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European Economic and Social Committee

INT/589
Social entrepreneurship and social enterprise

Brussels, 26 October 2011

OPINION
of the
European Economic and Social Committee
on
Social entrepreneurship and social enterprise
(exploratory opinion)
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Rapporteur: Ariane Rodert
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INT/589 – CESE 1584/2011

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In a letter of 6 June 2011, Maroš Šefčovič, Vice-President of the European Commission, asked the European Economic and Social Committee, under Article 262 of the Treaty on the Functioning of the European Union, to draw up an exploratory opinion on

Social entrepreneurship and social enterprise.

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 3 October 2011.

At its 475th plenary session, held on 26 and 27 October 2011 (meeting of 26 October), the European Economic and Social Committee adopted the following opinion by 106 votes in favour, with 1abstention.

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1.Conclusions and recommendations

1.1When exploring initiatives promoting social entrepreneurship, the EESC deems it necessary to look at social entrepreneurship against the background of the wider notion of social enterprise since actions are needed at all stages of its lifecycle.

1.2Social enterprise is a key element of the European social model. It is closely linked to the EU2020 strategy and makes a significant contribution to society. By supporting and promoting social enterprise, we can make the most of its growth potential and capacity to create social value. The EESC supports the Commission's launch of a political framework and action plan to promote social enterprise in Europe and stresses the importance of its full implementation at both EU and Member State level.

1.3Since national definitions vary, social enterprise should be described on the basis of shared characteristics such as social objectives, reinvestment of profits, the multitude of legal forms and stakeholder participation.

1.4Member States and the EU institutions must ensure that social enterprises are included and taken into account in public policy initiatives and programmes aimed at enterprises on equal terms with other forms of businesses. Cross-border social enterprise initiatives are best promoted by means of EU funding for European meeting-places for the exchange of ideas and models.

1.5Better access to capital and tailored finance instruments are priorities for social enterprises. The Commission should collect and share existing good practice and innovation initiatives in the Member States, such as hybrid capital and forms of interplay between public and private capital and ensure that the current EU regulatory framework does not hinder the development of new instruments.

1.6It is key that the next structural fund programming period explicitly includes programmes for starting up and developing social enterprises. The Commission should provide guidance on combining and leveraging financial instruments from different sources.

1.7The Commission should launch an EU-wide exercise comparing approaches to public financing which are particularly suitable for social enterprise. The Commission should encourage and assess the prevalence of tenders with social considerations and tackle the issue of "gold plating" in procurement. When reviewing the State aid rules, the Commission should consider full exemption of social services of general interest, or provide notification exemption for all small-scale public services and certain social services in order to encourage more start-ups of social enterprises.

1.8Due to their varied legal forms and specific social missions, tax advantages do exist in certain Member States. These should be reviewed and shared in order to encourage the development of appropriate rules.

1.9The Commission and the Member States should encourage the emergence of specific support programmes for social enterprises development and the next generation of social entrepreneurs.

1.10Together with social enterprises, the Commission should take the initiative to look into the possibility of a common European system for measuring social outcomes and encourage the use of existing systems. Initiatives to create a more transparent reporting system in order to increase investor confidence should also be investigated further. The EESC calls on the Commission to launch a study of existing social labels with the aim of creating a common European system or code of conduct.

1.11Social enterprise must be included in research, innovation and development programmes. Furthermore, initiatives should be taken to collect and share statistics on social enterprise in Europe. This could be the task for a social enterprise observatory at EU level.

1.12Like all other employers, social enterprise must meet the requirements of decent working conditions and comply with any collective agreements in force, ensuring that they are properly applied.

1.13Particular emphasis must be placed on new Member States in order to ensure the emergence of social enterprise, through the opening up of public services, adopting social inclusion policies and promoting forms for social enterprise such as the social economy.

2.Introduction

2.1The Commission communication Towards a Single MarketAct of 27 October 2010[1] put forward measures to realise the concept of a "highly competitive social market economy". One measure proposed was a "Social Business Initiative". This proposal remained a key measure in the final version of the Single Market Act communication of April 2011[2] and was also highlighted as a priority area in the EESC's opinion INT/548[3], responding to the consultation on the Single Market Act.

2.2Europe is facing challenges which require solutions that combine economic and social well-being. Promoting social entrepreneurship and social enterprise, especially during the current harsh economic climate, will harness both its growth potential and its added social value. In order to realise its potential, a comprehensive political framework should be developed and implemented involving a broad range of stakeholders from all sectors of society (civil society, private, public) at all levels, (local, regional, national and European).

2.3Social entrepreneurship and social enterprise cover a diversity of concepts that include various actors and terms at Member State level. This exploratory opinion is titled "Social Entrepreneurship and Social Enterprise", the EESC being of the opinion that the broader term "Social Enterprise" (which includes social entrepreneurship) should be used throughout the opinion since actions are needed at all stages of a social enterprise’s lifecycle.

