Spain’s impact investing market has grown rapidly, but it is still lagging behind many of its European peers. SpainNAB wants to see the development of solidarity funds in a bid to boost growth.
- SpainNAB calls for solidarity funds, modelled after France, to be introduced to boost assets.
- Spanish impact AUM has tripled since 2018 and now stands at almost €1.21bn, but remains low compared to peers.
- The Social Impact Fund will act as a catalyst for future growth.
- Tax and regulatory reform are vital to boost impact assets.
The Spanish National Advisory Board on Impact Investment (SpainNAB) is calling for solidarity funds modelled after the French system to be introduced to boost impact assets and bring the country on par with its neighbours.
José Luis Ruiz de Munain, founder CEO of SpainNAB, which represents Spain at the Global Steering Group for Impact Investment (GSG), said he is inspired by the French 90/10 solidarity pension fund scheme. “These are hybrid funds where 90% is invested in listed assets with ESG criteria that provide the fund with daily liquidity and a market-adjusted return/risk ratio, and 10% is invested in the social economy, which bring a high social or environmental impact to the fund,” he explained.
Both portfolios contribute positively to the achievement of the 2030 Agenda to meet the UN Sustainable Development Goals.
Boosting market growth
The latest study, Supply of Impact Capital in Spain published by SpainNAB and the Esade Center for Social Impact in 2022, revealed a remarkable 58% growth in impact investment in Spain compared to 2021, reaching almost €1.21bn (excluding eligible loans from impact banking), and tripling since 2018, but remaining low compared to its European peers.
Ruiz de Munain added that for its part, the impact banking finance segment – including value, social and sustainable banking, and impact financial cooperatives – managed assets worth almost €1.75bn in 2022, a growth of 4.4% compared to the previous year.
According to Impact Europe, total European impact assets stand at €80bn, while globally the volume amounts to €1.1trn.
To boost assets, SpainNAB’s proposal is to mobilise private capital on a large scale towards sustainable and impact investment. To achieve this, a solidarity savings law inspired by the French model would need be drafted, and the obligation to offer 90/10 products should be extended to collective investment institution management companies. As in the French case, it should be established that 90%-95% of investment should go to sustainable funds under Article 8 or 9 of the SFDR, and that 5%-10% of investment should go to social enterprises, social economy entities, social impact funds and microfinance funds, Ruiz de Munain said.
“At the same time, we propose to create a Spanish pilot adapted to the characteristics of our context. The mission of the creation of a pilot fund 90/10 is to establish an example that can be set up as a success story in Spain to channel private investment towards social economy entities in combination with sustainable investment, in a single investment vehicle. The aim is for this model to be replicable and scalable so that it contributes to remedying the problem of deficient access to financing for social economy entities, which are key to achieving an environmental and social transition in our country, by offering complementary funds to their usual sources,” he added.
The first solidarity fund under the 90/10 scheme appeared in France 1994, and then again in 2001. The “90/10 funds” model was created to facilitate access to financing for the social economy. In 2021 these funds had €13.7 bn under management, a sevenfold increase over the last decade.
Ruiz de Munain emphasised that the scheme could benefit all stakeholders. Investors gain the ability to get a real social sense to their investments without renouncing the advantages of funds investing in listed markets. Because of the 10% limit on the impact investment portfolio, liquidity and a return/risk ratio would be close to the market. Asset managers meanwhile can offer innovative investment vehicles with high social impact, and social economy actors have access to financing solutions adapted to their needs, diversifying their sources in order to increase the sustainability and potential growth of their activities, and the social impact they generate. Moreover, their use is in line with European initiatives such as the European Plan for the Social Economy, where access to finance and markets are key elements, Ruiz de Munain said.
FIS to act as a catalyst for growth
Spain’s recently approved Social Impact Fund (Fondo de Impacto Social, FIS), endowed with €400m, is another step forward for impact investing in the country. The fund will be managed by COFIDES, the Spanish government’s development financing entity.
“The goal for creating the fund is to energise the national ecosystem of impact investment to address social and environmental challenges facing our society. These challenges include territorial and social integration, the reduction of inequalities and the consolidation of the welfare state by strengthening the economy and enterprises with a social purpose. The FIS aims to act as a catalyst, offering various financing modalities that provide returns, addressing market failures, and therefore, enabling investments that would otherwise be challenging,” said José Luis Curbelo, chairman of the board and CEO of COFIDES.
COFIDES was established 35 years ago with the primary goal of financing Spanish companies in developing countries. It has adapted and diversified its financing to meet the needs of today’s society, offering support for impact projects, attracting foreign investment, assisting companies affected by the pandemic, and facilitating the internationalisation of projects abroad.
“To increase capital for impact investing overall, I would advocate for impact, by promoting the societal and environmental benefits of impact investing to attract a broader range of investors. It is also key to collaborate with partners, strengthening partnerships with like-minded organisations, government bodies, and international institutions to create a supportive ecosystem for impact investing. Finally, transparency and reporting are essential too, by ensuring transparent reporting on the social and financial returns of impact investments to build trust and confidence among potential investors,” Curbelo said.
Improved taxation and regulation vital for future growth
The interviewees called for the establishment of a regulatory and fiscal framework to ensure that impact investment plays a decisive role in the modernisation of the welfare state. Such a framework should facilitate transactions and reduce uncertainty for the actors involved, according to Curbelo.
“From a regulatory point of view, improved taxation and regulation will be particularly relevant for the development of the sector. On the one hand, as we move towards a more appropriate SFDR for impact investing, it becomes necessary to start, for example, with a code of good practice for impact investing, which should ultimately culminate in an impact label. In addition, cases such as the English Social Investment Tax Relief or the French 90/10 pension funds are regulations that should inspire Spanish policy makers with a view to promoting impact investment in Spain. These are all elements on which SpainNAB has been working closely with all actors in the ecosystem, and particularly with COFIDES as manager of the future Social Impact Fund,” Ruiz de Munain concluded.