Policy isn’t boring, it’s what’s driving Europe’s social economy

Leading up to ImpactFest, Europe’s largest impact meetup on November 5th, we will look in to the impact ecosystem in ImpactCity – The Hague as well as current impact developments, trends and innovations. ImpactCity facilitates entrepreneurs, from startups to established companies, NGO’s and impact investors who combine doing good with doing business, with a dedicated infrastructure. Through housing, connections to financing and an incredible support partner network, innovations for a better world get the best breeding ground possible to take off and pros pure.


 

A decade ago, in the thrust of the global financial crisis, a new kind of business began taking root—one whose methods of profit-making were anchored in responsible behavior and serving a social good.

But social enterprise, as it is known, wouldn’t gather real momentum until the United Nations devised the 17 Sustainable Development Goals. That framework propelled social enterprise into the global spotlight as a solution to economic exclusion, environmental devastation, and to building a sustainable future for all.

Markets don’t shift willingly, however. Catalytic policymaking is what enables the translation of social enterprise as an idea into practice, and what coaxes private capital to support it. Within Europe, progressive policies in support of social enterprise aren’t yet universal, but there are now enough examples to serve as a foundation for local, regional, and national governments to build from.

“Progress is coming both from the bottom-up and the top-down,” observes Veerle Klijn, policy program manager for Euclid Network, an organizational body that represents the interests of social entrepreneurship across Europe.

At EN, Klijn is dedicated to researching social impact initiatives across the EU member states and developing position papers for the European Commission (EC) to enable policies to strengthen Europe’s social enterprise sector. She says top level initiatives, like the EC’s Social Business Initiative have been instrumental in cultivating social enterprise-specific legislation among individual member states. Similarly, a directive on social public procurement that was passed in 2014 has encouraged member states to proactively think about how public institutions engage and partner with socially-minded businesses.

But, she notes, most of the models for building thriving social economies start at the local level.

“We wouldn’t get far without initiatives like ImpactCity, which are bottom up,” she says.

Impact City, an initiative launched by The Hague in 2015, exemplifies how to design a broad-based social economy from scratch. It was developed as a pathway to attracting more startups and entrepreneurs to The Hague. The decision to create its blueprint around social enterprise specifically was based on The Hague’s longstanding reputation in promoting peace, justice and human rights.

Seeded with only €6 million in funding from the city government, ImpactCity laid the groundwork for social enterprises to launch and succeed. Investing in physical spaces, like startup hubs Apollo 14 and the Hague Humanity Hub, was an important pillar of ImpactCity’s early work. Those spaces have since became the hosts of the supportive networks that now underpin the city’s social enterprise ecosystem.

“It started out totally as an impact startup program. Back then, The Hague was the only city in Europe with a mission focused solely on the impact economy,” recalls Erik van der Rijt, who supports ImpactCity as The Hague’s economic team manager. “But we’re seeing it evolve. It’s becoming a more mature ecosystem for all partners, including startups, scale-ups, universities, knowledge institutes, investors, and other government collaborators.” Elsewhere, municipal governments are driving innovation through creative partnerships and by serving as match-makers between social entrepreneurs and investors and buyers.

Challenging the capital gap

Investor wariness in social entrepreneurs is one of the biggest challenges to accelerating the social economy in Europe, says Klijn.

“Many investors just don’t understand what social entrepreneurs do, so investing at the early stage is seen as risky,” she explains. Beyond the risk perception, Europe’s impact investment opportunities tend to be small and take longer generate a financial return, requiring patience from investors.

“You need governments to step in at the early stage, because social enterprises still aren’t interesting enough for the market,” Klijn adds.

Hundreds of billions of euros are available from the EC to social enterprises through various programs and funding streams. Like the €919 million Employment and Social Innovation (EaSI) program for organizations supporting Europe’s future workforce, and the €2.3 billion Competitiveness of Enterprises and Small and Medium-sized Enterprises (COSME) program to enable entrepreneurs’ access to finance.

Euclid Network has developed a toolkit help social enterprises navigate the various funding schemes.

Some municipal and regional governments are experimenting with their own creative financing structures via social impact bonds, which incentivize organizations to design and iterate on effective social programs with outcome-based payments. Others are taking that kind of financing a step further with dedicated social investment funds. The Dutch province of Noord-Brabant, one of EN’s members, has launched the Netherlands’ first outcomes fund to help social enterprises scale programs across the region.

Italy, Portugal and the U.K., meanwhile, have established national social innovation funds.

Taking the lead

A few countries in Europe have demonstrated leadership at the national level, offering guidance to other states on how to build a social economy through progressive policymaking. France, for example, passed a Social and Solidarity Economy law in 2014, as well as tax incentives, to encourage social entrepreneurship nationwide.

France is also trying to elevate its leadership internationally. In July, it launched the Pact for Impact Alliance to develop a global social economy “roadmap.” Fifty member countries have since signed on.

“France really wants to push this movement at the international level,” Klijn explains.”

Many EU states still have more work to do. Some have initiated national policies that are merely symbolic, notes Klijn. The Netherlands is among those that still do not have a national social enterprise or innovation policy, but it is nevertheless working to strengthen the domestic social economy via its national social entrepreneurship network, Social Enterprise NL.

That approach, while slower, is making headway: Social Enterprise NL’s policy lead Stefan Panhuijsen says he’s witnessed a remarkable uptick in interest from Dutch policymakers since the network launched seven years ago.

“Back then, there was almost no policy on social entrepreneurship. Now at least 13 of the 40 biggest municipalities have stated that they want to support it,” Panhuijsen observes. “There is far more knowledge on the subject now.”


Want to find out more about impact policy? Join the Euclid Network meetup sessions on November 5th: www.impactfest.nl