The EU needs to make impact investing a priority to achieve the fair transition

A joint statement by 60+ European impact investors from 18 EU countries to the candidates in European parliamentary elections.

Jun 03, 2024

👉 #UnitedforImpact’s position paper

Through the #UnitedforImpact initiative, 60 impact investors from 18 EU countries advocate for regulatory adjustments at EU level to redirect capital towards companies that put the resolution of environmental and social challenges at the heart of their business models.

The world is facing unprecedented environmental and social challenges, and entrepreneurs are key to developing effective solutions to tackle these issues. As private impact investors, our mission is to support them and bring their impact at scale.

Impact investing is a rapidly growing segment of the financial industry across the world: between 2019 and 2022, 330 impact funds were launched, with an increase of their assets under management from $90 billion to $371 billion – the European impact investment market accounting for 23% of the total.

This progress is encouraging, but systemic change needs to be backed up by a clear ambition from the EU institutions. As Europeans will go to the polls from June 6 to 9, we are calling on the candidates in the European parliamentary elections to act on several levers to redirect capital towards the twin environmental and social transitions.

A clear definition of impact investing

As of now, the lack of clarity in the framework set by the Sustainable Finance Disclosures Regulation (SFDR) prevents institutional investors from knowing if they are investing in impact positive assets when choosing article 8 or article 9 funds. Likewise, a clear distinction has to be made between article 9 and impact funds, often confused with one another.

To avoid potential impact washing claims and to increase investments in positive solutions for a fair transition, the EU needs to set a clear definition of impact investing. In that regard, we support the European Commission’s proposal to create a 4-category system, with a new category specifically targeting “products investing in assets that specifically strive to offer targeted measurable solutions to sustainability related problems that affect people and/or the planet”, and setting out clear and relevant disclosures for impact positive assets. The results of the consultation on the future of SFDR show a need for the creation of such a category, complementary but distinct from one dedicated to transition assets.

Additionally, simplifications should be envisioned on obligations flowing from disclosures under SFDR for SMEs that do not fall under the obligations of CSRD but will eventually: these disclosures should be harmonised and target data related to effective impact creation rather than mere ESG data.

EU funding as a lever to increase private impact investments

Public EU funding has a strong leverage effect to mobilise private capital towards impact investments. The European Investment Fund (EIF) has been the cornerstone investor of a vast number of EU impact funds, triggering significant funding from private institutional investors. We therefore call on the next EU Parliament and Commission to reinforce EIF’s mandates to finance impact generalist strategies supporting both environmental and social transitions.

A regulatory framework enhanced by a social taxonomy and a mission-driven company status

The existing framework tends to prioritise environmental sustainability but achieving a just transition requires addressing both environmental and social challenges. We believe the market is ready for the creation of the social counterpart to the EU Taxonomy and, more widely, for the establishment of formal guidance on positive impact indicators (both social and environmental) to identify good practices and foster their adoption by the market, without infringing upon innovation.

Finally, we support the proposal to create a “mission-driven” (or “purpose-driven”) company status at EU level, which aims to reconcile the shareholders’ common interest with the achievement of a broader objective of general interest, rather than limiting it solely to profit-sharing or economic achievement.

Beyond this initiative, there is a real momentum building in the impact investing scene and a clear consensus is emerging: regulatory adjustments are necessary to establish a clear and transparent framework for impact investing. We thus call on the European Commission and future MEPs to support these propositions so that capital can be massively redirected towards solutions to the social and environmental challenges we have to face, most urgently.

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