- Written by Rachael Millson
Social enterprises – businesses that sell goods and services for-benefit rather than purely for-profit –provide a unique opportunity to solve many of the prevalent social and environmental problems in South Africa, whilst at the same time contributing to economic growth and job creation.
Social enterprises come in many different shapes and forms. Nonetheless, they all face the same fundamental question. Can they generate enough revenue and attract enough investment to cover their costs and grow their activities, and therefore their social impact?
Corporate Social Investment (CSI) has traditionally taken the form of grants (and in many cases grants remain relevant). However, with the emergence of social enterprise, there are many powerful ways to create social impact that do not necessarily depend on a constant stream of donor funding for an organization to survive.
Social Enterprises need three things to be able to thrive:
- Customers (for the goods and services they offer),
- Finance, and
There are opportunities for companies, through Procurement, Corporate Social Investment (CSI), Enterprise Development (ED) and Supplier Development (ESD) to engage with social enterprises across these three areas:
Of course, you don’t have to be a big business to procure from social enterprise and some companies here in South Africa are already joining this trend. CSI managers have two choices for procurement: To look to spend CSI budgets on social enterprise goods and services, rather than simply offer donations (For example, Reputation Matters has developed a strategic partnership with Greenpop, a social enterprise committed to regenerating the planet through reforestation, urban greening, climate change adaptation, and environmental education. Reputation Matters buys trees from Greenpop to gift on client and staff birthdays); or to refer social enterprises to the main buying departments to incorporate these into their mainstream business, thereby taking responsible business out of just the CSI department and into the business as a whole. It may be possible, for example, to include a section on responsible business in a company’s preferential procurement policy, where such a policy exists.
By procuring from social enterprises, especially those which are BEE level one rated, it’s possible to ensure that money spent on goods and services also provides societal benefit and contributes towards improving the lives of people within our communities and country. Naturally, you can also earn BEE points this way as well.
The argument for not procuring from Social Enterprises can be that they do not meet the stringent procurement criteria of corporates. The way to mitigate against this is to include Social Enterprises in your Enterprise and/or Supplier Development programmes and develop their capability to become suppliers in the future. In terms of how to do this, there’s no difference to consciously choosing to procure from SMEs and black-owned businesses through a preferential procurement and supplier development strategy.
The lack of funding opportunities remains one of the major challenges social enterprises face. The social enterprise sector is small in South Africa but growing. 80% of social enterprises have an income of less than R500,000 a year and CSI is the biggest source of income for many.
Social enterprises need finance, particularly at the start-up phase and then for scale and growth. It is possible to be innovative about corporate donations and CSI departments would do well to look at CSI financing as an investment, rather than a pure donation. The difference is that the return on the investment is not financial. Rather than getting the money back, the donor can expect to see social outcomes. For many social enterprises who are looking to attract investment capital elsewhere (e.g. loans, or equity for those with a for-profit legal structure) having a corporate backer who can provide a significant proportion of the funds required (but not necessarily all) helps to reduce the risk to potential investors, and increases the likelihood of attracting social investment, which in turn can catalyse significant growth for a social enterprise.
Financial innovations that will enable social enterprises to access a deeper pool of capital are also required. Most suitable for CSI and SED would be to provide grants to catalyse start-up and early-stage social enterprises. For growth and scale stages, loan guarantees or match funding are most relevant, or indeed equity investment. Soft loans, patient capital, outcomes funding, convertible loans or equity and social impact bonds can also be part of the mix, allowing social enterprises to greatly extend their social reach and impact. Bertha Centre’s research and courses on innovative finance are particularly useful in decoding the many options that are available. http://www.gsb.uct.ac.za/berthacentre
Non-financial donations are equally important. The Clothing Bank, an award-winning South Africa-wide social enterprise, provides a highly successful example of this. Excess stock is donated by retail companies to the Clothing Bank which would otherwise most likely end up in landfill. The Clothing Bank sells the stock on to the women and men on their 2-year programme, at an affordable price. The income from reselling the goods allows the organisation to cover 80% of its own expenses, and the Clothing Bank runs a 2-year programme that teaches participants to become micro-entrepreneurs in their communities, using clothes and appliances as the sales medium. So far, the Clothing Bank has trained over 1135 women who have collectively generated profits in their businesses of over R100 million. For these women, the Clothing Bank’s partnership with retail giants such as Woolworths has resulted in an impact much more powerful than were retailers purely to donate clothing to NGOs who often are unable to distribute these to the people most in need. All the women in their programme have significantly improved their economic situation, self-esteem and poverty levels against a wide range of indicators (measured using the poverty stoplight approach.)
The Clothing Bank now partners with most retail chains. Like in this example, there has to be a business case for corporates in order for any partnership to be sustainable.
While financial investment is critical, when it is combined with capacity building or individualised support, it becomes a truly powerful offering. Some companies are able to offer mentorship or professional services themselves. Others who wish to offer support to social enterprises could consider teaming up with service providers who can provide specialist social enterprise support, thereby ensuring that their investment leads to results.
Distell is a great example. The CSI team recognised there was a need to build capacity and resilience amongst the non-profits they supported, many of whom were beginning their own journey towards a social enterprise model. They partnered with the Social Enterprise Academy to offer learning programmes and mentorship on leadership, measuring social impact, and social enterprise to enable those non-profits to become more financially sustainable, whilst increasing their social impact.
In Europe, Ben & Jerry's selects social entrepreneurs across a number of European countries, who want to achieve growth. Each social enterprise receives €10,000 (R140,000) and six months' mentoring from Ashoka, as well as free ice cream and a trip to the company's Vermont HQ.
By providing support either internally or via a service provider it may be possible to earn Enterprise Development points, as long as the benefiting Social Enterprise is a QSE or EME business that is at least 51% black-owned.
Support can also take the form of opening up networks or providing social media coverage for social enterprises.
Become a social enterprise yourself
The time has never been more ripe for companies to make the transition towards becoming a social enterprise themselves. According to Michael E. Porter and Mark R. Kramer at the Harvard Business Review,
“When a well-run business applies its vast resources, expertise, and management talent to problems that it understands and in which it has a stake, it can have a greater impact on social good than any other institution or philanthropic organization”
As the global market evolves to include more and more for-benefit enterprises, early-movers and leaders have the most to gain.
The era of social enterprise is upon us. More than ever, we can see that it is possible to turn a profit, while at the same time meeting the demands of our country and world’s most pressing problems (and to reinvest the majority of that profit back into those social issues). There are many ways for corporates to be involved in social enterprise, through clever use of their CSI/ESD budgets or more integrated ways of creating change through procurement or strategic repositioning.
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