IFB’s new report unveils four proposals aimed at unlocking private capital and government resources to accelerate the growth of sustainable and impact investments in Belgium.
A new report from Impact Finance Belgium (IFB) identifies the challenges facing the growth of impact investing in the country and sets out how they could be overcome by tapping institutional, retail, social investor and government resources, with reference to successful initiatives elsewhere in Europe, notably France, the Netherlands and the UK.
In the report, IFB proposes leveraging private capital by repurposing state support for projects generating positive environmental and social impact, accessing retail savings to enable citizens to participate in sustainable growth, and stimulating institutional investors to direct part of their investments towards scaling societal benefits. It also calls for federal and regional administrations to play a key role by adopting green budgeting and frameworks to support the green investment.
IFB, launched in 2022, is the Belgian partner of the GSG Impact network of national organisations set up to promote impact investing. Impact Investor profiled IFB last year.
Belgium’s impact investing market is relatively small compared to those in some of the country’s more populous neighbours, but it is expanding. IFB has estimated that it totals around €6bn-16bn, representing some 1-2.5% of assets under management, but that it could more than double within the next three to five years.
Steven Serneels, IFB’s co-founder and chair, told Impact Investor he hoped the new report’s findings would build on a fresh groundswell of support for impact investing in Belgium, which used to be restricted mainly to relatively small-scale impact funds.
“The momentum has truly been there over the last two or three years. Before, there was curiosity, but very little action,” he said.
Hoping to build on this growing interest, IBF has identified four pilot schemes, inspired by successful initiatives elsewhere in Europe.
Dormant assets
The first is to use dormant assets as a guarantee to leverage private capital, taking a lead, in part, from the UK’s existing dormant asset scheme which is managed by Better Society Capital.
IBF looked at how best dormant assets could be mobilised in the context of Belgium’s legal and finance frameworks and concluded they could best be used to facilitate guarantees, rather than being used as first-lost investments.
“We have detailed when and how a guarantee structure could work for dormant assets in particular settings, without it being reclassified as non-proper state aid,” Serneels said. He noted support from law firm Freshfields had been crucial in overcoming potential legal hurdles when drawing up its proposals so they would work in the Belgian context.
Another proposed pilot is the introduction of a new structure for retail impact funds, making them accessible to the growing cohort of Belgian retail customers seeking to invest in green products. As in many other European countries, Belgian institutions face regulatory and legal obstacles around issues such as liquidity and fiduciary duty in offering impact investment options to retail customers.
“We still see too many hurdles today, which is why we propose creating a specific retail impact fund to meet growing appetite, so people are offered the choice to participate,” Serneels said. If they do invest, then the message to financial institutions and regulators would be that the market needs to be developed further, he added.
A third proposal for a pilot is offering the choice of allocating part of insurance and pension funding towards sustainability and impact, as has been done in France through initiatives such as 90/10 funds. The solution suggested by IBF following talks with pension funds and insurers is designed to hit a “sweet spot”, allowing it to work within Belgium’s existing legal framework, Serneel said.
Government can set example
The final proposal is to include green budgeting at state level, to embed sustainability frameworks in the operations of state-owned investment vehicles, and also reinforce Belgium’s Taskforce Sustainable Finance.
Apart from creating a favourable environment for government investment, Serneel also hopes that if government takes a lead, it will help to shift mindsets among Belgian investors towards green investment.
One concrete measure he suggests is that the government could issue more green sovereign bonds similar to UK green gilts to provide institutions with wider investment opportunities. “They are not doing a bad job on this, but they could do more,” he said.
IBF puts a figure of €2.5bn-4bn on the amount of private investment that could be unlocked by implementing three of these four proposed pilot – opening up the retail market is excluded from the estimate given the complexity of calculating it.
“It’s a conservative estimate,” said Serneels. “It’s clear that if those pilots are implemented in two or three years, much more can be unlocked after that.”
He also believes the Belgian impact market will benefit from increased international cooperation on best practice in impact investing, through organisations such as GSG Impact, as well as initiatives being put in place at European Union level, which should facilitate cross-border impact investment.
As to whether the proposed pilots are implemented, “the proof of the pudding will be in the eating”, Serneels said. But he is optimistic that the measures can secure support from a wide range of stakeholders. Many were consulted in preparing the report, including the national financial regulator, civil servants, institutional investors and insurance firms, and sector experts. These stakeholders also commented on the report prior to publication.
“We made a major effort to make sure this is not just a report from a small club, but that it is put together with careful consideration for the larger constituency that will be important for the proposals happen in future. We’re not going to do this on our own. We all need to do this together,” he said.
