The European Commission has proposed the creation of a Regulation on European Social Entrepreneurship Funds (COM (2011) 862) with the aim to create a new funding vehicle for social businesses. An investment into a European Social Entrepreneurship Fund could also be of interest to foundations should they wish and be allowed to invest larger amounts into social business. The new Regulation will be complementary to an envisaged Regulation on Venture Capital Funds (the latter will mainly provide equity finance for SMEs). The European Commission press release defines social businesses as companies that have a positive social impact and address social objectives as their corporate aim rather than only maximising profit. As a growing sector in Europe, it already represents 10% of all European businesses and employs over 11 million paid employees. While these businesses often receive public support, private investment via funds that invest in social entrepreneurs remains vital to their growth. However, such specialised social investment funds are rare and often not large enough. Cross-border investment in such funds is unnecessarily complicated and expensive.

With today's proposal for a Regulation, the Commission wishes to strengthen the European market for social investment funds. It introduces a new "European Social Entrepreneurship Funds" brand/label so investors can easily identify funds that focus on investing in European social businesses. This will ease fundraising for social businesses across Europe and will also strengthen the trust into the social business market. Investors will be well informed about what to expect behind a European Social Entrepreneurship Funds labelled fund because the elements are clearly defined through a common EU framework. The approach is simple: once the requirements defined in the proposal are met, managers of social investment funds will be able to market their funds across the whole of Europe. To get the label, a fund will have to prove that a high percentage of investments (70% of the capital received from investors) is spent in supporting social business. Uniform rules on disclosure/transparency will ensure that investors get clear and effective information on these investments. The proposal also includes measures to monitor and report on impacts but the Commission has already announced that it will work towards better and more comparable performance measurement tools. The label will only be available to professional investors or investors that commit to a minimum of €100,000 but the Commission will examine later on how to make it available to retail investors. Foundations that considering such an investment would either need to check whether they could be considered as professional investors or as other investors, with a minimum investment of €100,000. More information and the draft regulation is available here and the press release can be found here.

The proposed funds are one of the immediate measures arising out of the European Commission’s Social Business Initiative, adopted on 25 October, which aims to create a favourable environment for social entrepreneurship, social economy and innovation. Details of the Social Business Initiative are available here.