"With today's proposal for a Savings and Investment Union we are achieving a double win,” says Commission President Ursula von der Leyen. “Households will have more and safer opportunities to invest in capital markets and increase their wealth. At the same time, businesses will have easier access to capital to innovate, grow and create good jobs in Europe.”
The plan that has been unveiled concerns the European Savings and Investments Union (SIU), an initiative designed to link up citizens’ savings with European companies looking for funding.
The initiative has become particularly salient in light of the massive amount of funding – nearly one trillion euro per year – that will apparently be needed to fund the EU’s ambitions on climate, as well as the need to keep up with technological and geopolitical developments.
10 trillion euros in household savings
The EU estimates there are around 10 trillion euros in household savings just sitting in bank deposits, and clearly the hope is to get some of that into European industry via capital markets. There are also plans in the works to get pensions more involved in 'productive' investments.
The actual concrete steps of how the SIU will function are yet to be decided, and consultation is ongoing. In essence, however, it does appear to be a system under which individual citizens can choose financial instruments via banks and capital markets (apparently with harmonised EU-wide regulation and oversight) that could net them better returns on their savings than a bank deposit can.
This of course has the concurrent benefit of widening the liquidity pool for Europe’s grand growth and self-sufficiency ambitions over the next decades.
What's in it for impact?
While it's not clear how much of these funds might go to impact companies , the industry body Impact Europe has urged the Commission to try to find more ways to encourage investments in that direction.
The group notes research suggesting citizens – and pension holders in wealthier EU countries – are keen to see their money go to more sustainable and beneficial investments, but that there are also significant regulatory and cultural barriers within the current system that need addressing for the impact economy to fully benefit from such sources of private capital.
At the same time, one of the EU's key defined priorities is decarbonisation of the continent's industries, suggesting that among the targets for this potential future investment boost could be companies working in that sector.
As Impact Loop has explored previously, there is some potential within the EU's larger funding programmes for the impact economy to benefit, either directly or via trickle-down effects.
A note of concern
There are concerns over how citizens' savings will be protected under the SIU scheme. The flip side of higher potential returns, of course, is that investing in capital markets is considerably riskier than a bank deposit.
While the announcement talks about the need for ‘promoting financial literacy’ among citizens, it is less clear exactly what specific protections will be created or augmented to make sure people are not too easily lured into risky investments by the promise of better returns, not to mention the symbolic allure of helping to build up Europe.
For the impact community, certainly the prospect of raising fresh trillions will be a welcome development, especially as the Commission specifically mentions emergent sectors like sustainable energy as targets for the funding.
For those investors and founders working on financial inclusion, however, the 'literacy-first' strategy the Commission appears to be taking in terms of protecting citizens’ nest-eggs may give pause.
