Why Companies Invest in Social Enterprises

When President Trump recently announced that the US was pulling out of the Paris Climate Accord, over 100 major US businesses announced their intention to continue their efforts to address climate change. This is a prime example of how companies are responding to stakeholder pressure by developing new approaches and taking a stronger role in addressing complex social issues.

However, many companies still have limits to their ability to achieve social impact goals. Barriers may include lack of internal knowledge on an issue, limited ability to take risks due to legal issues, lack of resources in a specific region, or an internal structure and bureaucracy that does not encourage innovation or risk-taking. Working around these issues has required looking for new solutions. Some innovative companies are finding a solution by investing in social enterprises to not only address social issues but also to explore markets, attract talent, and develop new products or services that may be beneficial to the business.

While companies are continuing to develop strong partnerships with nonprofits, many are expanding their approach by investing in social enterprises that combine social purpose with a for-profit model. This “Fourth Sector” model is a natural outgrowth of the three sectors (public, private, and social), that is seeking new, sustainable market-driven solutions to complex social problems.

TCC Group partnered with a team from the NYU Stern School of Business to perform research on the emerging fourth sector. The Stern School report noted that the fourth sector includes a range of social enterprises (blended value organizations, sustainable enterprises, B-corporations, etc.), that combine market-based approaches of the private sector with the social and environmental aims of the public and nonprofit sector. But the report also noted that the social enterprise community, while growing in importance, lacks the infrastructure and support services that have been developed for the existing three sectors. Fortunately, the rapidly growing interest of companies and private funders in impact investing will result in the growth of the fourth sector, subsequently spurring the creation of new entities to support social enterprises.

Two reports that provide insights into how companies are investing in social enterprises include the Acumen Fund’s “Social Enterprises and Global Corporations, Collaborating for Growth with Impact,” written in partnership with Business Fights Poverty, and CECP’s “Investing with Purpose,” a pilot study developed with support from Prudential.

Both reports provide information on the benefits of investing in social enterprises, examples of collaborative investments, and different approaches or models depending on the goals of the company. Both reports also note that companies recognize that many social enterprises will need more than investment dollars given the lack of infrastructure in the field. Case studies from the reports include major corporations supporting social enterprises that address some of today’s more complex social problems.

As an example in the CECP study, Coca-Cola is partnering with the social enterprise Solarkiosk to develop its ekocenter project in several African countries. The ekocenter project allows entrepreneurs in an underserved community the opportunity to build a small business that provides solar power, safe drinking water, mobile connectivity and a variety of services to its community. The end goal would be that with help from the ekocenter project, the small business will act as a catalyst for community growth.

Miliki Afya – featured in the Acumen Fund report – is a social enterprise that builds health clinics that offer quality, low-cost diagnosis and outpatient care in populated low-income areas of Kenya. The social enterprise offers consultations from qualified doctors for as little as $0.85USD. Miliki Afya achieves profitability through efficient procurement, targeted marketing and choice staffing coupled with high patient volumes. Multiple companies and funders are now investing in the expansion of this social enterprise.

Novartis created Arogya Parivar (“healthy family” in Hindi) to increase access to healthcare in underserved communities in India. Arogya Parivar recruits and trains locals in remote villages to become “health educators,” who help inform communities about health, disease prevention and the benefits of timely treatment. These local teams work with doctors to organize health camps (mobile clinics) in remote villages that provide screening, diagnosis and therapy. From 2010 to 2015, outreach in rural areas across 11 Indian states has brought health education to more than 24 million people and direct health benefits to 2.5 million patients. Novartis replicated the program in Vietnam, Kenya and Indonesia.

Companies looking to increase their social impact, and build stronger trust and relationships with their key stakeholders, would do well to consider investing in social enterprises that align with their social impact goals. As this field grows and develops, there are numerous opportunities to begin exploring new partnerships and investments that can align not only with the company goals, but also at the stage that align with the company’s level of development.