Social Enterprises: How Ethical Choices Are Driving Consumers
The UK alone has over 100,000 businesses and organisations registered as social enterprises. Being a part of such a large network has obvious inherent benefits; social enterprises have a tendency to work together in support of their social and ethical commitments.
But beyond synergy between companies, consumers are also becoming more and more socially aware and ethical consumerism is on the rise. The source, background, production and sustainability of products and suppliers are becoming just as important as price, image and branding, especially to certain consumer demographics.
What is a Social Enterprise?
A social enterprise is broadly defined as a business that tries to maximise the amount of social good it creates, balanced against its financial goals. This is in contrast to an ‘ethical business,’ a similar term that refers to a business that tries to minimise its negative impact on society or the environment. Some big-name examples of social enterprises include The Big Issue, a street newspaper that directly benefits the homeless, Cafédirect, a Fairtrade hot drinks company and Elvis & Kresse, a luggage company that repurposes industrial waste products.
Not every business will be able to qualify as a social enterprise. Some may be able to adapt with some minor changes while others will be built from the ground up to fit the model. The first and most obvious stipulation in order to qualify is that the business needs to have a clear social and/or environmental mission. This mission needs to be set out in the business’ governing documents. The business should also generate the majority of their income through trade, and reinvest the majority of their profits.
The Benefits of Social Cooperation
Entrepreneurs may find that there are avenues for financing a registered social enterprise that are not open to other types of business. A number of grants and investment providers are available either primarily or exclusively to social enterprises. The UK government alone has announced a number of grants for specific community, social and environmental goals, including £750 million in response to the COVID-19 pandemic.
Anyone looking to start a new business will also find certain investors more willing to support social enterprises, such as the Esmée Fairbairn Foundation and Good Finance. These ‘social investments’ are loans whereby the investor expects the money to be repaid and usually with interest. However, the interest rates on social investments are often considerably more favourable than rates on business loans from regular banks.
There is also a level of synergy and cooperation between social enterprises and socially aware businesses. Social Enterprise UK maintains a directory to help these companies find registered businesses. Likewise, directories such as the Social Enterprise Alliance and Social Enterprise Mark CIC maintain business directories exclusively catering to social enterprises.
For the reasons outlined above, many large companies can’t be considered actual social enterprises themselves. However, many of these companies still make social or environmental commitments. One of the ways that these companies reach these commitments is by using registered social enterprises as suppliers or service providers. The UK’s Buy Social Corporate Challenge is encouraging companies to collectively spend £1 billion with social enterprises through their procurement. Some examples of companies that actively support social enterprises include: IKEA, who actively encourage their stores around the world to establish partnerships with local social entrepreneurs; eBay, who set up a dedicated shop front for social enterprises in February 2021; and Barclays, who provide mentoring to social enterprises across the UK.
Ethical Spend at a Record High
Beyond financing and cooperation between businesses, ethical considerations have a direct impact on consumer behaviour and spending. The Ethical Consumer Markets Report shows that, in 2019, ethical consumer spending in the UK reached a record high of £98bn and that the trend is only continuing to rise. Despite the negative effect that the COVID-19 pandemic has had on many economies, consumers continue to look for ethical and environmental alternatives.
Comparing pre-pandemic statistics to today, an additional 15% of consumers now look for products that reduce energy consumption, an additional 19% look for reduced plastic, and an additional 12% try to buy Fairtrade imported goods. This indicates that ethical consumerism is based on social rather than economic trends.
The type of product and target demographic also have an impact on ethical spending. Consumers are more likely to make ethical choices when it comes to food and drinks (Fairtrade, organic, sustainable) and ‘green’ housewares (energy-efficient appliances and light bulbs, reusable products) than they are for other products such as clothing and cosmetics. While men and women seem to be equally likely to make ethical choices, there is a marked difference between age groups. Consumers over 65 years of age are the least likely to make purchasing decisions based on ethical concerns, while perhaps, unsurprisingly, Generation Z and Millennials are the most likely to be ethical consumers. A 2015 survey showed that 42% of consumers aged 18-34 would be prepared to pay a premium for products they consider to be ethically manufactured or sourced.
A Trend 32 Years in the Making
The Ethical Consumer has been tracking this sector of the market since 1989 and the trend is very clear. Not only do more and more companies make social and environmental commitments, but consumers are also making choices that are increasingly influenced by ethical considerations.
There are myriad benefits to operating as a registered social enterprise, and these benefits would seem to be only increasing over time. While not every business can be a social enterprise itself, there are still opportunities to reap these benefits. By supporting and collaborating with registered social enterprises, companies can work to meet their own social and environmental commitments and show that they give ethical business practices the same importance that their customers do.
This article was created by Mediareach Advertising, a leading London-based marketing agency.