According to Stanford’s Center for Social Innovation, social innovation is “the process of developing and deploying effective solutions to challenging and often systemic social and environmental issues in support of social progress.”
Seen through this lens, social entrepreneurship or ventures are enterprises driven by social causes that might also promise some financial return. They run on impact investments, i.e., investments made by larger companies to support specific social causes while having some guarantee of financial return.
Why invest in social innovation?
Businesses could invest in social innovation – make impact investments – for numerous reasons. Some of these include the following.
- Making a difference. When the company believes in the cause it supports, it can find satisfaction knowing that its impact investment will create a positive difference in the world. Companies could also support social innovation through workshops and training programs that help build human capital and improve livelihoods. Such improvement is visible in cases like SC Johnson, where the organization worked with Rwandan farmers to cultivate plant-based inputs for insecticides, and in the process, increased farmers’ incomes.
- Strengthening reputation. In an era where information is perpetually available at our fingertips, a single misstep by a company can significantly affect its reputation. As attitudes sour towards unethical business practices and people grow more sensitive to global issues like climate change, impact investments become an important way to cement high reputations.
- Access to new markets. In the aforementioned SC Johnson case, the company was unwittingly introduced to a new market when looking for new pyrethrum (a plant-based insecticide) production hub that they found in Rwanda. Once they started manufacturing insecticides using pyrethrum, they also began providing the product to the farmers and staff working for them by collaborating with on-ground organizations that understood the culture and circumstances the Rwandan farmers lived in. Thus, SC Johnson gained access to a new market.
- Mutual learning opportunities. While corporate leaders can learn a lot from their social counterparts, social entrepreneurs can also learn from for-profit businesses. This mutual benefit is evident through partnerships like the one the Abdul Latif Jameel Group had with Grameen Bank USA, a social enterprise, to offer microfinance training to disadvantaged youths in the Middle East. They helped these youth become social entrepreneurs with an understanding of microfinance to further their careers.
How to undertake impact investments
Companies planning to invest in social innovation should be willing to forego industry-standard profits for the first few years while ensuring the social venture brings tangible, measurable change. With this understanding in place, undertaking impact investments becomes a three-step process.
- Identify a social cause. Choosing a social venture based on a cause that aligns with the company’s brand focus and business values is the first step.
- Understand the company’s investment capacity. Determine how the company can help the social venture financially, or non-financially.
- Determine the kind of support the social venture of choice needs. Different enterprises have different needs – it is not always financial or monetary. They may also need guidance about building specific skills or measuring progress. There are usually three ways in which companies can engage with social entrepreneurship.
- Direct investments in social innovation (using models like the Ashoka Hybrid Value Chain approach) or philanthropic action and community involvement and mobilization.
- Encourage social innovation through public dialogue and advocacy.
- Create an internal climate that fosters social innovation among employees for better inclusion, eco-friendly practices, etc.
In 2020, several major corporations like Amazon, Microsoft, Unilever, Salesforce, Citi, and TELUS announced over $100 million in venture commitments. Since the founding of the Global Impact Investing Network (GIIN) in 2009, the impact investing market has grown exponentially – GIIN estimates the current market size to be $715B.
GIIN also developed metrics to measure impact investments, which have now been adopted by several major corporations trying to make social innovation investments. Such investments become more important, especially in the early stages of a social entrepreneur’s journey, to help ensure the social venture can achieve its objectives while ensuring societal progress.