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In recent years, impact investment has become an increasingly present term in finance, business and the third sector. It is a form of investment that evaluates both the way a financier achieves his goals and the performance of the company being invested. Impact investing goes beyond (very necessary) ESG financing, which seeks compliance with environmental, social and governance standards and seeks to reduce the potential negative impacts of investments (a practice known in English-speaking countries as “do “no harm” is known).
There is a broad consensus that impact investment is defined as something that, with a clear intention, supports financially sustainable solutions that respond to social and environmental challenges that are not sufficiently taken into account by the market, while explicitly aiming to have a measurable positive impact to achieve. Impact investing can be realized through any financial instrument and aims for returns weighted according to market risk. In any case, the goal of preserving the invested capital is non-negotiable.
Impact companies are mostly dedicated to activities related to the social economy, such as facilitating the integration of immigrants, taking functional diversity into account, or the labor integration of women or the long-term unemployed. They also promote the green transformation of small rural producers, contribute to equitable urban regeneration, combat rural exodus, offer solutions to homelessness or facilitate the use of clean energy or more sustainable mobility.
Impact assets under management in Europe reached 80 billion euros in 2022 (data from the Impact Europe report), while its volume worldwide reached 1.1 trillion euros (GIIN). At the GSG Global Impact Summit 2023 in Malaga, organized by GSG (platform representing 40 countries) and SpainNAB (Spanish association for impact investments), a call was launched to reach 10% of total financial assets management by 2030 worldwide.
In Spain, the segment of impact companies and organizations and the finances that support them are developing rapidly and are an effective tool to address a wide range of social problems. According to SpainNAB estimates, impact investment assets under management reached 1,208 million euros at the end of 2022, representing a growth of 58% compared to the previous year. In addition, the Banking Impact Financing segment (which includes ethical banks and financial cooperatives) managed assets worth €1,743 million in 2022, representing a year-on-year growth of 4.4%. Although this data is encouraging and points in an optimistic direction, it is relatively small in the broader perspective of other countries around us. In France, for example, impact assets under management reached 14.8 billion euros in 2022.
Since the advances in the provision of resources that reflect the data to date are very relevant, their expansion requires accompanying the development of the entire ecosystem and the various actors that make it up, under the umbrella of a regulatory and fiscal framework, the transactions relieved and uncertainty reduced. on the decisions of the actors.
In addition to rules and regulations, the impact ecosystem consists of institutional and private capital investors, business angels, public financial instruments, ethical and social banking, SMEs and impact entrepreneurs, social economy companies and the third sector (including associations). , cooperatives and foundations). The so-called market builders are also essential, such as incubators and accelerators for companies in early growth phases, consulting firms, impact and sustainability training centers or standard certifications.
SpainNAB has been working for years with all actors in the ecosystem on various taxation and regulation proposals that facilitate the development of impact investment. There are currently three relevant work priorities: (1) recognition of an impact investment label by Europe within the framework of the European Sustainable Finance Disclosure Regulation (SFDR), which is in the public consultation phase; (2) Development of a code of conduct for impact investment in Spain, culminating in a European-harmonized impact label; and (3) consideration of the appropriateness of incentive tax treatment of impact investments to recognize that, in addition to making profits, impact investors also seek to provide quantifiable solutions to neglected social problems. Experiences such as the English social investment tax relief or the French 90/10 pension funds are schemes that could inspire Spanish policymakers.
With funding from NextGenerationEU, the Spanish government has just created the Social Impact Fund (FIS) to address some of the challenges mentioned above. The fund is worth €400 million and will be managed by Cofides and will begin its first investments at the beginning of this year. The company invests in all economic activities that meet the impact definition described using a variety of financial instruments (from equity to debt). You can invest “directly” in companies or organizations, regardless of their corporate form (stock corporations and GmbHs, cooperatives, foundations, labor corporations, etc.) or indirectly through intermediaries (investment funds, impact banks and cooperatives, etc.). FIS includes the provision of technical support resources to enable financial intermediaries, accelerators and the companies in which they invest to improve the sustainability and impact of their business models and strengthen their ability to measure, control and inform impact parameters that justify the investment.
FIS investments must be in addition to mobilizing third-party resources, which is why they have a very relevant catalytic effect for the impact investment sector. Other countries around us already have similar instruments, such as Portugal Innovaçao Social (150 million euros) or Big Society Capital (1,000 million euros) from the United Kingdom.
In summary, FIS is an instrument that promotes public-private cooperation in solving social and environmental challenges in our country and thus promotes the modernization of the welfare state. To make the most of the fund’s opportunities, gradually strengthening the demand and supply of impact investment as well as designing an appropriate tax and regulatory framework will be crucial. The collaboration between Cofides, SpainNAB and other actors will promote the development of the impact ecosystem in Spain, with the ultimate goal of promoting a fairer and more sustainable future for our country.
José Luis Curbelo and José Luis Ruiz de Munain are Chairman of the Board of Cofides and CEO of SpainNAB, respectively.
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