The Impact Luxembourg label was launched as a collaboration between Luxembourg’s labour ministry and the business federation Uless as a way to help social entrepreneurs increase their visibility and promote their attractiveness. In 2015, the grand duchy held the presidency of the European Council, during which it signed an official declaration on a “roadmap” towards an ecosystem for social economy enterprises, said Tesch.
Luxembourg has been a leader in this domain. The SIS law on social impact companies (société d’impact societal) in 2016 was a real “landmark” in the evolution of the social economy in Luxembourg, noted Tesch. It defined the “social economy as relating human and environmental concerns,” and led to the creation of social impact companies.
Social economy organisations and enterprises “play a crucial role in creating and maintaining employment, strengthening territorial cohesion, boosting inclusive growth, as well as generating social innovation and environmental sustainability,” as stated in the EU’s declaration of Mannheim from 2021. “They also promote active citizenship, solidarity and an economy with democratic values.”
“Perks” of social impact companies
To obtain the certification in Luxembourg, companies must be one of three types: a public limited company (SA), a private limited liability company (sàrl), or a cooperative--all of which are for-profit companies, explained Tesch. This is different from other countries.
These companies can also benefit from exclusive Impact Luxembourg brand usage--meaning they can use the logo, for example--and pay 0% income tax on “impact shares.” Under the current model, 100% of the shares need to be impact shares--companies don’t retrieve any dividends. The profits stay in the company and are reinvested, and companies then don’t need to pay taxes.
Furthermore, a company can also emit “deductible donation certifications.” People who donate money to a social impact company can deduct this from their income taxes.
An additional benefit--and “best of all,” said Tesch, who is the director of Uless--is that companies can receive support from Uless, which focuses on increasing visibility around social impact companies in Luxembourg.
Requirements for social impact companies
Companies have to commit to at least two impact performance indicators, which are linked to the UN’s sustainable development goals. These include zero hunger, quality education, clean water and sanitation, or climate action. Impact remains difficult to measure, but this is progressing.
Good governance is also important, highlighted Tesch. Companies must have a general assembly that elects its board, which in turn gives an account of its management to the general assembly. A system of accountability is key, he said--companies can’t produce impact by trying to sneak around rules.
External audits are also required for a social impact company, as well as 0% profit distribution. Moreover, once a company obtains the Impact Luxembourg label, it cannot return to its prior status. It’s a real “commitment,” said Tesch.
Improvements in view
Discussion on yield shares with a proportional tax advantage, as well as access to shareholder loans, should be considered. There also needs to be a “tighter control on supply chain integrity,” said Tesch, as well as higher positive impact requirements.
Many companies might produce a positive impact, but continue to use carbon-based energy, so the situation is not perfect. So it’s also important to talk about what words can be used, including what “positive impact” really means, said Tesch.
Finally, Tesch talked about the different business models in place today, and the shift from “traditional” to “transitional” to “next-gen” businesses that will hopefully produce a net positive impact.
It’s necessary to “onboard” the consumer, said Tesch. Consumers need to be informed and convinced about social impact companies--if they aren’t aware of impact, or don’t know about companies that are producing social impact, they will not “demand” this from businesses. It’s therefore key to raise awareness amongst consumers so that businesses can shift their business models.
Launched in October of last year, the Impact Luxembourg label has been granted to companies in a variety of sectors, including consulting, marketing, IT, commerce and trade, training and education, or agriculture, noted Tesch.
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