State-owned commercial company COFIDES will manage the fund, which will finance and invest into businesses and projects addressing social challenges across Spain.
Spain’s council of ministers, the main collective decision-making body of the country’s government, has approved the creation of the €400m Fondo de Impacto Social (FIS), a social impact fund to be managed by COFIDES, the Spanish state-owned commercial company, which also operates as a development finance institution.
FIS will provide financial support to purpose-driven companies, projects and funds. These include social enterprises or ‘Common Benefit and Interest Companies’, a Spanish designation known by the acronym SBIC, which defines companies that have an explicit commitment to generating a positive social or environmental impact.
The €400m public investment in the fund will be channelled from the EU’s Recovery and Resilience Facility as part of Spain’s Recovery, Transformation and Resilience Plan, which was set up in response to the dual economic and social crisis triggered by the COVID-19 pandemic.
FIS will target companies of all sizes and at all stages of development. It will also invest into foundations, associations and non-governmental organisations as well as into impact investment funds and other financial vehicles.
Speaking to Impact Investor, Raúl Sánchez, director of impact investments at COFIDES, who also heads up FIS, said: “The decision to launch this fund is testament to the growing awareness and trust being accorded to the burgeoning impact investment market in Spain, which has grown manifold in a relatively short space of time, from €350 in 2018 to €2.9bn today.”
The €2.9bn figure, which includes both the impact investing universe as well as ethical and social banks and financial services cooperatives, is taken from a 2022 report of the Spanish impact capital market, published by SpainNAB, GSG Impact’s national partner in Spain.
“Demand from financial stakeholders and consumers for social and environmental impact alongside a financial return has grown and will continue to do so as awareness of impact gathers pace,” added Sánchez.
Impact Investor also caught up with Spanish impact investment manager Impact Bridge, whose CEO Arturo Benito said the fund was “a game-changer for the Spanish impact investment ecosystem”.
“The Spanish impact market has grown tremendously in the last six years but it is still relatively small compared to markets in countries such as France or the Netherlands,” said Benito. “Against a backdrop of global economic and political uncertainty, which has created a very difficult fundraising environment, particularly for smaller investment boutiques, having the support of public institutions such as through the FIS, will be essential to ensure the continued growth of the market.”
Unique investment structure
Sánchez said that the FIS structure was unique among public funds in Europe.
“The singularity of this fund is its flexibility. It can finance a wide range of impact investment projects where the beneficiary could be a start-up, a foundation or the investee companies in a fund. It can also make use of a wide range of financial instruments, be it equity investments through an impact fund, debt or equity co-financing with other impact investors or direct investments made on its own accord.”
The fund, which sits under the umbrella of Spain’s Ministry of Inclusion, Social Security and Migration, is expected to be operational by the fourth quarter of this year.
Social challenges
The aim of the fund is to provide financial support to companies, funds and other entities that are helping to address neglected social and environmental challenges in Spain, and to mobilise additional private capital for the impact economy.
“The catalytic role of the fund will be crucial and we hope to attract stakeholders to the market, such as insurance companies and family offices, by offering the opportunity co-invest with us” said Sánchez, who added that the fund management team was in the process of developing a theory of change and crunching the numbers to identify key areas of priority.
“There are many challenges of inequality and inclusion or related to territorial cohesion across Spain. We have identified 33 social challenges in total and are now in the process of putting numbers to them to understand which ones the fund needs to prioritise and the level of funding we need to allocate.”
Sánchez said one of the biggest problems in Spain today was the lack of social and affordable housing, especially for young people and ethnic minorities.
“The fund will allow us to find innovative ways to address that,” he said.
Investment allocation
Around 60% of the fund or €240m will be invested into impact funds and other financial impact vehicles, 24% or €96m into co-investment opportunities, 14% or €56m into the direct financing of companies and projects and 2% or €8m will be used to provide technical support to investees.
FIS can only invest into funds and investment vehicles that are domiciled in Spain or those which use FIS funding exclusively in support of projects or companies in Spain.
Sánchez said the rules governing direct equity stakes in companies were also quite strict. “To manage the equity risk, we can hold a maximum equity stake of 49% in a company if we co-invest alongside another public institution and 25% if we invest alongside another impact fund,” he said.
COFIDES confirmed that the fund would be open-ended with an indefinite duration. The initial endowment of €400m must be fully allocated to investment projects by June 2026 and any returns on investment reinvested into the fund and into new investment opportunities in support of the medium and long term social and environmental challenges associated with the sustainable transformation of the Spanish economy.
“The open-ended structure means there is also an opportunity for further allocations to be made from the Spanish budget in future years,” added Sánchez.
Technical Assistance Facility
Beneficiaries of the fund will have access to a technical assistance (TA) facility which will support their development through assistance on aspects such as impact measurement and evaluation methodologies.
“The TA is there to help with a range of things like impact measurement, team management or the recruitment of high calibre employees to fill the skills gap that could, for example, enable a start-up to scale its business and impact,” said Sánchez.
