That is enough 10% of $370 trillion in financial assets under stewardship in the world will invest in social and environmental impact to meet the United Nations’ 17 Sustainable Development Goals.
The challenges we face in our time and in our society are not insignificant problems. Combating the Earth’s ecological collapse and supporting the most vulnerable groups of people, among many others, require a transformation towards a new economic model in which inequality is reduced, natural resources are renewed, and in which people can develop their full potential and benefit from shared prosperity based on sustainability, equal opportunities and justice within the framework of coexistence between public and private initiatives. We need an economic model focused not only on minimizing harm, but also on creating positive impact through responsible, efficient and effective use of available resources. This model is called the impact economy, and everyone has a role to play. play in it.
With these assumptions in mind, a large number of organizations are trying to focus on the challenges we will face as a society in the not-too-distant future. There is no doubt that European directives such as the Sustainable Finance Disclosure Regulation (SFDR) and the European Social Economy Action Plan support the consolidation of sustainable finance, but we still have a long way to go. to approach countries around us like France or Portugal without going further. Today I would like to share two considerations that can lead us to a model of economy with social impact in Spain.
First, a substantial increase in private financial resources towards organizations, foundations, entrepreneurs and social providers of the social economy is necessary. According to the study Impact of investments in Spain in 2021, impact private equity funds represent 435.8 million euros (18% of the total). New vehicles and their assets under management appeared in the last year increased by 33%, which is practically a fivefold increase compared to the value of three years ago (€92 million in 2018). Ethical and social banking continued to be the segment with the highest volume at €1,637.7 million (68% of the total), although growth was lower (10%) as it is a more mature sector. Foundations continue to play an important role with 229.9 million euros (another 10% of the total amount).
And secondly, we all agree on the extraordinary importance that the role of public administration is gaining, which it must to support the three instruments of public-private cooperation that we requested:
- The combined funding: better known as mixed finance, It first appears in the 1990s in developing countries and emerging markets as a catalyst investment in sectors traditionally ignored by the private sector. So it is about covering a funding need that is not being met by the market to create a positive impact for a disadvantaged group or for the planet, which justifies the use of catalytic capital to attract commercial funding because it is limited.
- The Contracts for Results (CPR): They are those whose payments are linked to the achievement of certain social and/or environmental results agreed in advance between the contracting parties. It allows transfer of total or partial risk from public administration, as a contracting party, social service provider, as a contracting party. One type of CPR is the so-called social impact contract (CIS), in which an investor advances working capital and/or risk capital to a social service provider in exchange for a return that varies according to the level of social outcomes achieved, thereby assuming that the risk that the intervention will not achieve of all or partially agreed results, i.e. that the social care provider does not receive full payment for the service or receives only part of it.
- AND Solidarity pension or investment funds 90/10: They enable workers’ savings to be channeled into investments in social enterprises. In France, in force since 2008, companies with more than 50 employees are required to offer their employees an optional solidarity employment plan in addition to conventional savings schemes, which allocates 5 to 10% of its assets to social companies that are not listed. The remaining 90% to 95% is invested in listed companies according to the Socially Responsible Investment (SRI) strategy and in accordance with Articles 8 and 9 of the SFDR.
In essence, there are many laws, innovations and therefore leadership from the state administrations in Spain to match the pace of public commitment to social impact of our European counterpartspp. The coming years will be critical to consolidating impact investments and scaling them into the real economy, and from private institutions and platforms we will ensure that we reach out to public administrations to make this possible.
*Íñigo Alli is an independent member of the Spanish NAB Advisory Board.