In mid-June the 5th CrowdCamp of the European Crowdfunding Network (ECN) took place virtually from Prague in cooperation with Deloitte. For three days, crowdfunding platforms and representatives of the European institutions, such as the European Investment Bank, exchanged views on the topics of sustainable financing and access to capital for small and medium-sized enterprises (SMEs). You can read the summary of the different industry perspectives here.
A look behind the scenes
Things are moving. The crowdfunding industry has evolved and diversified considerably over the past decade. With this short report, we would like to give you a look behind the scenes and current discussions around crowdfunding and sustainable finance.
The ECN, established in 2013, promotes active association and collaboration between European crowdfunding platforms. As such, ECN aims to harmonise the legal framework for crowdfunding across the EU, promote alternative forms of financing as a driver of innovation and advocate for greater transparency in the industry. These activities take place in a close and trusting exchange with representatives of the European Commission, the European Parliament, and the EU Council. The EU Commission knows how crucial the access to capital is for 25,1 million SMEs, which account for 99,8 percent of all companies within the European Union, around 27% of GDP and almost 50% of total payroll. This is all the more true during a pandemic. At the same time, the European Union has put sustainable business at the top of its priorities for the coming programming period (2021-2027) and is pursuing very ambitious goals with the European Green Deal.
Many perspectives, one goal
The CrowdCamp was hosted by ECN Executive Director, Oliver Gajda and Ron Given, CE Senior Legal Counsel of Deloitte in the Czech Republic. Given the increased emphasis that Deloitte and its clients are placing on moving forward the issues of sustainable finance, the climate agenda, and ESG investments (which stands for “environmental, social and governance“) Deloitte was strongly positioned to co-host the 5th CrowdCamp in its Prague’s office.
The program included a total of 19 speakers who gave the audience an overview of relevant topics for the industry, informed them about upcoming initiatives, and explained how the various stakeholders assess the development. Participants had the possibility of submitting their questions to each keynote speaker and panel during the live online sessions.
10 June 2020: “Opportunities: A European Vision on Sustainable Finance and the European Green Deal”
Martin Špolz, Head of the Sustainable Finance Unit in the Financial Services Directorate-General of the European Commission (DG FISMA), delivered the first keynote speech. In his speech, Špolz underlined the importance of sustainable investments. He stressed its far-reaching importance for the European Union in the coming years and the rules and guidelines that will be implemented within the framework of the Sustainable Finance Action Plan, including the Sustainable Finance Taxonomy. Špolz explained that these investments have performed significantly better than conventional investments during the crisis: “There is plenty of evidence that investments that pursue sustainability aspects have performed much better than other investments during the crisis”.
Afterward Ondřej Kovařík, Czech, Member of the European Parliament, where he is active in the “Committee on Economic and Monetary Affairs”, described his view of the European Green Deal and SME financing. According to him, access to capital for SMEs was already vital to the survival of many industries before Covid-19 and it is becoming even more important in terms of sustainability.
Both keynote speakers welcomed the legal framework for European Crowdfunding Service Providers (ECSP) that will make cross-border financing via crowdfunding platforms possible from 2021 onwards. Afterwards, the moderation duo welcomed the CEOs of two crowdfunding platforms and a business angel club specialising in sustainability investments, namely Nuno Brito Jorge from GoParity (Barcelona), Christin Friedrich from Innovestment (Berlin) and Filipe Portela from COREangels (Lisbon), who presented the role of sustainable financing in their development.
With regard to the Corona crisis, it was mentioned that reward-based crowdfunding platforms in particular have contributed to meeting short-term corporate liquidity needs by placing and supporting many projects. As an example, ECN member Startnext was mentioned as the largest German reward-based crowdfunding platform enabling supporters to raise over 9 million Euros for projects in the three months since the lockdown in mid-March. To put these figures in perspective, this amount represents 10% of the total volume placed by Startnext during its ten-year existence.
The conclusion of the day was that sustainability is becoming even more prominent in platforms, giving even more sustainable projects access to capital by making it available as an investment opportunity for private individuals. In other words, easy and direct access via platforms that act as technology providers and curators enables retail investors to direct their resources to bridge the financing gap for sustainable projects.
11 June 2020: “The Challenge: Making Crowdfunding Sustainable“
On the second day of the CrowdCamp, Elly Schlein, Vice President of the North-Italian region Emilia Romagna, opened the day from Bologna. Schlein knows the power of the crowd very well, as she was able to experience first-hand in 2008 how micro-donations helped Democratic candidate Barack Obama to become President, as she was part of the campaigning team for the former President’s election campaign.
The former MEP considers lending and equity crowdfunding as tools to implement regional development goals, e.g. in social housing in the sense of a “citizen partnership”, which is why the Emilia Romagna Region not only promotes crowdfunding as a regional authority but also promotes its uptake among its citizens.
The second keynote speaker was Rafał Rudzk, responsible for sustainable finance and climate change at the Polish branch of Deloitte. According to Rudzk, the strong connection between climate change mitigation and sustainable finance promotion is also reflected in the portfolio of institutional clients, as the demand for ESG products is constantly increasing.
Zsolt Balogh, who develops solar plants financed by crowdfunding, presented his past experience to the audience, explaining how such financing schemes can be structured as crowdfunding can help developers to finance projects that are too small for banks and funds. He also pointed out where crowdfunding could be used even more effectively if the industry’s pricing structures could be further adapted to the market through scalability.
In the closing session of the day, Perrine Pouget from the European Investment Fund (EIF, Luxembourg) presented the European Commission’s Programme for Employment and Social Innovation (EaSI) and its financial instruments managed by the EIF, which she then illustrated with two practical examples of providing loans to crowdfunding platforms focused on financing sustainability projects. The EIF has provided them with growth capital in the form of operational loans to help to give more (sustainable) SMEs access to capital. Pouget added that further transactions of a similar type are to be expected in the future.
