How to Mainstream Impact Investing in Europe

Jul 2020
Global, July, 27 2020 - Investors and policy makers who want to advance impact investing in Europe need to account for the field's different levels of maturity in national, subnational, and municipal markets.

Impact investing has taken a foothold in Europe most notably during the past decade, but some countries and regions have developed more rapidly and earlier than others despite pro-impact policies that applied to the entire continent.

Britain positioned itself at the forefront of the field by establishing the Social Investment Task Force (SITF) in 2000 and following up shortly thereafter with the creation of policies, investment funds, and specialized financial tools. France joined it as a leader by creating solidarity-based funds in 2001. In 2012, Britain later advanced the field significantly with the establishment of Big Society Capital—one of the world's first wholesale investment institutions focused on combined social and financial returns. Development in Central and Eastern Europe has been slower, with a number of nations still in their infancy in attracting and deploying capital.

The variability presents a message that investors and policy makers can't ignore: If they want to advance impact investing in European regions, they need to account for the field's different levels of maturity in national, subnational, and municipal markets.


The size of the European market depends on the definition of impact investing. The European Sustainable Investment Forum (EUROSIF) defines impact investing as “investments made into companies, organisations and funds with the intention to generate social and environmental impact alongside a financial return.” It reported impact investing assets under management of €108 billion ($122 billion) in 2017. The European Venture Philanthropy Association (EVPA),  on the other hand, uses the phrase “investors for impact” to define a wide variety of financial activity related to social and environmental causes. It encompasses investors who adopt the venture philanthropy approach (through highly engaged grant making or social investment), support innovative solutions to pressing societal issues, take risks that most actors in the market are unprepared to take, and provide in-depth non-financial support. EVPA reported that investors for impact had funded 11,951 social purpose organizations with €767 million ($868 million) in 2017.

A lack of comparable data and reporting makes it more difficult for new actors to dedicate resources. Mixed metrics may push away asset owners, such as a high net-worth individual or foundation, who might otherwise see impact investing as a compelling way to achieve financial returns and social good. Institutional investors have strict requirements in terms of reporting and may be deterred by the lack of comparable impact data across products and funds. They might also consider impact investing to be too risky. These barriers slow down efforts to make impact investing more mainstream in Europe and the rest of the world. However, important efforts are underway to overcome these barriers.

Infrastructure and Institutions

To build key infrastructure for the impact investing market, the public sector has launched pan-European policies, supported and informed by network associations. Academic institutions play an important role as producers of rigorous research on the field and educators of future professionals.


The public sector has supported impact investing in Europe at regional and national levels. Policy makers have tried to avoid overregulation that might stifle innovation within a still-evolving market. They have also aimed to build both the demand and supply of capital, catering to the needs of social enterprises as recipients of funding and to the needs of investors and intermediary organizations as funders.

In 2011, the European Commission launched the Social Business Initiative to support the development of social enterprises, social economies, and social innovation. It led to important developments, such as the establishment of the Expert Group on Social Entrepreneurship (GECES), which operated from 2011 to 2018, and the formation of the subsequent Expert Group on Social Economy and Social Enterprises (also GECES), scheduled to run from 2018 to 2024. GECES brought together representatives of private and civil sector organizations, associations, and networks to communicate with national governments and advise the European Commission on social economy policies.

GECES and other groups were involved in many important policy innovations in the field. GECES developed a European standard on impact measurement in 2014 that was included in the European Social Entrepreneurship Fund (EuSEF) regulation and the Programme for Employment and Social Innovation (EaSI). The European Commission, supported by the Social Business Initiative, created several financing instruments for social enterprises across Europe. They included the EaSI guarantee scheme that de-risked financial institutions’ funding of social enterprises and enabled the European Investment Fund to launch innovative vehicles, such as the Social Impact Accelerator.

Policies spanning Europe have been instrumental in legitimizing impact investing. They have encouraged national governments to develop their local markets and supported the creation of financial instruments that reduce the risk of private investments in social enterprises.

