Social enterprises are businesses created to further a social purpose in a financially sustainable way. They make their money from selling goods and services in the open market, but profits are reinvested back into the business or community in pursuit of their social mission.
A growing number of organisations are looking to bring social enterprises into their supply chain. As the sector continues to evolve, procurement personnel require an effective means of evaluating the credentials of social enterprises that are competing for their business.
Below are the key questions that WildHearts recommends are asked during initial due diligence.
Who will I be trading with?
Suppliers are increasingly recognising the importance that their customers place on social value. This creates a risk that the ‘Social Enterprise’ label is hijacked by businesses that aren’t social enterprises but are keen to pretend they are.
A private business that operates in an ethical way is not a social enterprise. There is a clear and important distinction between trading with a ratified social enterprise and trading with an organisation operating a specific CSR programme or initiative. You should ensure that the supplier is not misrepresenting what they are or the nature of their social credentials.
How will my spend translate to meaningful social impact?
There are over 70,000 registered social enterprises in the UK, using a number of different legal forms and delivering impact in a diverse variety of ways.
Social Enterprise UK believes the majority (more than 50%) of a social enterprise’s profits should be reinvested to further its social mission. They consider this to be the clearest indicator that an organisation is not set up primarily for owner or shareholder value. Nevertheless, reinvesting profits alone does not necessarily equate to the creation of social value.
Is the supplier’s reporting sufficiently transparent?
Transparency is vital to maintaining confidence in the sector. Social enterprises should be able and willing to evidence not only that they are commercially sound, but that they are trading in a manner that is consistent with the creation of social value.
There may be legitimate commercial reasons why a social enterprise chooses to limit its public disclosures. Nonetheless, it is important to properly understand what these reasons are and to assess whether they are credible in the context of the nature and size of the organisation.
If a business is making claims in terms of the social value it delivers, we believe it is important that it chooses to hold itself to a higher standard of accountability.