Look how far we’ve come: Social enterprise

“[We’re] starting to show that you can do good and make money, but I want to put emphasis on the ‘starting to show’ because I don’t think we’re fully there yet.”

This story is only just beginning. 

Not so long ago, corporate circles scoffed at the suggestion of mixing profit and purpose. But consumers proved them wrong. Given the choice of spending our money on a company that just sells a product, or a company that sells a product while also working to end poverty, a growing number of us are choosing the latter. 

The term “social enterprise” was first officially penned in the late 1970s in London – although social enterprises have actually existed since the Victorian era, born of state and market failure. 

Twenty years ago, when Pro Bono Australia was launched, social enterprises were primarily companies that might donate a percentage of their profits to a charity. These days the term has evolved to describe organisations that aim to do good in every aspect of their business model. 

But inevitably the sector’s rapid growth also brings challenges. 

Growing awareness of the business model has brought increased scrutiny, and with it, concerns about the level of regulation, and also disagreement over definitions and aims of the hybrid business model. 

That was then

Back in 2000, proponents of the new social enterprise model were dismissed by the rest of the corporate world as “tree-hugging outliers”. 

“There was really the idea that you were probably kidding yourself if you thought that these worlds could collide,” Bessi Graham, the co-founder of Benefit Capital, told Pro Bono News.

Large charities such as the Salvation Army, Oxfam and The Smith Family were running retail and thrift stores to diversify their revenue streams with relative success, but they were viewed as side-projects and by no means a major part of their revenue streams. 

That’s not to say social enterprises didn’t exist – they did, even if they didn’t know it themselves. But the lack of an agreed definition and paucity of research on the topic meant many enterprises flew under the radar in 2000. 

In fact, one of the first pieces of research on Australian social enterprises, published in 2010, uncovered a “mature and sustainable” sector. So much so that 62 per cent of the 365 respondents reported they were “at least” a decade old. 

This is now

The sector, and attitudes towards it, have come a long way in 20 years. Data released in 2016 found at least 20,000 social enterprises operating across all industry areas. Today, the sector includes many mature and diverse organisations, with a continuing stream of organisations entering the field (a third of businesses sampled were five years old or less). 

The sector now has the backing of philanthropists, impact investors, and government (to an extent) and Social Traders estimates there are 20,000 social enterprises in Australia generating up to 3 per cent of GDP and employing 300,000 Australians. 

Intermediary organisations such as Social Traders and Social Ventures Australia have also played a big role in expanding the sector by connecting enterprises to one another, and brokering relationships between social enterprises and government and corporate buyers. 

Charities have realised that running a social enterprise alongside their traditional programs is a clever and sustainable way to raise a few extra dollars without having to rely on public donations. 

Above all, growth of the sector has been consumer driven, with customers increasingly shopping their values. 

These businesses are now giving shoppers a chance to put their money where their mouths are, by buying their clothes, toilet paper and groceries from a business that also supports their environmental and social values. 

As Graham puts it, “there is way more understanding [of] and interest in buying from companies that you feel good about buying from.” 

The mission and structure of social enterprises these days are also much more sophisticated. In 2010 the most commonly stated purpose for an enterprise was to create opportunities for people to participate in their local community. 

By 2016, the focus had broadened to include creating meaningful employment for people from specific social or cultural groups (refugees or people experiencing homelessness, for example) as well as working to alleviate social, cultural, economic or environmental problems. 

The creation and subsequent boom of the global B Corp movement has also been pivotal. Organisations wanting to become a B Corp undergo a rigorous assessment of how well they balance their social and environmental impact with profit. Its philosophy is holistic, making businesses look at how they treat their employees, the community and their physical environment. 

There were 12 businesses (including Pro Bono Australia) first certified in Australia back in 2013. By 2019, that number had jumped to 270 companies certified from 46 different industries. Australia and New Zealand were also found to be the fastest growing regions for B Corps in the world. 

Achievements 

Perhaps the biggest achievement of the sector to date has been its success in boosting awareness among consumers – not just of what a social enterprise is, but of how powerful their shopping dollar can be in effecting social change.

