The Road Less Travelled: Social Business in Europe

Call it a new kind of capitalism. You make goods to sell to a mass market but your aim isn’t profit. Enterprises are run by workers and customers and surpluses are ploughed back to achieve social goals.

Capitalism? Not as we know it.

Karl H Richter, co-ordinator of the task force for a European Social Investment Facility, looks at the EU plans for social businesses.

Article written for Association of Chief Executives of Voluntary Organisations (ACEVO) and published in Network Winter 2012, the ACEVO quartely magazine. Download a free extract here.

It’s called social business. Its mission is to generate significant social, environmental or community benefit. Across Europe in the region of 11 million EU citizens are currently employed throughout a variety of social business models. The Single Market ought to mean that all business models, from the purely profit-centred to these social businesses, can compete on an equal footing.

Alas, this isn’t yet the case. There are deep-seated obstacles to the rise of more social businesses. For instance countries have different labelling and certification systems for social businesses; this means problems when a social business wishes to scale up to compete internationally. These days a successful business that can’t compete internationally isn’t a truly successful business.

From 2014 the European Commission will allocate €90 million specifically to help improve the access to funding for social businesses.

Action at EU level can act as an accelerator for social business, by raising awareness of this sector and its potential. On 18 November 2011 the European Commission hosted a conference, opened by President Barroso, to understand the barriers to social business.

Instead of seeking a strict legal definition that would permit some organisational forms and excludes others, the Commission has developed an inclusive way to recognise social businesses through the principles that guide the organisation. This makes the concept of social business much more accessible to more organisational types across Europe. The Commission stipulates that the primary purpose of a social businesses must be for social outcomes instead of financial returns, and that financial surpluses are reinvested to achieve social goals; it is open to produce any goods or provide any services and must be innovative and entrepreneurial; it must be run accountably and transparently; and its governance must include workers, customers and stakeholders. Far from nebulous, this is a demanding framework.

These organisations need funding like all organisations. From 2014 the European Commission will allocate €90 million specifically to help improve the access to funding for social businesses. The Commission has also confirmed that it will add an investment priority for social business in the new regulations for the European Social Fund (ESF) and European Regional Development Fund (ERDF), which taken at face value could open up billions of Euros for this purpose. The European Investment Fund is preparing a programme of pilot investment to explore how ESIF could function. It has €50 million allocated from the European Investment Bank and will be seeking another €50 million in private match funding.

To support this work, another bottom-up movement of European social bankers and social investors formed a task force to identify how the European Commission can use its funds in the most effective way in attracting private capital for social investment; in other words investment that actively seeks out social outcomes as well as financial returns. The task force identified the guiding principles for establishing a European Social Investment Facility, effectively a design brief for how the European Commission can create a financial mechanism to use European level funds to leverage national level funds, and public funds to leverage private funds. This initiative has been warmly welcomed by the European Commission and we look forward to seeing how the framework for this mechanism is evolved over the coming months.

Social business could be a powerful agenda for change. With the old form of capitalism creating ever longer unemployment queues, this new form of business model could help boost employment while showing that it’s possible to act responsibly. A new form of capitalism, indeed. Perhaps one that will make all the difference.

Karl is advisor on Social Impact Investment at Euclid Network, which helps civil society professionals connect across Europe’s borders. If you’d like to get involved or know more, get in touch at info@euclidnetwork.eu or visit www.euclidnetwork.eu
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