Financing social innovation
While social innovation can help Europe respond to challenges where the boundary between the 'social' and the 'economic' blurs, it can only do so through adequate funding. A new report provides recommendations to showcase the funding opportunities that public funding programs, private funds and charitable foundations provide to support social innovation in Europe. The report also gives a number of practical recommendations for future funding programs, emphasizing that social innovation needs a family of funds, that range from funding ideas to large scale roll out in for example care, education and mobility.
As societies are compelled to adapt and change to new economic and social realities, new business opportunities arise. Cooperative banks, hospices and micro-finance institutions are just some examples of this type of social innovation. Indeed, the European Union has identified social innovation as a key transformative trend which, it believes, can be harnessed to meet certain societal needs not currently addressed by the market or the public sector.
Encouraging innovative growth
For this reason, the Innovation Union, a flagship of the EU’s Europe 2020 strategy, includes a focus on public-sector and social innovation. The Social Business Initiative will provide a strong stimulus to social entrepreneurs and social innovation in Europe. Social innovation is seen as crucial to meeting Europe 2020 objectives, as it forms part of an overall strategic approach designed to address pressing challenges, such as climate change, energy, health and an ageing population, in new and inventive ways.
In this context, the European Commission has launched the Social Innovation Europe initiative, a networked 'virtual hub' and expertise centre for social entrepreneurs, the public and third sectors. Its aim is to contribute towards building a dynamic, entrepreneurial and innovative Europe and delivering on the objectives of inclusive, smart and sustainable growth.
As part of the work on the Social Business Initiative, a consultation on possible measures to support social businesses through private investment funds was also carried out recently (it closed on 14 September). The consultation sought the views of all stakeholders on whether existing European investment fund rules work well for social businesses, which combine a social, ethical or environmental mission with the entrepreneurial flair and innovation of a business perspective.
The role of finance
While the potential of social innovation has been widely recognised, the financial toolkit is under-developed, as a recently published Social Innovation Europe report entitled “Financing social innovation: state of play in Europe and throughout the World”, makes clear. The study, which focuses on the current funding situation and discusses how social innovation funding can be further improved, is part of a series of reports and recommendations designed to define, analyse and support best practice in the field.
Financing social innovation identifies the different ways in which the EU has helped empower citizens and organisations to address social issues. Structural Funds, such as the European Social Fund (ESF), have been set up to promote economic and social cohesion. The goal of the ESF is to create more and better jobs in the EU, which it does by co-funding national, regional and local projects. Over the period 2007-2013, some €75 billion is being distributed to the EU Member States and regions, equivalent to approximately 10% of the EU’s total budget. The European Regional Development Fund (ERDF) is another Structural Fund, focusing on programmes that address regional development, economic change, enhanced competitiveness and territorial co-operation throughout the EU. Many projects funded under INTERREG and UBRACT support social innovation in local communities.
The EU PROGRESS Microfinance Facility is a technical assistance initiative through JASMINE under ERDF and coordination with the ESF which can support non-financial measures such as Business Development Services. The fund has a commitment of €100 million from the PROGRESS Programme and a further €100 million from EIB and plans to disburse €50million a year until 2015.
Research and networking in social innovation is also supported through the Framework Programmes (FPs) for Research and Technological Development. FP7, which runs from 2007 to 2013 and has a total budget of €51 billion, funds projects that aim to develop a true knowledge-based economy and society. A good example is the ‘Knowledge and policy in education and health sectors' (Knowandpol) project, which recently organised an event entitled ‘The changing role of knowledge in education and health policy across Europe'. Research and innovation activities may also be supported through the FP7's Risk Sharing Financing Facility (loans) and in the Thematic areas, such as the Health (public health) and ICT (eHealth, inclusion) themes. The report also identifies a wide range of non-institutional social funding, such as social banks, commercial investment funds, social investment funds and venture philanthropy funds.
Meeting new challenges
“Financing social innovation” stresses that the challenge for Europe now is to nurture sources of social innovation finance in all sectors and stages of development. Within a timeframe of five to ten years, the report wants to see a wider range of funding sources for new ideas, more social innovation spin-offs from universities, support for networks of angel investors, a more mature capital market for social enterprises, and regional funding flows that reward cities and regions for the adoption of proven innovations from elsewhere.
To accomplish these objectives, the study lists a number of recommendations, such as dedicating 25% of the budget of the Risk Sharing Finance Facility (RSSF) to funding social innovation, currently not supported by the RSFF. The European Investment Fund is also encouraged to promote social ventures through the creation of a European Impact Social Facility (ESIF).
Another recommendation concerns setting up a challenge.eu website (emulating the US example http://challenge.gov/), which would incentivise the government and the public to work together. Government agencies post challenges on this site and the public and civil society organisations can post submissions to these challenges. The report also calls for greater strategic use of public procurement in purchasing innovation and greater support for SMEs to participate in procurement competitions.
Despite the pressures of fiscal consolidation, it says, contracting bodies should be encouraged to invest in solutions to intractable social challenges where demonstrable savings can be made. Contracting bodies should not reject innovative and progressive proposals citing budget cuts and the need to preserve basic services.
Private companies should also be encouraged to launch social ventures with public or social partners to exploit innovations that are not viable in the private market. There are a variety of ways in which funding gaps might be addressed, for instance by opening up new conduits for investments, such as the creation of social stock exchanges that facilitate raising capital by issuing equity or bonds, the setting up of social investment banks, or the use of micro credits to provide direct funding.
Good practice in supporting social innovation
A number of social enterprises are leading the way in ensuring that funding is available to those with innovative ideas. 3SC, a partnership of ten civil society organisations, bids for large public-sector contracts on behalf of voluntary and not-for-profit civil society groups, while Big Issue Invest (BII) provides direct finance to social enterprises with business solutions to social and environmental challenges. The criteria for receiving support is to have a clear social purpose, a compelling business model, strong management and the ability to demonstrate a sustainable revenue stream and growth potential.
French Experimentation Fund for Youth
The French Experimentation Fund for Youth is a 230m Euros fund established in 2008 by Martin Hirsch, the High Commissioner for the Youth at the French Administration. It coordinates experimentation and evaluation activities of policies related to young people. The Fund was set up to encourage innovative programmes for young people. It aims to see the skills of young people valued and recognized, also the skills developed outside of formal education. Since the Fund was set up it has funded and evaluated 350 projects.
Contact
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Policy Development for Industrial Innovation Unit
Directorate-General for Enterprise and Industry
The text only of the articles can be republished as long as the source of the article is quoted: Enterprise & Industry magazine (http://ec.europa.eu/enterprise/magazine/index_en.htm), © European Union, 2008 - 2012
