The European Commission published a staff working paper on
promoting social investment funds on 13 July 2011.
The importance of "social businesses" was recognised
in the Single Market Act of 13 April 2011. A "social
business" is generally recognised as a business that targets
social, ethical or environmental goals as its primary corporate
objective and reinvests profits to maximise its ability to achieve
this objective (meaning little to no profit redistribution for
investors). They fall somewhere between for-profit companies and
solely charitable ventures.
The European Commission has recognised that an increasing number
of investors wish to achieve social goals with their investments.
There are a number of ways this may be achieved, but the working
paper concentrates on one vehicle in particular: private social
It is recognised that existing legal and regulatory frameworks
in the EU may not be conducive to promoting the establishment of,
or investment in, such funds. Some of the issues currently
experienced by social investment funds in the EU include:
consultation on Social Investment Funds
limitations on investment opportunities under existing
frameworks, such as the rules on diversification, liquidity and
eligible assets applicable to UCITS funds;
potential liquidity issues for investors, meaning such
investments are often more suited to professional investors;
confusion in the investment markets as to the legitimacy of
products claiming 'social' credentials.
It will be interesting to see whether an EU 'brand' or
kitemark is created for officially recognised social investment
funds. With Guernsey and Jersey both recognised as world-leading
jurisdictions for the establishment and administration of
investment funds and offering a wide variety of fund types with
differing levels of regulation, it is to be anticipated that the
development of social investment funds may well take place in the
Channel Islands. This allows for the flexibility that may not
otherwise be available within the EU and could help to ensure the
social nature of the fund is not compromised by legal or regulatory
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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