Social projects are being denied vital investment because of restrictions on European philanthropic foundations, according to the Philanthropy Europe Association, Philea and impact investing network, Impact Europe.

Last week they made four requests to the European Parliament, which they say would remove restrictions and boost philanthropies’ social investment.

Restrictions in some countries currently include losing tax breaks if philanthropies make investments with their programme money (the one to five per cent of their money, on average, that is usually donated).

Many philanthropies are also restricted from socially investing their endowment (the majority of their money), because of rules around charitable organisations needing to maximise financial returns. Financial returns on social investments are often expected to be lower than other investments, even though that is not necessarily the case.

How to boost social investment at philanthropic foundations

To help bolster the social economy, they put forward four requests. Firstly, they asked European governments to remove restrictive laws on philanthropies’ programme money, to encourage social investment. 

Secondly, they want governments to partner with philanthropies to offer public guarantees on social investment. This would fit under the InvestEU financial programme. 

Thirdly, they want to see tax breaks for endowment investments which serve the public good. And, lastly, they asked that consideration of philanthropy’s ability to make impact investments be part of the next Multi-Annual Financial Framework – a seven year plan, due for renewal in 2027.  

‘A huge untapped potential’

‘There is huge untapped potential’, according to Roberta Bosurgi, CEO of Impact Europe, referring to the Accelerating Impact Report 2022, which includes examples of foundations using loans and equity to fund social enterprises. ‘Philanthropic organisations are crucial to leverage the full spectrum of capital to achieve social change’.

Jana Bour, head of policy and EU partnerships at Impact Europe, also told Alliance: ‘It’s important that foundations can invest both with their programmatic and their endowment.

‘In Italy for example, they would not be allowed to invest by providing loans with programme capital. But in the Netherlands – foundations would not be penalised with their tax status being removed, as long as they invest their programme/ donation money inline with the mission (the social causes they were set up to support) and generate returns. We want to see that in all countries.’

Public guarantees for social investments

Bour is keen to also see governments offer pubic guarantees to philanthropies wanting to invest their endowment in social causes. This means that governments cover some, or all, of any funds lost through social investment. This would be to de-risk and mitigate loss.

But she also added: ‘There’s a lot of perceived risk around social investment that doesn’t match real life.’

‘Our third request,’ added Bour, is for governments to  ‘facilitate impact investing and mission related investments at the endowment level, with tax breaks. There are often national restrictions on endowment investments. Sometimes legislation is similar to that of pension funds, they are not allowed invest in certain asset types, which can rule out social investment.’ 

The four requests were put forward on the the European Day of Donors and Foundations. They build on the Philanthropy Manifesto and Impact Manifesto previously launched by Philea and Impact Europe, respectively. The full recommendations are available here.