How Social Enterprises Can Help Corporations Meet Their ESG Goals:

The private sector is undergoing a seismic transformation, driven in part by the climate crisis, Covid-19, and extreme financial inequality. These external factors have prompted the world’s corporate leaders to focus on their social responsibilities and make bold, ambitious commitments to environmental, social, and governance (ESG) goals. To deliver on these commitments, many will rely on corporate social responsibility (CSR) initiatives, but CSR alone isn’t enough to achieve meaningful progress.

When Covid-19 hit, a group of 85 foundations, corporations, and intermediaries came together to create the World Economic Forum’s COVID Response Alliance for Social Entrepreneurs. This extraordinary collaboration revealed something unexpected: social procurement strategies offer the promise of mutually beneficial outcomes for corporations and social enterprises.

Members of the alliance, including SAP, Unilever, and IKEA, were already early adopters of sourcing from social enterprises. SAP’s 5 & 5 by ’25 initiative targets a combined 10% of annual addressable procurement spend—around $60 million per year—with 5% going to social enterprises and 5% to diverse businesses by 2025.

Despite the benefit of these partnerships, too few corporations use procurement funding to deliver against ESG goals because of outdated misperceptions about where social enterprises operate, their ability to scale and fulfill large orders, and which sectors they work in. But the social enterprise sector has grown tremendously in the past 10 years. With the support of IKEA Social Entrepreneurship, an LLC within Inter IKEA Group, and 60 Decibels, an impact measurement company, nonprofit investment fund Acumen has published the first corporate-readiness report on social enterprises. From a global survey of more than 150 social enterprises, this report offers invaluable insights—and potential social enterprise partners—to any company considering social procurement as a means to achieve its ESG goals.

Doing Business Together

No matter your industry or location, a social enterprise is likely willing and able to meet your corporate needs.

Social enterprise survey respondents came from 43 countries and operate in a range of industries, including workforce training, commodity supply, and agricultural inputs. Of these social enterprises, more than 50% have been selling to corporations for more than three years, and 72% have five or more corporate customers.

Social enterprises have demonstrated their capacity to secure the capital they need to grow. Thirty-nine percent of the respondents received outside investment; 65% of this group raised over $250,000, and 17% raised over $2 million. If there was any question about whether social enterprises have the capacity to do business with multinational corporations, the answer is a resounding yes.

When Whole Foods wanted to expand its offerings for socially conscious consumers, it turned to Kuli Kuli, a company that creates snacks and powders from a climate-resilient superfood called moringa. Its business model has generated more than $5.2 million in income for smallholding farmers.

Whole Foods carried its products in just a few dozen stores to start, but it quickly expanded the offering to more than 2,500 stores. Kuli Kuli products are now sold in more than 11,000 stores in the U.S. Inc. named the company one of the fastest-growing food and beverage businesses in 2018 after Kuli Kuli posted a three-year growth of 820%, thanks in large part to an investment from Kellogg’s.

Achieving Measurable Impact

Corporate CEOs consider “impact on society,” including income inequality, diversity, and the environment, their primary measure of success, according to Deloitte Consulting. More than 50% of social enterprises Acumen surveyed have third-party certifications from local and international organizations, including the World Fair Trade Organization and B-Corps.

Social enterprises are effective partners in achieving environmental and social impact, but corporations can do more to ensure success. The majority of the challenges social enterprises reported about doing business with corporations relate to payment and delivery terms. But these challenges are relatively easy to address through increased corporate flexibility. The upside of flexibility in procurement is an acceleration of progress in ESG metrics.

Hatsun Agro, a major private dairy in India, found in Promethean Power a business partner to solve the issues that small farmers face when storing milk in refrigerators typically powered by costly and polluting diesel generators. The social enterprises’ off-grid milk refrigerators have been crucial to large dairies’ growth in India. When Promethean proposed an advance-payment scheme, corporations including Hatsun Agro accepted and negotiated lower prices in exchange for prefinancing.

If more corporations are willing to be flexible with their payment terms in order to do business with social enterprises, they will see meaningful progress toward their ESG goals.

To successfully build these partnerships, corporations must acknowledge their structural barriers and intentionally overcome them, as Yunus Social Business explains in a companion report, The Social Procurement Manual. The opportunity cost of not doing so is undeniable. To demonstrate the vast range of social enterprises, Acumen has put together a list of 100 corporate-ready enterprises. There’s a good chance you can find a social enterprise to meet your business needs—you just have to look.

The social enterprises in Acumen’s new report are just a sample of the larger pool of social enterprises doing business with corporations. Corporations have an urgent obligation to drive change through social procurement. The future of the planet is at stake.

Source: Harvard Business Review