Perrine opened up the discussion to insights from fellow panelists Jan Willem Grandia of OnePlanetCrowd (Amsterdam) and Eva Sadoun of Lita.co (Paris). OnePlanetCrowd is one of the largest crowdfunding platforms for sustainability projects in Europe and recently received a 1 million Euro loan from EIF to support further growth. To date, OnePlanetCrowd has invested 62 million Euros; the founding team had previously acted as impact investors, co-financing with the crowd through their own investment funds.
On the topic of identifying sustainable companies, French Social Impact Equity Crowdfunding Platform Lita.co takes their social and environmental footprint into consideration and is able to offer investors a tax advantage in countries where these are foreseen by national provisions. To date, Lita.co has invested a total of almost 50 million Euros in three countries (Belgium, France, Italy) into over 100 companies. The vision of Lita.co co-founder Eva Sadoun is to digitize “solidarity finance” and thus to offer investors a nearly 100% sustainable portfolio.
June 12, 2020: “The Investor’s Perspective: Sustainability, Transparency and Investor Protection
On the third day, Ira Saul Rubenstein from Traficon Advisors joined Oliver Gajda in moderating the sessions. Throughout the day, their discussion partners shared with the audience their thoughts on how important the issues of transparency and open data are for investors in the field of sustainability. In this context, Olivier Schulbaum from Goteo in Barcelona explored how Sustainable Development Goals (SDG) can be integrated into crowdfunding. Schulbaum also addressed the need for Open Data and transparency in the crowdfunding industry.
From Luxembourg, Daniel Farchy from the European Investment Bank (EIB) described the role of the world’s largest multilateral lender, which in 2019 alone was providing 25 billion Euros to SMEs. The EIB is committed to implementing the European Commission’s Taxonomy for Sustainable Finance in all its operations over the long term. In the medium term, the EIB also sees itself in a position to support crowdfunding platforms in the financing of SMEs via suitable fund structures.
Also from Luxembourg, Arnaud Gillin of Innpact described the connection between impact investing, investment funds and crowdfunding. For 13 years Innpact has been implementing Impact Investment Funds for initiators in order to allow them to concentrate on the selection of investments. A number of operational lessons learned from impact investment funds can be helpful for crowdfunding platforms when structuring their own activities.
In the concluding panel, moderator Ira Saul Rubenstein debated sustainability, investor protection and transparency with Heather Langsner of Flatworld Partners, Coenraad de Vries of OnePlanetCrowd, Pasi Vänttinen of GreenMorrow and Luís Fonseca of Mustard Seed Maze.
The conclusion of the third day was that crowdfunding is an essential piece of the puzzle to unlock further capital for sustainable projects. However, a crucial task will be how to measure the sustainable impact. The European Commission’s rules and taxonomy established by the Sustainable Finance Action Plan for a greener and cleaner economy will be decisive here, but the United Nations Sustainable Development Goals (SDG) will also impact the sector’s development. However, as the European Union rules and the SDGs cannot be applied to every industry and region in the same way, there is a need for even better understanding and more precise specifications. The newly founded ECN working group on sustainable finance is strongly committed to making its contribution in this respect.
A conclusion from Prague
The 5th ECN CrowdCamp was held at a high pace and it was fascinating to see how the various stakeholders from practice and politics evaluate and use crowdfunding to provide capital to European SMEs. The speakers agreed that sustainable investments are not only the future for crowdfunding, but also THE current trend, which, considering the danger posed to society and economy by climate change, cannot be overlooked.
Francesca Passeri, Director of Public Affairs at ECN, concludes with a look to the future: “If we want to achieve a truly effective investment shift towards sustainability, the crowdfunding industry and the more traditional financial sector will have to work closely together. The increasing relevance in terms of facilitating access to finance to SMEs, as well as in terms of transacted volumes in the EU, are clear signs that the perspective of crowdfunding platforms and microfinance providers should be taken into account for any future development. Several crowdfunding platforms in the EU have already structured their business models to promote investments and loans in businesses that have a clear focus on sustainability.”
Christin Friedrich is CEO of Innovestment (innovestment.eu), the alternative financing and investment platform focused on long term sustainable impact finance for SMEs. Christin is also chairwoman of the non-profit European Crowdfunding Network (ECN), based in Brussels. Together with other European platform operators, she advocates greater transparency, common standards and a fundamental understanding of alternative financing’s positive impact on the European economy and society. Innovestment is part of the ECN working group on sustainable finance. As a member of the Technology and Innovation Committee of the Berlin Chamber of Industry and Commerce Christin contributes to the development of a digitization strategy for the city of Berlin and participates with great pleasure in the further development of administrative modernization. Previously she worked for management consultancies in Berlin and Hamburg and co-founded a tourism start-up in Iceland. She was also a board member of InvestHorizon, a program of the European Commission to promote “Access to Finance” for small and medium-sized enterprises. Christin is a certified financial investment broker (IHK).
All CrowdCamp discussions of 12 June 2020 can be viewed here.
The non-profit organisation European Crowdfunding Network (ECN), based in Brussels, works together with European platform operators to promote greater transparency, common standards and a fundamental understanding of the role of crowdfunding as an alternative form of financing and the potential for the European economy and society.
Furthermore, the ECN is pushing for the European harmonisation of the crowdfunding market with the European Crowdfunding Service Provider Regime (ECSP) as the legal framework. All parties involved as well as the European institutions see great potential for the entire industry in the Europe-wide expansion. The organisation enjoys the support of the European Commission, which promotes crowdfunding as a key industry for improving access to capital for SMEs.