Insights from InvestEU: Financing Europe’s Future
The InvestEU programme, running from 2021-27, stimulates investments in sectors with market failures or funding gaps. With a €26.2 billion EU guarantee, it incentivises private and public investments, unlocking an additional €372 billion. For impact investors, InvestEU provides a vital opportunity to address social and environmental challenges while leveraging significant financial support.
At the 2024 InvestEU: Financing Europe’s Future event, the topic of ‘Strengthening Europe’s resilience and social impact’ took the spotlight in the European Commission’s Charlemagne building. The panel brought together influential figures to discuss the benefits the InvestEU programme provides in the impact investing ecosystem.
Among the distinguished voices was Silke Horáková, Impact Europe’s board member and Co-Founder & Partner at Tilia Impact Ventures II, who shared her invaluable experience from the Central and Eastern European (CEE) region, an area still underserved in impact investing (10-15 impact funds in CEE versus around 300 in Western Europe).
Triggering moment
As Silke noted, the InvestEU programme can play a crucial role in fundraising, especially in underdeveloped impact investing regions. The European Investment Fund (EIF) is a very qualified and experienced investor, as Silke explained; its involvement as an implementing partner of the InvestEU programme triggered other investments, including one from an unexpected institutional investor. Silke valued the EIF’s experience and expertise throughout the impact investing journey, as Tilia Impact Ventures offered the CEE market only the second impact fund so far.
Tangible examples
Silke shed light on tangible examples of social impact investing in action. This included a discussion of investments in innovation, education, skills gaps, social transparency and healthcare.
One notable venture, 'The Village', based in Poland, is a market platform providing early childcare while empowering parents to establish micro-schools, fostering entrepreneurship at the grassroots level. Founded by a neurologist who studied early childhood education, the project connects parents with quality childcare across Europe.
In an example from the Czech Republic, a pioneering IT company is revolutionising public procurement, promoting transparency, efficiency and quality standards — a testament to impactful innovation within the region. In the Czech Republic, 50% of the taxpayers’ money is affected by public tenders which are, unfortunately, not always sufficiently transparent and efficient. In response to this social challenge, the company provides analytics software to help the public sector become more transparent with tenders. Post-investment, the IT company landed around 2,000 clients; their products have affected around 25 thousand public tenders, representing a value of €13 billion, precipitating an annual savings potential of €143 million.
These were not just success stories, however; Silke used these cases to explore avenues for further growth and support from the EU. Here are key considerations for bolstering the sector’s momentum:
1) Access to finance
The evolution of the EIF’s mandate for social impact investing is indeed remarkable, reflecting a significant increase from €25 million a decade ago to an impressive €2 billion today. This substantial growth underscores a growing recognition of the importance of social impact initiatives within the financial landscape. However, it's worth noting that despite this expansion, the social component still represents only a fraction of the entire programme: 10%.
The compartmentalisation of social impact within the broader investment framework poses challenges, particularly when it comes to pursuing a just transition to a green economy. The delineation between social and environmental priorities risks creating silos that may hinder impact actors’ ability to address systemic issues comprehensively.
To overcome this barrier, one proposed solution – as raised by Silke – is to integrate social impact considerations within each green project. By intertwining social objectives with environmental initiatives, we can ensure a more holistic approach that not only mitigates the social costs associated with environmental and digital transitions, but also fosters synergies that amplify the positive impact of investments.
2) Social investments framework
Silke's impact fund falls under the Social Finance Disclosure Regulation (SFDR) Article 9 regime, designed for 'best-in-class' products. That’s where impact funds typically fall, although there is currently no explicit mention of impact investing within SFDR – an omission on a lot of impact investors’ minds these days, as covered in several of Impact Europe’s recent articles.
To Silke, another problem is that while there are environmental objectives clearly defined under SFDR (e.g. climate change mitigation, climate change adaptation, biodiversity or transition to a circular economy), the social objectives are missing. She stressed the need to address this gap between the planet and the people and called to create a social investment framework.
3) Corporate reporting frameworks
The implementation of the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standard (ESRS) presents an opportunity to increase corporates’ focus on solutions to social challenges.
“This is what we see present in the impact investing sphere as companies – e.g. social enterprises – provide solutions to various societal challenges. A good regulatory pressure and enabling frameworks are important,” says Silke.
Currently, SMEs' reporting on sustainability practices remains largely voluntary, presenting a gap in our understanding of their environmental, social and governance (ESG) performance. SMEs that prioritise sustainability can enhance their transparency and credibility, making them more attractive to investors, including those participating in the InvestEU programme.
As impact actors strive to advance sustainability reporting standards, it becomes crucial to integrate a harmonised impact measurement and management (IMM) framework within these requirements. Harmonising IMM within reporting standards ensures consistency and comparability across different organisations, thereby enabling stakeholders to assess and benchmark the social and environmental impacts of businesses effectively. Since Europe’s Social Economy Action Plans compels national governments to create their own strategies on how to develop and integrate IMM within the local regulatory frameworks, a harmonised approach at the EU level could surely help.
Appetite for more
The panel ended on a positive note. All participants, Silke included, agreed that a lot has been accomplished by the European policymaking and by the InvestEU programme in particular. They also stressed there was the appetite to do more.
A greater demand requires a match in greater supply of EU public funding, which could continue to catalyse additional private investments for social impact. Incorporating social impact in both green and digital transitions would help as well.
Thanks to Silke, the case for impact investing has been eloquently presented to the European Commission. It is now up to all of us to amplify it.