Legitimacy is the watchword for social enterprise impact in 2020

As the new decade kicks off David Brookes, managing director of Social Traders, discusses the growth in the social enterprise sector and the risk of “social washing” that has emerged as the sector has grown.

At the beginning of a new decade there has never been a more exciting time to be a social enterprise in Australia. 

The sector is growing rapidly, and so too is the diverse range of business and impact models coming to market. We know that around 72 per cent of Australia’s 20,000-plus social enterprises have been operating for no more than 10 years, mostly less. 

We expect this growth is going to continue, as governments and agencies around Australia commit to policies and programs designed to support the sector. 

There is also increasing demand for social enterprise goods and services, thanks to a growing interest in social and sustainable procurement practices within the public and private sectors.

This “social procurement” marketplace has created more than 700 jobs for disadvantaged Australians in the past 18 months – the result of private sector and government buyers spending around $105 million on social enterprise goods and services. 

Social procurement has become widely recognised as a significant opportunity for driving social change. According to the FASES study of 2016, 75 per cent of social enterprises identify social procurement as their biggest growth opportunity. 

But while the social enterprise sector is in great shape, growth and competition does bring risks and challenges. 

Increasing demand means that the term “social enterprise” now bestows a level of market advantage unlike at any point in the past.

Unfortunately, this has created examples of what we call “social washing”. 

Just as “green washing” – conveying a false message about the real environmental impact of a product or service – diminishes any real environmental change, “social washing” refers to businesses which claim social enterprise status when in fact they might often not be delivering the social impacts they claim to be. The term social enterprise is, in these cases, used as nothing more than a form of marketing. 

Social Traders has encountered a number of spurious claims to social enterprise status. Social washing risks seeding distrust and halting progress toward a true social value market. 

Which brings us to the question of legitimacy. 

What exactly is a social enterprise? How can a buyer be sure that a supplier is a legitimate social enterprise with a genuine social impact mission?

Social Traders defines a social enterprise as a business that: 

1. has a defined primary social purpose, environmental or other public benefit;
2. derives a substantial portion of income from trade; and
3. reinvests 50 per cent or more of any annual profits towards achieving the social purpose.

These elements are central to Social Traders’ Certification program which was first launched in April 2018 as a means of providing social enterprise with brand credibility and to enhance their prospects of winning procurement contracts with government and business buyers.

Primacy of social purpose in an organisation should be the key defining criteria that a social enterprise needs to satisfy. 

All entities doing business with social enterprise are encouraged to keep that in mind. 

The potential of the social procurement market is clear, well demonstrated through the impact delivered in recent years. 

The key is to capitalise on that through attracting more buyers to the marketplace. 

For social enterprises, increased awareness and growing depth and diversity in the sector is encouraging – but it does mean they need to give themselves the best chance of winning work. 

Ensuring that primacy of purpose is clear – and legitimate – is their biggest challenge.