The EU taxonomy on sustainable finance is particularly promising, according to key experts like Karl Richter, who lectures at the Frankfurt School of Finance and Management and is a member of the Impact & Sustainable Finance Faculty Consortium. The taxonomy helps investors clearly measure sustainability by considering the economic impact of climate change—but no other social or environmental issues—on financial performance. With this precise framing, investors with the specific social goal of sustainability can more easily and reliably find an opportunity that fits their desires, potentially increasing the amount of money flowing into the cause.


Networks and associations play an important role in developing the norms and boundaries of the sector. They provide market data, recommendations on best practices, and suggestions for bridging the gap between policy makers and practitioners. The European Venture Philanthropy Association (EVPA) is one of the oldest and most important organizations. It began in 2004 to cater to the nascent venture philanthropy sector and expanded its reach to include what it calls investors for impact.

At the G8 Social Impact Investment Forum in June 2013, Prime Minister David Cameron of the United Kingdom announced the Social Impact Investment Taskforce, which aimed to develop markets for social investments around the world. The taskforce led to the creation of National Advisory Boards (NABs) for each G8 country to take on the work within its borders. Two years later, the Global Steering Group for Impact Investment (GSG) succeeded the taskforce.

Several European countries, including Britain, France, Germany, Italy, Finland, Sweden, Portugal, and Spain have established NABs. EVPA and the European NABs share best practices so that lessons from one country can be used elsewhere. The French Solidarity Investment Fund regulation, for example, offers some potential for replication. The regulation encouraged the creation of the “90/10 funds,” which invest 10  percent of their assets in solidarity-based organizations, another name for social enterprises. The remaining 90 percent goes toward socially responsible investment strategies. The regulation further required that corporations with more than 50 employees offer at least one Solidarity Investment Fund as part of their savings schemes for employees. These schemes have channeled billions of euros from the general public to impact investment funds.


Academia has an important role to play in building and growing the future of European impact investing. It can start by studying the data from associations to provide more evidence of what does and does not work.

Business schools have been and remain at the forefront of developing the skills for impact investment managers. Their courses provide insights into business models that are financially sustainable, have positive social impact, and put people at the center of solutions. Saïd Business School at the University Oxford, INSEAD in France, and ESADE in Spain have pioneered social innovation and social entrepreneurship courses. Universities strong in finance—such as Frankfurt School of Finance and Management, Stockholm School of Economics, Maastricht University, and the University of Luxembourg—have developed students’ competence in sustainable finance. We still need to work with career services to help students enter the impact investing job market.

Looking Ahead

The COVID-19 pandemic will undoubtedly cause major shifts in the practice of impact finance. Europe is well positioned to weather them. As the European Commission prepares the next budget for the European Union, social issues have remained a core priority.

The commission already took steps in December 2019, announcing the European Green Deal, which aimed to neutralize the continent's impacts on the climate by 2050. In January 2020, the commission followed up with the release of the Just Transition Mechanism, which will support investments that help the regions struggling the most to transition to a green economy, without forgetting the inclusion of vulnerable groups. Additionally, the InvestEU fund will target social enterprises and microfinance, bringing together a range of existing European financial instruments to counteract fragmented markets and policies.

While much progress has been made toward mainstreaming impact investing in Europe, many steps remain. As policy makers, investors, businesses, educational institutions, and associations continue to pursue this goal, there are four lessons they must keep in mind:

Mobilizing resources across major European regions requires regionally tailored policies and financial instruments. Policies and instruments that have worked in individual countries, such as Solidarity Investment Funds in France, can provide templates for developing impact investing in other nations. Networks and associations should share data and best practices so that less advanced countries can avoid starting their impact investing sector from scratch. Regions as a whole need to integrate impact measurement and management into the tools used by major social institutions, including corporations, large investors, and public funders. Underlying all of these policies is a need to demonstrate that the public sector gets its “money’s worth” from impact investment. That will entail a clearer accounting of impact within investment formulas so that public and private funders can assess the money saved or even gained by considering social and environmental criteria. It will be challenging but it's a worthwhile endeavor: Impact investing must go beyond a national or municipal scale in Europe to meet major challenges like climate change that ignore geographic borders.


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