> Spain NAB:
Setting Agenda for Spanish Impact Investment Market By Laura Blanco Director of Knowledge and Outreach & José Luis Ruiz de Munain CEO
At an estimated €90m1, Spanish impact investment is considered an incipient market by European standards2, well behind Germany, France, Italy and even Portugal.
T
his market counts 14 impact funds3, and has been developing slowly over the past 10 years out of individual private initiatives from different sectors interested in supporting and financing social enterprise. This has taken place through projects linked to incubators and accelerators, and funds with belowmarket profitability expectations. Microfinance and ethical banking have been leading the charge, and are well-established actors of the ecosystem. The most recent figures from the OECD4 rank BBVA Microfinance Foundation as world leader in impact investing in developing countries, with some $ 1.2bn of philanthropic5 debt instruments disbursed in the 2017-2018 period, followed by the Grameen CA Foundation with $37m. Caixa Microbank granted €773m in microloans to families, small companies and entrepreneurs in 2018, growing its loan portfolio to a total of €1.5bn. In ethical banking, the total loan portfolio in Spain amounted to €1.5bn in 20186. These actors — led by three pioneers: Eurocapital EAF, Open Value Foundation, and UnLtd Spain — got together in 2018 to create a National Advisory Board for Impact Investment, called Spain NAB, to join the GSG (Global Steering Group for Impact Investment) by June 2019. Working with more than 70 organisations from the Spanish impact investment sector to identify the main roadblocks for supply, demand and intermediation, and to build a consensus on the measures required to grow the market, Spain NAB has created a cohesive community with a clear agenda. This consists of five recommendations prioritised from the more than 100 produced. Spain NAB has ambitions to grow the market four times by June 2021, to a figure of some €360m. The recommendations: 1. Strengthen social enterprises incubators and accelerators 64
through
"The supply of capital for impact investment in Spain is limited. The investment culture is dominated by a dichotomy between philanthropy and traditional investment." Supporting social enterprises in the initial stages of their development is a good strategy to generate positive impact on society in the medium and long term. Some companies have difficulty accessing financing due to their hybrid nature. Spanish incubators and accelerators play a key role in strengthening and training social enterprises from the social economy, as well as those set under common corporate law. Supporting the work of these entities, and their capacity to offer technical assistance and financing, is vital to developing the full potential of social entrepreneurship and the impact investment market. 1.1 Creation of an alliance of social incubators and accelerators to share best practices, standardize processes and cover the different needs of social enterprises. 1.2 Creation of a support programme through subsidies (or adaptation of existing ones), with public and / or private capital, to cover the costs borne by social incubators and accelerators to support and offer technical assistance to entrepreneurs. 1.3 Creation of a financing vehicle, with public and / or private capital with no expectations of financial return, for social enterprises in their initial phases (idea / pilot). 1.4 Creation of a financing vehicle, with public and / or private capital, for social enterprises in seed and start-up phase. 1.5 Creation of a financing vehicle, with public and / or private capital, for innovation and transformation projects at consolidated social enterprises. CFI.co | Capital Finance International
2. Attract public and private funds to catalyse impact investing The supply of capital for impact investment in Spain is limited. The investment culture is dominated by a dichotomy between philanthropy and traditional investment. As a result, the financing needs of social enterprises are often left unfulfilled. Since the initial rounds of financing are usually too small and risky for most investors, it is essential to create hybrid instruments catering to the needs of social enterprise. This catalytic capital should lower risk of projects with belowmarket returns but high potential. 2.1 Use of domestic and supranational public resources to catalyse new impact funds and reinforce existing ones 2.2 Capture Structural Funds from the European Union (2021-2027) 2.3 Create a specific vehicle to invest in different risk-return-impact strategies such as technical assistance, and blending 2.4 Create and distribute dedicated impact funds by private capital asset managers and financial institutions 2.5 Incorporate social and environmental impact variables in the financing offered by financial entities and fund managers 2.6 Participate in the drafting of the Sustainable Finance Plan of the European Union to reinforce the importance of impact investing to institutional investors 2.7 Promote an EU harmonised legal framework (regulatory and fiscal) for venture capital entities qualifying as EuSEF and improve the tax treatment of financing instruments under EuSEFs 2.8 Promote public and private investment instruments that foster innovative structures to enhance social impact.