Companies around the world are repositioning issues of sustainability and social impact, from the domain of CSR to core business operations. This shift is, in part, a response to a growing recognition of the risk of inaction.
In 2014, McKinsey contended that the financial value at stake from sustainability challenges—from evolving regulation, reputational damage, rising operating costs, and supply chain disruption—could equal as much as 25 to 70% of corporate earnings. This cost will grow larger as the climate crisis worsens; and it does not factor in the potential costs of other challenges like economic inequality, political instability, or poor infrastructure, which all can affect the ability of companies to thrive.
But risks aren’t the only spur to investment. Investment in sustainability also presents tremendous opportunities. It can open new markets, meet emerging customer demand, spur innovation, weave resilience into supply chains, and attract and retain competitive talent.
Given the scale and complexity of today’s social and environmental challenges, comprehensive and lasting solutions are often beyond the reach of any one company. Pre-competitive and cross-sector collaboration with diverse stakeholders will be essential.
5 Ways Companies Benefit from Social Enterprise Partnerships
Here, partnerships with social enterprises offer unique value to companies that take sustainability seriously. We define social enterprises as mission-led organizations, for-profit or non-profit, that harness market forces for social and environmental impact.
1. Reach More People and New Markets
Most corporations serve the top 30% of the world’s population, leaving untouched a market of roughly six billion people. They struggle to design products and services that engage this customer base, which is often relatively poor and geographically difficult to reach. And yet this underserved market presents a significant long-term opportunity.
Social enterprises offer immense strategic value on this front. They have articulated business models that work at the bottom of the pyramid; they possess local networks and deep insight into the needs, wants, and behaviors of emerging market consumers; and they have figured out the unit economics along the first and last miles of global supply chains. Social enterprises can also provide ground-level knowledge of the legal, regulatory, and political topography of emerging markets.
For example, the Ghanaian social enterprise mPharma has innovated new ways for large pharmaceutical companies to deliver life-saving medications—at affordable prices—to consumers across six African countries. mPharma’s local perspective and creative approach are helping to solve for complex supply chain challenges that have long stymied healthcare access and affordability in the African market.
2. Take Risks and Innovate—from a Safe Distance
Tackling difficult social and environment challenges requires a degree of experimentation that is often at odds with the bureaucratic structure and general risk-aversion of large corporations. Social enterprises, on the other hand, are inherently risk-taking. They are on the frontlines of testing new approaches to social impact—staying flexible and scrappy to innovate and build new ways of solving old problems.
Empowering social enterprises through partnership thus allows corporates to learn, from a distance, what works and what doesn’t for emerging markets and sustainable supply chains.
3. Reduce Supply Chain Risks
Investments in sustainability and social impact are often also investments to mitigate supply chain risk. This might be environmental risks, such as the threat of climate change or water scarcity to agricultural production. Or it might be social risks, such as the threat of uncovering serious labor violations or modern-day slavery deep within global supply chains.
Whatever the specific concern, social enterprises tend to be embedded in communities on the ground in ways that companies, especially multinationals, are often not. This makes social enterprises well-placed to help companies innovate and collaborate locally to address key sources of supply chain risk.
An example: The non-profit social enterprise GoodWeave International has partnered with over 400 companies, including major retailers and brands such as Target, Macy’s, Monsoon Accessorize, RH, and the Otto Group, to root out child labor from global supply chains. GoodWeave has the local networks and know how to get on the ground and go deep, regularly mapping and inspecting partner companies’ supply chains from primary factories to outsourced facilities, including workshops and even individual homes.
4. Get a Leg up in the Battle for Talent
Recent surveys found that 53% of the workforce in the UK and more than 70% of millennial workers in the U.S. reported corporate sustainability as a key factor in deciding where to work. More and more, workers want to be part of an organization that is actively shaping the world for the better—and they’re factoring environmental and social performance into their decisions about where to work (and whether to stay).
As the generational understanding of what role corporates should fill expands from a narrow allegiance to shareholders to a more expansive allegiance to stakeholders, collaboration with social enterprises can help companies make this transition more rapidly and effectively. Such partnerships signal to current and future employees a company’s interest in solving problems, creating impact, and reshaping its own supply chain for the better.
5. Secure a Competitive Advantage in a Changing Marketplace
Consumers and B2B partners increasingly consider company sustainability performance when making buying decisions. Indeed, the NYU Stern Center for Sustainable Business found that sustainability-marketed products were responsible for more than half of the growth in consumer-packaged goods in the U.S. from 2015 to 2019. At the same time, consumers are often attuned to thin or insincere sustainability efforts. Instead, meaningful partnerships with social enterprises can give companies a foothold among tomorrow’s consumers.
Companies like SAP and IKEA are working to embed social enterprises directly within their existing value chains. And others—like Patagonia, Unilever, Microsoft, Johnson & Johnson, Pfizer, and Salesforce—have established substantial corporate innovation funds dedicated to supporting and scaling social enterprises that advance key impact goals.
Partnerships That Redirect Core Business for Sustainable Impact
Building effective partnerships between corporates and social enterprises is difficult work. It takes time; it takes genuine institutional commitment, from leadership down; and it takes rethinking some of the norms and practices that for decades have defined the way business is done.
But investment upfront will pay dividends down the line, in ways both direct and indirect. Old ways of doing business are, after all, just that—old. To arrive more surefooted in the market of the future, and to create lasting solutions at scale, companies large and small should consult an experienced global consulting firm to integrate a strategy for collaborating with social enterprises.
Some of the above content was excerpted and/or adapted from the recently released report Catalysing Collaboration: How & Why Corporates & Social Enterprises Should Partner to Achieve the Sustainable Development Goals.