More corporations buying social could transform European social enterprise sector – new report

Second edition of European Social Enterprise Monitor flags that partnerships for social procurement between social enterprises and conventional corporations present “large opportunity for the transformation of the sector”.

Social procurement is a key opportunity for European social enterprises to grow their activities, according to the largest survey of the sector on the continent. 

The second edition of the European Social Enterprise Monitor, launched today at ImpactFest in the Netherlands, gathered responses from nearly 2,000 social enterprises across 21 EU states and neighbouring countries between the end of 2021 and start of 2022. It is published by Euclid Network, which represents social enterprises in Europe, with support from a number of partners including the European Commission, Google.org and Schwab Foundation.

As many as 61% of social enterprises surveyed are already selling goods or services to conventional firms, and business-to-business trading counts as a main income source for 35%, the report shows.
 

Chart on social enterprises and procurement

But social enterprises also see social procurement as a way to increase their access to markets. Half of the social enterprises already procuring for other companies say they would like to have additional corporate clients – with 43% already seeking them; and nearly one-fifth of the enterprises that are not yet selling to other companies would like to do so in the future.

“Partnerships for procurement between social enterprises and conventional firms or corporations present a large opportunity for the transformation of the sector, providing stable sources of income through contracts and access to new markets,” the report says.

When living standards and economic certainty are under threat, it is the social innovators, entrepreneurs and enterprises that are so often the first responders

In a foreword to the report, Nicolas Schmit, European commissioner for jobs and social rights, highlighted the importance of social entrepreneurs in today’s economic environment. He said: “In the current context, when living standards and economic certainty are under threat, it is the social innovators, entrepreneurs and enterprises that are so often the first responders. These social enterprises help those in need – all whilst supporting the recovery and resilience of the European economy.”

 

‘Buy social’ drive

The report comes amidst a “buy social” drive among corporations. In the UK, Social Enterprise UK’s Buy Social Corporate challenge has led 30 big businesses to collectively spend £250m with social enterprises over six years.

The researchers call for more big companies to adopt social procurement – estimating that Fortune 500 companies could spend nearly US$8tn buying goods and services from social enterprises each year.

Governments arePortrait of Tiffany Bennett also key clients for social enterprises: 29% of respondents said delivery of public contracts was one of their main sources of income.

“Business-to-government social procurement also presents valuable opportunities for social enterprises, particularly with public policies increasingly being adapted to favour social procurement,” researchers write in the report.

“There's a really strong interest in growing and accessing new markets in this area around social procurement,” Tiffany Bennett (pictured), research and knowledge management associate at Euclid and a co-author of the report, told Pioneers Post. However, she added that there was a need for more support, such as matchmaking between conventional firms and social enterprises and more tailored public procurement opportunities for social enterprises.

There's a really strong interest in growing and accessing new markets in this area around social procurement

 

Funding gap

Access to finance appears as one of the main barriers to the operations and development of social enterprises. Very few are seeking impact investment and the complexity of EU funding is a big hurdle.

Social enterprises say they lack options to finance the organisation once started (40%), they experience lack of finance to start an organisation (28%) and they lack patient capital (35%).

On average those surveyed generate 60% of their income from trading activities, and 40% from non-trading activities. 

The study estimates social enterprises, on average, were only able to secure funding to meet 61% of their financial needs over the past year – leaving 39% of social enterprises’ financial meets unmet. This is a “highly problematic” figure that shows social enterprises need more support to apply for and secure finance when they need it, according to the researchers.

It’s really important to look at the potential connections between these barriers that have the potential to exacerbate one another

When it comes to using public finance, 37% say the process is too complex. In particular, the complexity and timeliness of EU funding applications is mentioned as a main barrier for 46% of social enterprises that have never applied for European funding.

Private investment comes low in the list of main funding sources targeted by social enterprises. When looking for funding, 44% prefer public financing, using their own cash flow (41%) or savings (39%) followed by donations, foundation funding and help from family and friends. Just 15% have applied for a bank loan, and only 6% sought impact investment.

