Social Impact Investing

SOCIAL IMPACT INVESTMENT: BUILDING THE EVIDENCE BASE
3.66 The U.S. also has some tax incentives in place. This includes the New Markets Tax Credits
which provides a credit against U.S. federal income taxes to taxpayers who make qualified equity
investments (investments where substantially all of the equity investment is used to provide loans to, or
make investments in, low-income communities). The program was authorised by the Community Renewal
Tax Relief Act, which was signed into law in December 2000. 6
Box 3.5. European Social Entrepreneurship Funds
The European Social Entrepreneurship Funds regulation (EuSEF) provides a label for investment funds that
address social issues. To qualify as an EuSEF, a fund has to prove that at least 70% of the capital received from
investors is invested in social businesses and that no more than 30 % of its available capital is used in the acquisition
of non-qualifying assets.
For investments to qualify, the investee must not be a listed company and must have a social goal, defined as
“the achievement of measurable, positive social impacts as its primary objective” clearly stated in the documents
establishing the business (statutes, mission, etc…). In addition, the investee must use its profits to achieve the social
goal and ensure that any profit distribution does not undermine the social goal.
The investee is considered a social enterprise if it i) provides services or goods to vulnerable or marginalised,
disadvantaged or excluded persons; ii) uses a method of production of goods or services that embodies a social
objective; or iii) provides financial support exclusively to social businesses as described in i) and ii).
The EuSEF regulation foresees the following social areas for social entrepreneurship:
1. Employment and labour markets;
2. Standards and rights related to job quality;
3. Social inclusion and protection of particular groups;
4. Equal treatment, equal opportunities and non-discrimination;
5. Public health and safety;
6. Access to and effects on social protection and on health and educational systems.
Investments can be made through a number of financing instruments such as:
Equity or quasi-equity instruments;
Securitised and un-securitised debt instruments;
Units or shares of other eusef (with exceptions);
Secured or unsecured loans granted by the eusef.
A number of reporting obligations apply. In particular, EuSEFs must include in their annual report details of the
social outcomes achieved with the investment policy as well as the social outcome measurement methodologies used.
In addition, they must also report a number of investment-specific features, such as the:
Social impact being targeted
Criteria used to select the investments
Risk profile
Valuation and pricing methodology
Methodologies used to assess social impact
Source: Regulation (EU) No 346/2013 of the European Parliament and of the Council on European social entrepreneurship funds.
6 . The Community Renewal Tax Relief Act can be found at:
http://portal.hud.gov/hudportal/documents/huddoc?id=19129_actof2000.pdf
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