
addition, a second level of implementing measures  subject to further impact assessment are 
envisaged on transparency measures. 
6. I
MPACTS OF THE PROPOSED APPROACH  
Benefits 
Under a staged approach in an emerging market  segement, incremental benefits are expected 
initially, but with the potential for more signfican t benefits over time as the market matures.  
The scale of immediate and future benefits is  necessarily difficult to quantify. Improved trust 
in the sector, more efficient cross-border f undraising, and clearer demarcation of investments 
targeting social busiensses from  other investments would aid funds, leading to strong inflows 
of capital, better geogra phic distribution and viability for funds, and a more developed eco-
system capable of reducing costs for social businesses.   
Improved trust, access to funds, and comparabili ty of investments would aid investors in 
efficiently allocating their capital and reduce the potential for mis-sales and a loss of trust in social investments more widely.  
Such impacts for funds and investors would cl early aid social businesses – supporting the 
continued emergence of the sector and the variety and sustainability of available finance. A thriving social business sector across the EU  would contribute to  increasingly smart, 
sustainable, and inclusive grow th. Improved private investment  in social businesses would 
also reduce fiscal and other stresses on public finance. 
 
 6    Costs 
Transparency and reporting measures are likely to incur some compliance costs for the fund 
industry, related to changes to systems an d procedures for gathering and providing 
information, and costs on publication of info rmation.  Streamlining cross-border fundraising 
would however reduce costs for funds seeking to do this. Since costs are only borne by those seeking access to the new EU so cial investment fund label and associated passporting rights, 
so are proportionate to the business o pportunities the new framework opens up.  
New requirements could also indirectly impact social businesses themselves; costs might be 
incurred related to requests for reports and data necessary for improved fund transparency, 
and could include associated systems or data ga thering costs. However, such costs are likely 
to be absorbed by business as usual costs re lated to becoming 'investment ready'. Better 
coordination of measures across EU should also  provide an opportunity  to reduce overlapping 
or competing steps and lead to a more rationalised social business eco-system. 
It is possible that new measures would lead to  some re-allocation of investments from other 
kinds of social investment fund or philanthropi c giving, however there is  little evid ence on the 
scale of any such impact that might be expected. 
Monitoring and evaluation 
Significant steps on future monitoring and evalua tion will be needed, particularly in light of 
the incremental impact of measures.  
The impact of the measures identified here on th e efficiency of the market, including on levels 
of take up the new framework, of cross-border f undraising and the size and costs of EU social 
entrepreneurship funds, will need careful monitori ng so as to allow for future calibration of 
the framework. Assessments of indirect costs fo r social businesses, in cluding any impacts on 
businesses that benefit from the measures comp ared to those that do not and the geographic 
dispersal of funds will need to be reviewed  in the future. The monitoring of levels of 
compliance with the measures at national a nd EU level will also  be important.  
The refinement of measures on the assessmen t of social and environmental methodologies 
will be a key area for further work. 
7. C
ONCLUSIONS  
This impact assessment supports EU steps to develop a coordinated and coherent EU 
framework for investment funds targeting social businesses. A lack of trust and confidence in 
social investment propositions holds back the development of funds supporting social 
businesses, while poorly developed fund regimes and inefficiencies in cross-border access to 
investors are hindering growth. 
To tackle these problems, this assessment c oncludes that a dedicated European social 
investment fund framework which gives passporting rights to the managers  of these funds is 
the most effective and efficient approach. To  succeed, such funds must be predominantly 
invested in social businesses and provide clear and effective disclosures, including on social 
performance. 
By acting now Commission can ai d the growth of the social business sector, stimulate and 
broaden investment choices acr oss the EU, and deepen the pool s of capital that funds that 
 
 7    invest in social business can tap into. This wi ll contribute to an EU that makes a strong 
commitment to social entrepreneurs and the smart, inclusive and sustainable growth they bring.