Social enterprises can change entire industries. This is how

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Bas van Abel, Founder & Board Member, Fairphone & Wineke Haagsma, Director Corporate Sustainability, PwC & Stefan Panhuijsen, Director Social Enterprise NL, Board member Euclid

• Social enterprises have the potential to change entire industries.
• An example from the chocolate industry shows the potential for responsible practices sparking a widescale sustainability transition.
• Investors should therefore dedicate funds to strengthen the influencing capacity of social enterprises.

Tony’s Chocolonely started as a small social enterprise that sources cacao to ensure farmers a ‘living wage’ and has now expanded to a fast-growing international company, whose sourcing principles have been followed by the largest Dutch supermarket chain.

Could other social enterprises change entire industries? We’d argue yes.

The global economy needs to undergo a broad and far-reaching sustainability transition to overcome the social and environmental challenges mankind is facing. The Paris Agreements and the SDGs provide a roadmap for the journey towards sustainability – and the business community is already making moves in the right direction.

We see large, socially-engaged corporations pledging resources to focus on diversity and inclusion and becoming net zero. We see impact-oriented startups focusing on social or environmental solutions. The urgency and magnitude of global issues such as climate change, inequality, and poverty demand rapid acceleration.

We argue that social enterprises similarly play a vital role. These businesses have specific social objectives that go hand in hand with making profit as a company. A social enterprise will usually focus on one key social cause, such as international poverty, employment for disadvantaged groups or climate change. Their values are built into how they work as a company and are intrinsic parts of their branding and marketing. Impact, in one form or another, is part of their DNA.

Social enterprises exert influence in three ways: by raising the possible; by raising the desirable; and by raising the acceptable.

Yet because most social enterprises are relatively small, they are sometimes swept aside as well-intentioned but ineffective. Research of Social Enterprise NL, based on academic literature and case studies from the field, claims the opposite is true: their activities often inspire or even compel widespread change. In fact, the Social Enterprise Monitor 2020 showed that 96% of Dutch social enterprises aim to actively influence other organizations to act more sustainably.

This happens in three ways:

1. Raising the possible: showing that it is viable to do business more sustainably, providing inspiration for others and offering up new models that can be copied.

2. Raising the desirable: building the appeal of sustainable business models for consumers, employees and investors.

3. Raising the acceptable: changing the parameters of what is generally considered acceptable or not where it comes to sustainability and inclusiveness.

Within these three avenues, there are further influencing activities discussed in the full report from Social Enterprise NL, that offer still more potential for social entrepreneurs to go further with their social action and have weighty impacts on industries and people. In collaboration with the World Economic Forum’s COVID Response Alliance for Social Entrepreneurship, our hope is to take this agenda to a global level and join forces to push for a higher bar for corporate value creation.

What is the COVID Response Alliance for Social Entrepreneurship?

The COVID Response Alliance for Social Entrepreneurship is a coalition of 82 global leaders, hosted by the World Economic Forum and supported by GHR Foundation and Porticus. Its mission: Join hands in support of social entrepreneurs everywhere as vital first responders to the pandemic and as pioneers of a green, inclusive economic reality.

Its COVID Social Enterprise Action Agenda, outlines 25 concrete recommendations for key stakeholder groups, including funders and philanthropists, investors, government institutions, support organizations, and corporations. These corporations are called on to stand with social entrepreneurs within their supply chains and the broader ecosystem, fulfil their agreements and extend their support to build a more inclusive & resilient economy and to:

• Honour existing relationships by standing by existing supplier commitments and extending credit lines to social entrepreneur suppliers/partners
• Forge new partnerships by using a mix of different types of financial and non-financial support to both social entrepreneurs and their constituents
• Facilitate capital connections so that social entrepreneurs can re-emerge and rebuild after the pandemic
• Invest in capacity building through individual or multi-company pro-bono/low-bono programmes
• Deepen and widen corporate’s footprint by committing to sustainable sourcing practices and by building local “shock resilient” ecosystems

For more information see the full action agenda here.

Where social enterprises have big impact – 3 examples

Agreeing upon responsible principles within an industry can have far-reaching consequences, creating industry covenants that go beyond what any one company or enterprise can achieve. Here are 3 examples where this approach has worked:

1. Tony’s Chocolonely

The example of Tony’s Chocolonely shows how the company actively encourages other chocolate companies to adopt their methods through Tony’s Open Chain platform. This is an open source platform that collects all relevant information and tools that companies can use to ensure their supply chains are 100% free of slavery and enable cocoa farmers to earn a livable income. This is achieved by increasing traceability in the supply chain, based on Tony’s own “Five Sourcing Principles” model.

With chocolate brand Delicata, supermarket chain Albert Heijn was the first to join Tony’s Open Chain. By cooperating with Tony’s Chocolonely, they contribute to a positive development of the sector.

2. Fairphone

Another example is Fairphone, the ethical smartphone producer. It has started the Fair Cobalt Alliance that brings together industry players to improve the conditions in which cobalt is extracted in the Democratic Republic of Congo. The Alliance aims to “provide an example and proven methodology that others can follow, leading to wider industry acceptance and integration of responsible ASM cobalt in supply chains.”

3. Closing the Loop

A third example is Closing the Loop, a social enterprise which collects and recycles electronic waste in countries that lack waste recycling infrastructure. By offering a B2B solution called waste-compensation, it not only helps companies engage in waste-free procurement of electronics, but also puts sustainability and circularity on the map of the tech world.

Closing the Loop has gone from strength to strength in sharpening their customer strategy, with support from PwC and Strategy& (part of the PwC network). It is set to continue to make waves in the world of e-waste highlighting a critical role for large corporations to strengthen the influencing capacity of a social enterprise.

Next steps

Social enterprises certainly act as influential drivers for the sustainability transition. Yet other individuals and businesses should also consider playing their part and become recognized as contributors to a better world.

The reach of many social enterprises is often limited by their lack of resources. Corporations should therefore look for more opportunities for collaboration and partnerships, for example through platforms like the Response Alliance for Social Entrepreneurs or the PACE platform for circular change. Impact investors should dedicate funds to strengthen influencing capacity. With more widespread support, this influence could expand even further beyond what we see now.

We all have our own part to play in creating the world we’d like to see, but it’s certainly clear that even small spheres of influence can have momentous impacts with the right actions.

Read the full report here.