2.4This exploratory opinion aims to identify priority areas with a view to creating an enabling environment for social enterprise in Europe. The EESC has touched on this topic in several opinions[4] over the years and welcomes the Commission's new attention to social enterprise. It is also important to recognise the substantial work done by different stakeholders in this area over the years, some of which is taken into account in this opinion take into account[5].

3.The EESC's comments

3.1Definition of social enterprise

3.1.1Diverse linguistic and cultural traditions have led to differing meanings of the concepts of social enterprise.

3.1.2The EESC understands that the clear definition is needed so that efforts can be focused, but rather than a definition, proposes a description based on shared characteristics such as:

  • having primarily social objectives as opposed to profit objectives, producing social benefits that serve the general public or its members;
  • being primarily not-for-profit, with surpluses principally being reinvested and not being distributed to private shareholders or owners;
  • having a variety of legal forms and models: e.g. cooperatives, mutuals, voluntary associations, foundations, profit or non-profit companies; often combining different legal forms and sometimes changing form according to their needs;
  • being economic operators that produce goods and services (often of general interest), often with a strong element of social innovation;
  • operating as independent entities, with a strong element of participation and co-decision (staff, users, members), governance and democracy (either representative or open);
  • often stemming from or being associated with a civil society organisation.

3.1.3Social enterprises make important contribution to society and are a key feature of the European social model. They contribute to the EU2020 targets by creating jobs, developing innovative solutions to meet public needs and by building social cohesion, inclusion and active citizenship. They play a particular role in promoting the participation of women, older persons, young persons, minorities and migrants. It must also be recognised that a many social enterprises are SMEs, often from the social economy and several active in the area of work integration.

3.1.4The Commission's ongoing work on legal structures for the social economy must take these characteristics into account in order to ensure that all forms of social enterprise are included. The Commission should also consider a study on the new legal forms and legislatives initiatives emerging for social enterprises in some Member States[6], with a view to assessing their usefulness.

3.2Including social enterprise in public policy on enterprise

3.2.1Public policies for the development and growth of enterprise are linked to several policy areas such as competition, internal market, finance and innovation. Public policy initiatives to, facilitate the start-up and operation of businesses, must take account of and include social enterprises on equal footing with other forms of enterprise at both Member State and EU level, while recognising their specific characteristics.

3.2.2Social enterprises are often locally based, and expansion is not always an obvious interest or priority. Rather than competing or expanding their model, they often prefer other approaches to growth. This must be considered when exploring cross-border social enterprise initiatives. The EU and Member States should fund and support the setting up forums, trainee exchanges, "social innovation camps" and social franchising, which may be a better way of encouraging new ideas and cross-border cooperation.

3.3Stimulating social investment

3.3.1Better access to capital for both start-up and growth is a priority for social enterprises. Today there is a shortage of finance instruments developed especially for social enterprises, despite a considerable interest in cooperation among both financial institutions and social enterprises. A number of innovative financial instruments are now emerging at local and national level. The Commission should initiate work to collect and share the good practice driving those innovative initiatives and the existing expertise in the Member States to stimulate social investment for social enterprises in Europe. In doing this, the Commission should bear the following points in mind.

3.3.1.1Due to its specific characteristics and varied legal forms, social enterprise needs different kinds of financing instruments than other forms of business. A special tailored form of hybrid capital[7] containing elements of grants, equity and debt capital suits social enterprises better throughout their life cycle. Hybrid capital combines a grant component (public grants, philanthropic funds, donations) together with equity and debt/risk-sharing instruments. Financing instruments of a hybrid capital nature include recoverable grants, forgivable loans, convertible grants and revenue share agreements. Hybrid capital often involves close interplay between public and private capital.
3.3.1.2The emergence of intermediaries specifically aimed at social enterprises should also be considered. These play a key role in bringing social enterprises and investors together, providing information on and furnishing capital, and offering advice and support. There are a number of interesting examples which should be reviewed further[8].
3.3.1.3The Commission should also pay attention to the emergence of different types of public social investment[9]and other initiatives within the financial sector (cooperative banks[10], social banks[11], commercial banks with social programmes[12]), or innovative instruments such as "social impact bonds"[13]. It is especially important to support these initiatives at this time of diminishing public funding.

3.3.2It is crucial that the Commission ensures that the EU regulatory framework (e.g. State aid rules) supports rather than hinders the emergence of these new financial instruments.

3.3.3The next structural fund programming period must explicitly include programmes for the start-up and development of social enterprises and be available for a longer period in order to ensure that support is maintained during the sensitive start-up phase. For structural funds to support social enterprise, the Commission should also provide guidance on good practice in combining and leveraging financial instruments form different sources.

