//TRENDS//Social enterprise: landscapes from Europe

Alberto Cottica

D4SB Master Course

From opportunity assessment to business planning in social businessLesson 6

Overview

•Legislation

•Finance

•Networks

•Local Economic Development

source: http://www.oecd.org/dataoecd/57/7/44076387.pdf

Legislation

Social enterprise: USA

• commercial activities of non-profit organizations (like running a café)

• meant to generate revenue for the core mission

• not necessarily linked to the core mission

Social enterprise: EU

• continuity

• autonomy

• economic risk

• explicit aim to benefit the community

• decision making power not based on ownership

• limited profit distribution

cooperative company open form

Italy, Portugal, France, Poland

Belgium, UK Finland, Italy

• Italy: type A (for care services) and B (by disadvantaged citizens) cooperatives

• Portugal: total lockdown on assets

• France: Société Co-opérative d’Intèret Collectif

• Poland: work cooperatives like Italian type B, economic activities “a necessary evil”

Cooperatives

Companies

• Belgium: sociétés à finalité sociale. Governance is regulated. Directors liable for allocation of resources diverging from social goals

• UK: Community Interest Companies. “Light touch” regulation, community interest test. Can pay dividends to shareholders.

“Open form”

• focus on activity, not legals

• Finland: subsidies to employ disabled or long-term unemployed

• Italy: for-profits and public entities are prohibited from controlling a social enterprise

Lots of diversity!

• What regulation?

• How to define social finality?

• Affirmative or negative constraints on asset allocation?

• What governance structure?

Finance

Social goals constrain profit maximization

Capital ebbs away

Socially responsible financing

$ 3 trillion 13% of savings in the USA (2006)

£11.6 billion7% of savings in the UK (2006)

CHAPTER 2 – 105

THE CHANGING BOUNDARIES OF SOCIAL ENTERPRISES– ISBN- 978-92-64-05526-1 © OECD 2009

No longer on the economic margins, SRI currently represents 13% ofsavings in the United States and 7% in the United Kingdom that is managedin a responsible way. Moreover, SRI is present at various levels: a majorityof these investments are made at the local level (via micro-financeinstitutions); at national or regional levels (via financial organisations andbanks); and at the international level (via guarantee funds or solidarityinvestment companies). In addition to the plethora of socially responsiblefinancial products, they also perform better than traditional ones, especiallyin the long run. Borzaga (2005) concludes that this reflects the positivereputation of socially responsible firms, the lower level of internal andexternal social conflicts, and the prevailing climate of trust. Although at themoment socially responsible behaviour is primarily an individual decision, itis influencing the increased adoption of socially responsible behaviour bycorporations and industries sensitive to the growing importance of socialresponsibility for customers and investors (Borzaga, 2005).

Table 2.2. Socially responsible financing

Form Activity Actors

Responsible indirectinvesting("placementresponsible")

Portfolio screening(exclusionary orinclusive)

Investments in financial marketsusing exclusion or inclusion filtersbased on environmental, social andgovernance (ESG) criteria.

Ethical funds, foundations

Shareholderengagement(or activism)

Shareholders that utilise their role toinfluence the practices ofenterprises.

Pension funds,awareness raisingorganisations, someethical funds

Responsibleinvesting(pro-active/direct)

Development capital

Risk capital with socioeconomicgoals (i.e. job creation, local andregional development, andenvironmental).

Investment toolsdeveloped byassociational actors(labour solidarity funds,cooperatives and creditunions)

Solidarity-basedfinance (socialfinance)

Financing of community economicdevelopment and social enterprises.

Micro-credit, financialcooperatives, hybridinnovative financial funds

Source: Adapted from Chantier de l'économie sociale (2006) and Mendell and Bourque (forthcoming).

Other terms such as “sustainable”, “responsible” and “social banking”are now part of the vocabulary and are often overused, generating confusionand uncertainty among those interested in screening their investmentactivity. Today, references to ethical investment include bothscreening/vetting and pro-active investment adding to this confusion. Thatsaid, proactive ethical investment, has raised consumers’ awareness of howtheir money can be placed in sectors of activity that contribute to the well-

Connecting savings to social business

Source: OECD

Lots of innovation!

• Securitization: loans or equity investments are pooled into lower-risk funds; quotas of these funds are resold on to the financial markets (eg. Blue Orchard - USA for microlending)

• “Patient” loans: 15 year capital repayment standoff (eg. FIDUCIE – Quebec)

• Ethical capital markets: still in their infancy (eg. ETHEX - UK, Bolsa de Valores Sociais - Brazil)

• Donor-Advised Funds: donors steer institutional investment funds clear of rogue investments (eg. Fidelity’s – USA)

• Social performance measurements indices (eg. Dow Jones Sustainability Index or FTSE4Good Index - USA)

• Crowdfunding platforms (eg. Kickstarter - USA

• Venture philantropy: grants treated as investments in equity (eg. Rockefeller Foundation -USA)

Many issues remain...

•assessment of risk

•measurement and evaluation tools

•image of the sector

•lack of appropriate legislative framework

Networks

Too many to count! Shared workspaces too

Local economic development

Social business can partner with govt

• strengthens the service economy

• creates new employment, and is friendly to less mobile workforce (women, young)

• strengthens local welfare systems

• puts unmovable assets (environmental or cultural heritage, voluntary labor) to value

•Legislation

•Finance

•Networks

•Local Economic Development

•choose the right tool

•what do you need?

•definitely be in many?

•partner up with the public sector

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All photos licensed CC on Flickr.com. Authors (top to bottom): Rainer Ebert, unknown author, brezzadilago, Jasmin Cormier, unknown author, unknown author, unknown author, marie-II, unknown author, Filippo Podestà, antoniofurno, ballacoicinghiali

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