Bennett said the relatively low presence of private investment could be connected to the lack of understanding of the social enterprise model by investors – reported as a barrier by 38% of social enterprises surveyed. 

“It’s really important to look at the potential connections between these barriers that have the potential to exacerbate one another and amplify these challenges,” Bennett added. 

 

Vulnerability

Social enterprises surveyed tend to report short financial-term financial security – with nearly half having six months or less of “safe financial planning”. Three quarters of respondents reported having safe financial planning for less than a year.

“The EU averages for length of financial planning among [surveyed social enterprises] indicate a general sense of insecurity,” the report says.

In terms of the planning horizon, the situation does look quite serious

This could put social enterprises in a vulnerable position in the face of the upcoming recession. “If you look at the very short financial stability, in terms of the planning horizon, in combination with all of the financial barriers, the situation does look quite serious,” Bennett said, but noted that social enterprises had proved very resilient during the Covid-19 pandemic.

 

Lack of political support

As in last year’s survey, social enterprises expressed discontent with the political support available to them. On average, respondents rank the level of political support for social entrepreneurship in their country at 33 out of 100, and more than one third say that there is a problematic lack of public support schemes. 

This highlights the scale of the challenge that awaits the European Commission’s Social Economy Action Plan, launched nearly a year ago with an aim to promote the social economy. 

The success of the action plan will, however, depend on how individual EU states adopt and implement the plan, Bennett points out, as it’s up to them to decide how they want to implement it, and it will need to be done “in consultation with support organisations and social enterprises themselves wherever possible”.

Nicolas Schmit - Commissioner for Jobs and Social Rights

Above: European commissioner Nicolas Schmit at the launch of the Social Economy Action Plan in Dcember 2021
 

Social enterprises in Europe 2022

  • Six out of 10 social enterprises are less than 10 years old
  • 95% are small to medium sized enterprises
  • Social enterprises are growing: 44% report increased revenue over the previous year 
  • Social enterprises are optimistic about the future: 56% expect to increase turnover in the next year
  • They are diverse, operating across all economic sectors and having an impact across all 17 UN Social Development Goals
  • Social enterprises are more likely to have women in their management teams
  • 86% distribute, reinvest or donate their profits mainly or exclusively for the social purpose of their organisation
  • 58% of respondents currently measure their impact, and 28% are planning to do so in the future

Source: European Social Enterprise Monitor: The State of Social Enterprise in Europe 2021-22

 

True picture

The broad findings of the report are consistent with the first edition of the monitor, published in May 2021, which surveyed 930 social enterprises across nine European countries, and results mirror similar findings elsewhere in the world, for example from British Council research.

Bennett said the fact that findings aligned with previous research was a positive thing.

“This seems to indicate that we are uncovering some true characteristics about social enterprises, and really getting an understanding of the widespread challenges, needs and opportunities that they face,” she added. “The better understanding of these challenges, the more targeted and effective solutions we can develop to combat them.” 

Bennett said it was remarkable to find “so much consistency” across the European countries in terms of broad themes – in terms of the barriers that social enterprises in different countries face, the sectors that they work in or the types of financing that they seek, for example. 

“It shows the connections between these different social enterprise models across countries, even though they do take a variety of forms and adaptations in different countries and different contexts,” Bennett said.

 

Top picture: Tiffany Bennett of Euclid Network presenting the report at ImpactFest on 15 November 2022

Thanks for reading Pioneers Post. As an entrepreneur or investor yourself, you'll know that producing quality work doesn't come free. We rely on our subscribers to sustain our journalism – so if you think it's worth having an independent, specialist media platform that covers social enterprise stories, please consider subscribing. You'll also be buying social: Pioneers Post is a social enterprise itself, reinvesting all our profits into helping you do good business, better.