Unlocking private capital for social good in Romania and the CEE region

Most Central and Eastern European (CEE) countries have had a free market economy for only 30 years. As the region’s economies are relatively young, the pursuit of profit remains a central priority for most businesses and investors. However, the both businesses and individuals already have the means and the willingness to contribute to the social development of the region. In Romania alone, there is potential to more than double individual giving – according to a study by the Social Impact Alliance for Central & Eastern Europe: “Unlocking private capital for social good in Central & Eastern Europe”.

Similar to other countries in the CEE region, Romania has been building its economic identity since the 1991s. Its accession to the European Union in 2007 has certainly helped the country’s development. Romania is currently home to 19.1 million people and almost 500,000 businesses, the majority of which, over 480,000, are micro-enterprises (up to 9 employees).

Social impact ecosystem in Romania and CEE

Socio-environmental issues are gaining more and more interest not only in Romania, but throughout the CEE region. Today, 55% of the Romanian population (47% in the CEE region as a whole) donates to social causes. Most impressive, however, is the philanthropic potential of Romanians, which amounts to EUR 1,22 billion per year – EUR 625 million more than the current level of donations. This is the conclusion of the report “Unlocking private capital for social good in Central & Eastern Europe”, which is a comprehensive analysis of the research conducted by the Social Impact Alliance for Central & Eastern Europe (an independent, apolitical think tank) between 2020 and 2023 in collaboration with key stakeholders and decision-makers in 11 Central and Eastern European countries: Romania (with the participation of strategic partners: Romanian Business Leaders Foundation, Dentons and Nexia Romania law firms) and Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia. It also includes insights from Ukraine, as the war has been the context, catalyst, and driving force behind the activities of businesses, investors, and individuals in the region.

– Over the past four years, we have sought answers to the question of what would need to change in law, taxation, awareness or education in order for private capital owners to support social and environmental causes more effectively or with higher amounts. To this end, we surveyed public expectations, including in Romania, by conducting over 7.5 thousand interviews with the general public and over 230 expert interviews with key stakeholders from the private, public, and social sectors, as well as academia – says Anna Korzeniewska, founder of the Social Impact Alliance for Central & Eastern Europe.

Most important trends

The report “Unlocking private capital for social good in Central & Eastern Europe” shows that as CEE citizens we have more and more capital, resources, and willingness to engage in social issues – with the right motivation we would be willing to donate nearly twice as much as we do today (from EUR 2.7 billion to EUR 5.5 billion). – On the other hand, while we already have something to share and are increasingly willing to do so, social engagement is still not an integral part of how we live our lives or run our businesses – Anna Korzeniewska quotes the survey results. As the founder of the think tank explains, we help spontaneously, as a result of an emotional reaction to a particular situation or crisis. Only half of the donors declare regular donations (51% in CEE, 67% in Romania).

Companies play a very important role in the context of financial and intangible support (especially in the area of employee volunteering or pro bono activities). Today, they are primarily motivated by external factors (regulations, parent company expectations, emerging pressures from customers and employees). However, because the language and terminology of the regulations, especially those related to non-financial reporting, are not fully understood by practitioners, many companies only take on the challenges necessary to remain compliant. The situation is somewhat different for family-owned and smaller businesses, where social circles and the personal experience of their leaders play an important role. These types of companies tend to independently support the causes that are important to them, usually at a local level.

Meanwhile, CEE residents themselves are talking about the kind of corporate citizenship they want. Companies in the financial sector are expected to address the issues of poverty, education, and overall economic growth. Food companies and retail chains are expected to put more emphasis on combating hunger and promoting responsible consumption, while energy and automotive companies should focus on climate issues. In turn, technology and IT companies are expected to drive economic growth and support innovation. It is worth noting that CEE citizens value the social engagement of companies – 50% of the residents declare that they prefer to buy products from socially responsible brands (59% in Romania), and 45% are willing to pay a little more for them (55% in Romania).

Also important in raising awareness are the media, which can promote the right attitudes through their actions, and the public administration, which shapes the legal and fiscal ecosystem and can encourage desirable behavior – for example, by rewarding socially engaged companies, inviting them on business missions, or reserving certain tenders for businesses that meet more stringent criteria. – The strategies and degree of openness of public administration to collaboration vary across the region. Some countries have already established dedicated strategies and bodies to engage in dialogue with stakeholders, while others still lack regulations and structures to guide and outline priorities for other sectors – says Anna Korzeniewska.

It is also worth mentioning that there is a growing interest in impact investing in the CEE region, understood as an investment strategy that seeks to generate financial returns while creating a positive impact. However, this market is highly profit-driven and the decision-making criteria have not changed (profit potential is still a key assessment criterion). If we expect to see an increase in the scale of impact investing in the region, the definition of impact and the ways in which it is measured and reported need to be more clearly understood by practitioners, and this requires standards and tools. There is also a need for a better offer from start-ups as well as government incentives such as tax breaks.

Key role of Western countries

The report “Unlocking private capital for social good in Central & Eastern Europe” shows that CEE residents do not want to be left alone in developing the culture of giving. 52% of the citizens say that the current geopolitical situation requires support from more developed countries such as the US, UK, or Western Europe. Western countries provide access not only to capital, but also to knowledge and education. This is important because greater awareness and the use of best practices from more mature markets are essential if we are to move from crisis response, which has clearly intensified during the COVID-19 pandemic and the war in Ukraine, to strategic and long-term philanthropy.

Ukraine also appreciates the support of Western countries. “The overall assessment of foreign aid is very positive. As many as 74% of Ukrainians rate it as good or very good. The perception of who is currently supporting the country the most is clear: the United States, the United Kingdom, and neighboring countries”, the report says. Ukrainians are concerned that a prolonged war could lead to a decline in foreign aid, highlighting the crucial role of foreign media in covering the situation in Ukraine. As many as 84% of Ukrainian citizens believe that foreign media should provide more coverage of the war in Ukraine.

– I strongly encourage you to download the report to see what kind of support is expected from Western countries, if the needs are well understood and addressed, and how Ukrainian citizens perceive the foreign involvement – adds Anna Korzeniewska.