3.4Modernising public financing

3.4.1Social enterprises often produce goods and services of general interest which primarily are financed through public funding. In their application, current legal frameworks often favour large well-capitalised private actors. New legal instruments should be developed, and/or existing ones developed, so that they are better suited to social enterprises. The Commission should launch an EU-wide exercise to comparing approaches to public financing that are particularly accommodating to social entrepreneurship.

3.4.2As the EESC pointed out in its opinion INT/570[14], participation in public procurement by SMEs, including social enterprises, must increase. It is crucial to ensure equal access to public procurement for all actors. Procurement should be simplified by simplifying administrative procedures. The Commission plays a key role here in collecting and sharing effective and simple procurement models for social enterprises.

3.4.3The EESC opinion on public procurement also points out the importance of innovative, environmental and social aspects in procurement. The Commission guide on Buying social[15], which identifies ways of taking social and environmental concerns into account in procurement, is central and should be given a higher profile. The Commission should also take steps to encourage and assess the prevalence of tenders with social considerations.

3.4.4The Commission must tackle the "gold plating" in procurement that occurs in some Member States, by building awareness of alternatives, more appropriate and innovative public financing instruments.

3.4.5Social enterprises are often challenged by State aid rules. In its opinion TEN/455[16], the EESC supports a more diversified and proportionate approach, the need to take into account not only economic criteria but also social, territorial and environmental aspects and measuring efficiency in terms of quality, results and sustainability. The efforts being made to simplify and clarify State aid rules must therefore consider how any revisions of these rules affect social enterprises. It is also important to highlight the exemptions to these rules that already exist[17].

3.4.6In its review of State aid rules, the Commission should consider extending the exemptions to all social services of general interest, or, as suggested in the EESC opinion, providing notification exemption for all small-scale public services and certain social services. The uncertainty and added administrative burden of complying with State aid rules may deter private investors and public procurement officers from engaging with social enterprises. Exemptions can stimulate more innovation and business start-ups. However, such an initiative should still provide for a mechanism to prevent corruption.

3.4.7Social enterprises have differing legal forms and are therefore often subject to differing tax rules and conditions. Because of their social objectives and limited or capped profit distribution, social enterprises enjoy tax breaks and other tax concessions in some Member States. These must be reviewed and shared in order to encourage the development of appropriate rules for social enterprise regardless of their legal form.

3.5Launching development programmes for social enterprise

3.5.1Social enterprises need access to specially-developed support programmes for development. Initiatives involving "hubs" that provide business support, work places and mentoring have proven effective during the start-up phase, as have training programmes by social enterprise networks. Special emphasis should be placed on investment readiness programmes. The emergence and sharing of these types of support programme should be encouraged.

3.5.2Efforts are needed to support the next generation of social entrepreneurs. Social entrepreneurship should be encouraged in formal, informal and non-formal learning. Special training for social enterprise[18] should be shared between the Member States.

3.5.3The Commission and the Member States should support and cooperate with established social enterprise actors and networks. Social enterprises often originate from the voluntary sector or the social economy. They provide an excellent channel for reaching social entrepreneurs and enterprises.

3.6Building awareness of and trust in social enterprises

3.6.1Social enterprise must be more visible and recognised as a vital sector in society. The Commission should consider a European social enterprise "label" which would increase awareness and recognition, and build trust and demand. A first step should be a study, initiated by the Commission and carried out in cooperation with social enterprises, of existing labels and other certification systems already in place in many Member States[19].

3.6.2In research and policymaking, business is often equated with profit-making, private business. Efforts should therefore be made to include social enterprise in research, innovation and development programmes on a continuing basis.

3.6.3There is a lack of consolidated statistics on social enterprise at Member State and EU level. The use of satellite accounts[20] should be promoted in all Member States. In addition, setting-up an "observatory" for social enterprises at EU level with the active involvement of the EESC and its national counterparts in close cooperation with the Member States would help to collect, compare and disseminate knowledge on a systematic basis.

3.6.4The benefits of social enterprise must be made more visible through the measurement of values other than purely economic value. Several instruments exist for measuring social outcomes[21], as well as methods for social accounting. Unfortunately these are often complicated for small actors to use. The EU, together with social enterprise, researchers and capital providers, should encourage the use of these existing systems, but also take steps to develop a simpler common European system or code of conduct based on these existing systems.

3.6.5Increasing trustand confidence in social enterprise depends upon accountability and transparency. Social enterprises often rely on public funding, private donations and membership fees. The use of these resources must be reported more openly through an open reporting system, which could be a standard EU method, in order to increase investor confidence. Increased transparency and open reporting would also counter the risk of social enterprises quickly becoming more profit-making, with excessive salaries for executives and board members.