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Recognition as a social enterprise: What’s the fuss?

Recognition as a social enterprise –
What’s the fuss?

The social enterprise eco-system is evolving. In today’s market place, recognition as a social enterprise is growing in significance. Over the last decade there has been significant efforts in social enterprise development across government, intermediaries, universities, funders and investors.  Throughout this 10 years, Social Traders focused its work on elevating and developing social enterprises in Australia. With evolutions in the landscape and innovations in the market, currently we are pursuing what research, Finding Australia’s Social Enterprise Sector (FASES),  2016 has identified as the biggest market opportunity for social enterprises – social procurement. Social Traders concentrates its efforts in connecting social enterprises with those interested in procuring goods and services from them, as one of the key ways social enterprises can grow their impact.

Critical to this work is certification of social enterprises, so that procurers can identify and work with legitimate social enterprises. Certification offers social enterprises a mark of recognition providing a gateway to new business opportunities to foster revenue and impact growth. Naturally the opportunity spikes interest across a variety of businesses that have various contributions in the Australian economy.

Recognising social enterprise as a distinct form of business

While there is no legal definition for social enterprise in Australia, Social Traders has always been clear in its use of a consistent definition of social enterprise, determined through Australia’s landmark social enterprise research, FASES – conducted by the Queensland University of Technology and the Centre for Social Impact at Swinburne University.

Through the decade of work with social enterprises, despite our own emphasis on the use of the definition, Social Traders has periodically raised a conversation around whether it is needed or not. It forms a polarising debate, often condensing to a few critical factors:

  • Broad church vs narrow approach to who is and isn’t a social enterprise
  • The not-for-profit vs for-profit debate
  • Whether social enterprises should only be those organisations that are generating employment outcomes for disadvantaged people
  • The validity of different models of impact
  • Whether absolute impact or impact as a proportion of business operations should inform the definition

For the detailed definition refer to the studies (FASES 2010, 2016), but it can be summarised as any enterprise that:

  1. Has a defined primary social purpose, environmental or other public benefit
  2. Derives a substantial portion of income from trade(as opposed to grants)
  3. Reinvests 50% or more of any annual profits towards achieving the social purpose

It’s a definition that is consistent with international interpretations of social enterprise and it forms the basis of Social Traders certification.

Primacy of social purpose

We recognise that social impact can be delivered by all sorts of businesses in different ways.  This is more a continuum than a binary choice between impact and no impact.  All forms of social impact are to be applauded. However, when it comes to recognising and rewarding social impact, a continuum is difficult to operationalise.  A perfect system would reward based on social impact delivered (or positive externalities in economics speak), though this is hard and near impossible to implement.

Currently, our only tool to differentiate and reward social impact is a NFP legal structure.  Not for profits can receive tax and other benefits because their assets and profits are entirely locked to social purpose. A social enterprise definition seeks to define and validate a broader range of impact delivery vehicles.  Social impact must be the core purpose of a social enterprise, and the majority – but not 100% – of assets and profits must be employed to deliver on the purpose.  The definition recognises that freeing up of some assets and profit may be required to drive investment and talent.  What remains clear, is that social impact must always override private gain.

The way Social Traders operationalises the social enterprise definition for certification has evolved over time, to cater for the diversity of social enterprises in Australia, while maintaining the integrity of brand social enterprise. Our approach has made significant progress in resolving some of the ongoing points of debate around who is and isn’t a social enterprise. As the market advantage for social enterprises grows, it’s increasingly important for social enterprises to seek recognition via Social Traders certification.

Social Traders certification for a market advantage

While a wide range of social contributions exist in business, social enterprise does need a clear definition where use of the term bestows benefits and market advantage, for example through social procurement, which will continue to grow in significance over the coming years. Already, social procurement targets in Victorian infrastructure projects have led to a number of inquiries from the business community asking what constitutes a social enterprise, and in some cases how to become a social enterprise.  Those engaging social enterprises in their supply chains are seeking confidence.  Those operating in the supply chains are seeking a piece of the action.

Not only is easy identification helpful in the social procurement marketplace but it can also guide various other sector stakeholders including:

o  Intermediaries
o  Granting organisations
o  Consumers
o  Others looking to support social enterprises

In 2018 Social Traders launched a certification mark for social enterprises as a way for organisations to communicate to key market stakeholders their status and we have revisited our approach to certification to better cater for the diversity of social enterprise models and to establish rigorous standards for operationalising the FASES definition. In establishing the revised standards, we have sought independent financial and legal advice, consulted with Australian social enterprises, referenced against progressive social enterprise sectors in Europe and North America and leveraged a decade of knowledge built through Social Traders work in the sector.

What has always remained critical in defining social enterprise is the primacy of social purpose (in all its diversity) over other motivations. Moving forward certification offers social enterprises flexibility in the evidence they provide based on their stage of development, and most critically will link indicators of impact, evidencing the primacy of social purpose.

The significance of certification is a key evolution in the sector and marks a new set of opportunities for Australian social enterprises. As the sector continues to grow and evolve, our standards will seek to accommodate new forms of social enterprises. We aim to keep the process flexible for social enterprises, but also prioritise the need to protect the social enterprise brand.

In today’s evolving market, recognition as a social enterprise can open up new opportunities for growth and impact, for those enterprises committed to the model. It is a stake in the ground that is somewhat cautious, and somewhat front line. It is not the end of the discussion, but a firm and fair beginning that recognises the incredible work done by social enterprises in our communities.