Financial instruments under the European Social Fund promoting Social Impact Investment

Published on 14 April 2016

Member States can use the European Social Fund (ESF) to support financial instruments such as loans, guarantees or equity products. These opportunities can help to improve access to finance for organisations, enterprises or individuals in ways that create both financial and social benefits and contribute to the ESF thematic objectives and Europe 2020 targets. Measuring social as well as financial returns is a key element of Social Impact Investment (SII).

Despite being a relatively new concept, the SII market has grown in the last decade with the emergence of socially-focused enterprises and innovative business models. SII embraces a conceptual framework which could be supported by ESF financial instruments. For example, demand for ‘social capital’ can be addressed through SII within instruments that channel assistance to key ESF target groups like social enterprises, charities, community and non-profit organisations, and disadvantaged individuals.

Finance within SII instruments could come from various sources including the ESF, commercial banks, microfinance providers, foundations, philanthropists, public authorities and ‘national promotional institutions’ among others.

In order to help increase awareness and understanding about SII, the Organisation for Economic Co-operation and Development (OECD) launched an initiative to assess SII and “build the evidence base” for encouraging more SII. A review of the OECD’s work on SII was presented to participants at the fi-compass ESF conference in February by Karen Wilson. Ms Wilson noted that their investigations have helped to clarify what SII means for different countries in terms of public expenditure and social needs, as well as what opportunities exist for public and regional authorities to play a role.

A vital starting point for any financial instrument is the ex-ante assessment. Through this analysis, managing authorities verify whether a financial instrument can help to achieve their ESF specific objective. The ex-ante assessment is obligatory and includes work to identify potential gaps between demand and supply for financial instruments. It also helps design the structure of a potential financial instrument. More information on ex-ante assessments is available here and further information about choosing financial instruments under the ESF is presented in a fi-compass handbook on this topic.