This hasn’t happened by accident. Over the past decade, the sector has excelled in mapping and evaluating its social impact, paving the way for consumers, mainstream media and corporations to engage with the business model. 

The movement has also caught the attention of governments. While Australia is yet to adopt a national strategy or framework to support the growth of the sector (more on this below), individual states are leading the way. 

In 2018, the Victorian state government launched an Australian first social procurement framework to boost and grow the sector. The Queensland state government followed closely behind them, injecting close to half a million dollars into the sector as a way of creating more jobs for disadvantaged people in the state. 

Sector leaders are particularly excited about the development of peer-to-peer networks designed to help social enterprises connect with, and learn from one another. 

Queensland paved the way back in 2013 when it launched the Queensland Social Enterprise Council. Nearly every state and territory in the country now has its own network (The Social Enterprise Network of Tasmania is coming soon), and the sector recently united to face the COVID-19 as one. 

Challenges 

One of the biggest challenges Australian social enterprises face today is the lack of coherent national legal and business structures and policies from which to grow the sector. 

The Australian Law Reform Commission (ALRC) in 2019 called for an inquiry into social enterprise structures, saying current structures did not meet the needs of for-purpose businesses. Under the existing laws, social enterprise leaders who want to register a business are forced to incorporate either as a NFP or as a for-purpose business, when the reality may be both or neither – or somewhere in between. 

State-based networks and sector leaders have been advocating for changes to the legal structure as well as a national policy framework. As David Brookes, the managing director of Social Traders puts it, without it, social enterprises are operating “within a policy vacuum”. 

Then there are questions about how to measure the scope and impact of the nascent sector. There are an estimated 20,000 social enterprises operating in Australia, and while we know that the sector has grown, the official figure hasn’t budged since 2010 due to a lack of data. The most recent census was released in 2016, and is based on data from just 370 social enterprise practitioners, social enterprise intermediaries and policy makers. 

Nor has the sector yet agreed on a single definition. Groups such as Social Traders want all Australian enterprises to undergo Social Trader certification in a bid to reduce confusion around what does and doesn’t count as a social enterprise. 

In their view, a social enterprise has to have a social, cultural or environmental purpose as its main objective, with a substantial portion of its revenue derived from commercial trade, and the majority of the organisation’s efforts and resources invested into the social purpose. 

But not everyone agrees. Graham says the constraints on reinvestment and distribution of profits are not helpful. “They create a whole bunch of conditions that limits what a social enterprise can do and where it can play,” she says.

The debate continues.

 Meanwhile, the sector is still struggling to assert itself in mainstream business markets. As large-scale government contracts and procurement opportunities increase, social enterprises risk getting left behind if they don’t start thinking bigger. 

Mainstream businesses are rapidly transforming their products and services to attract and retain customers, and if social enterprises want to compete, they need to step up. 

Graham argues that much of the sector still operates with a charity mindset of “scarcity and desperation”, further cementing a power dynamic in which corporations and government are seen as doing social enterprises a favour by purchasing their products.  

What’s next

Growing pains and pandemics aside, sector leaders are optimistic that the next decade and beyond will only see the model expand. 

Inevitably the sector will have to navigate the economic fallout of COVID-19, with many organisations missing out on government support targeted at small businesses or charities. But, advocates also see opportunities. Many view the crisis as a chance to strengthen collaboration across the industry, and to encourage a shift in thinking about how businesses operate, and who for, in a post-pandemic world. 

Sector leaders hold out hope that newly formed committees such as the federal government’s Social Impact Investing Task Force will be a chance to highlight the important role social enterprises can play in the future of the social economy. 

Australian social enterprises meanwhile are using their collective power to grow the sector, backed by a philosophically-attuned group of philanthropic supporters. 

Consumers, particularly young consumers, now understand that if a business doesn’t align with their values, they can simply shop elsewhere. It’s a shift in attitude that advocates hope will transform the way everyone does business.

This article is part of a series looking at how far the social sector has come since 2000.

Read our introduction to the series: Look how far we’ve come.

See the full series here: 20 years of social change