EUR 1.22 bln is the philanthropic potential of the Romanian society

The challenges that have impacted the CEE region over the past two years – the global COVID-19 pandemic, the climate crisis, and now the war in Ukraine – have emphasized more than ever the crucial role of philanthropy in building a strong civil society. Nearly 6 out of 10 CEE citizens believe the current challenges require more community engagement.

Romania, one of the largest countries in the CEE region, has enormous philanthropic potential. Research conducted by Social Impact Alliance for Central & Eastern Europe and partners show that Romanians citizens could donate almost twice as much as they currently do. However, various soft, tax, and legal barriers continue to hinder the development of social engagement.

Data, compiled by the Social Impact Alliance for Central & Eastern Europe, shows that as many as 55% of Romanians are already willing to pay more for products and services offered by socially responsible brands. Likewise, companies are increasingly adopting responsible and sustainable practices, motivated by the growing awareness among employees, investors, and consumers. Furthermore, 51% of Romanians make financial donations to social causes, with the current annual contribution amounting to 595 million euros (87 euros per donor), while 41% donate products such as medicines and food. Additionally, 37% of Romanians have been involved in volunteering in the last 12 months.

However, the philanthropic potential of the Romanian society is much higher – with proper motivation and removal of barriers, citizens could donate up to 1.22 bln euros for social causes per year, more than twice as much as they donate now.

How to strengthen the social impact ecosystem and facilitate more informed, intentional, and impactful giving in Romania? These conclusions are in the latest study “Philanthropy and Corporate Social Responsibility in CEE | ROMANIA” conducted in March and April 2023 by Social Impact Alliance for Central & Eastern Europe together with Romanian Business Leaders Foundation, Dentons Romania, Nexia Romania with support from Google.org. The report identifies the most important barriers and potential incentives for corporate and individual donors and recommended changes.

“Businesses and individuals are increasingly willing to involve their resources – money, time, and skills – to address the most pressing social and environmental challenges. Making it easier for them is in the interest of all of us. We hope that the recommendations prepared in cooperation with organizations shaping the social impact ecosystem in Romania will help to set priorities and take appropriate action”, said Anna Korzeniewska, founder of the Social Impact Alliance for Central & Eastern Europe.

A project-based approach to CSR activities

A growing number of new initiatives in Romania involve cross-sectoral cooperation, but many are executed as one-off projects, which makes it difficult to achieve long-term impact. While Romanian companies are increasingly willing to engage in socially responsible activities, they often only act to the extent required by regulatory compliance. Therefore, it is essential to raise awareness among capital providers, both private and public, about the need to provide core funding and build the capacity of nonprofits and other impact providers. This way, they can focus on delivering long-term, impactful solutions instead of moving from one project to another. This objective can be achieved by demonstrating the business benefits of responsible action, promoting good practices, and initiating collaborations.

“As an organization which is both a form of association for business leaders and an NGO, we see at first hand the benefits of engaging in a long-term partnership with private companies to achieve impact in entrepreneurship, education and good governance. We encourage and support business leaders to focus on long-term strategic approaches on socially responsible practices (ESG) and most importantly, integrate them into day-to-day business operations”, said Alina Burlacu, General Director, Romanian Business Leaders Foundation.

Lack of tax incentives for donors

Romania has a tax redistribution model (often referred to as the „sponsorship law” in the context of companies) that is unique in the CEE region. Companies can assign up to 20% of their taxes to social causes, while individuals can assign up to 3.5%. The current form of tax redistribution is effective and enables the financing of numerous initiatives. However, it would be worthwhile to supplement this mechanism with additional tax benefits that would encourage both private and corporate donors to support nonprofit organizations and public administration in tackling the most pressing social and environmental challenges. One possible solution is to introduce tax breaks for corporate donors.

“Offering additional tax incentives would encourage businesses and individuals to actively contribute to social issues using their own resources, such as capital and skills. This approach would help foster a culture of giving and community engagement. Tax breaks could be an important step to promote greater social responsibility in our country”, said Ionut Zeche, Senior Partner at Nexia CRG.

Lack of regulation and support for pro bono activities

In Romania, there is a shortage of incentives for non-monetary forms of engagement, especially for skills-based volunteering and pro bono services. An additional hurdle that discourages businesses from these forms of engagement is that pro bono activity can trigger VAT obligations. However, if the activity is conducted for business purposes, there is no VAT to pay. The government has the capacity to tackle this challenge by issuing comprehensive guidelines to help companies demonstrate the link between their pro bono initiatives and their business activities. This would effectively mitigate risks for companies involved in pro bono work.

“Pro bono services are increasingly valuable in our society however, they currently lack systematic support. Legal regulations have the potential to eliminate existing barriers and unlock substantial opportunities for social initiatives. The government has the opportunity to foster an environment that encourages and facilitates engagement in pro-bono work”, said Doru Postelnicu, Counsel, Dentons Romania.

Fear of tax audits

The fear of tax authorities stems more from a lack of trust than from actual experience and affects smaller companies in particular. They are concerned about the consequences of failing to properly account for their social activity and, as a consequence, drawing the attention of fiscal authorities to their company. This could be addressed by encouraging authorities to place more emphasis on providing advice rather than meting out punishment, especially when the goal of the activities undertaken is to address social challenges.

High complexity of terminology, documents, and procedures

The complexity of documents, terminology, and regulations, as well as the novelty of the subject matter, is a challenge for both the public and private sectors in Romania and CEE in general. More efforts should be made to simplify or even translate the EU requirements into a language that decision-makers in all sectors – private, public, and social – can understand.

No tax or legal support for investors interested in the impact

Impact-focused investing is an investment strategy that seeks to achieve social or environmental goals, as well as generate profit. While impact investing is a growing concept in the CEE region, there is relatively little focus on this area in Romania. The first step in developing this area should be to promote education and raise awareness among investors and fund managers.

“To develop sustainable philanthropy, we need reliable data and knowledge sharing. Central and Eastern Europe has a real opportunity to continue building a culture of philanthropy and sustainable social support. It is therefore important to engage all actors in society in a strategic and long-term way”, added Liza Belozerova, Senior Manager of Europe, Middle East, and Africa at Google.org, which supported the research.

Link to the report: https://ceeimpact.org/romania-filantropia-si-rcs-in-ece/.

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