Social Enterprise and Ethical Investment

26 October 2017

There has been a dramatic shift in the collective mindset of the millennial generation. Since the 2008 financial crash and the loss of faith in traditional financial institutions, fewer people than ever are entering traditional finance and more and more people are starting their own businesses, disrupting established industries, innovating and, crucially, trying to make the world a better place. This group no longer sees salary as the most crucial factor when choosing a job, and places importance on a business’s commitment to Corporate Social Responsibility (CSR), diversity and work-life balance. This group wants to be associated with companies that bring about positive social change, and this has been a major factor in the growth of social enterprises over the past decade.

A social enterprise tries to address a social problem in addition to or in place of making as large a profit as possible. Businesses of this kind need to be both financially sustainable and able to have a definite positive impact on a societal issue, whether that relates to economic well-being, health or human rights. But social enterprises are also good for the economy. It isn’t impossible for profit-motivated businesses to make a social impact, but there is always the risk of their producing negative externalities. Social enterprise, in contrast, produces positive externalities. Some of these negative externalities, like waste, come about because of consumption, while other externalities, like factory carbon emissions, arise from production. In both the developing and the developed world, these negative externalities hold back economies from achieving their productive potential, and this can lead to societal problems. When poor governance or corporate mismanagement create these externalities, social enterprise has the power to correct them.

Last month, the British government published a report estimating there are 471,000 social enterprises in the UK and 1.44 million people employed by the sector. In the US, a survey from intelligence giant Mintel found that 56% of consumers stopped buying from companies they believe are unethical. There is a clear demand for business that operates with a social outlook, one that’s being embraced in both the US and the UK. In fact, nearly all social enterprise employers generated a surplus or profit in the same year, compared to three-quarters of SME employers. These social enterprise employers also reported higher levels of innovation, were more open to advice, and were more optimistic about their longer-term growth prospects. This is encouraging. We now have some of the brightest young minds in the world devoting their mental energies to solving social issues. On top of this, the technology to make meaningful change to the lives of the poorest and most vulnerable now exists.

The whole of the Western world stands to benefit if this trend towards social enterprise becomes a dominant feature in economic life. For that to happen, there has to be a reconsideration of our core economic principles. Instead of focusing on wealth creation we need to focus on job creation. This is something that microfinanciers have understood for decades. “Social businesses flourish thanks to microfinance loans,” Muhammed Yunus, Nobel Peace Prize winner, said recently. “People are born to be entrepreneurs, but this nature gets constrained in a system that teaches them to be merely job-seekers, limiting job creation to a privileged few. Some people would fulfil that natural inclination by starting businesses that don’t have wealth accumulation as their only goal, if only they thought doing so were an acceptable measure of success.”

We seem to be in the middle of a paradigm shift. Our perception of business and enterprise and the landscape, from blockchain to social enterprise, is changing with it. As growth fears continue to subside in the developing world, profit-first, exploitative businesses are now being questioned as the new generation ask what type of world they want to inhabit and contribute to.

Rupert Scofield

Rupert


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