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Social Businesses: A New Source of Sustainability Innovation

From GreenBiz, Published 2 December 2014

Businesses often turn to acquisitions to drive financial growth, but when it comes to partnerships designed to enable social impact, NGOs are often the go-to.

Last week's Global Social Business Summit held in Mexico City by Nobel Peace Prize winner Muhammad Yunus offered a potential middle ground to bridge the gap between growth and impact; social businesses that could prove valuable partners for corporate sustainability leaders.

According to Yunus’ Grameen Creative Lab, a social business is a non-dividend company created to solve a social problem. Like an NGO, it has a social mission. And like a business firm, it generates its own revenues to cover costs. All profits are then reinvested for growth and innovation, or to seed new social business ventures.

In support of my client FEMSA, Latin America's largest beverage company and one of the partners of this year's Global Social Business Summit, I got a glimpse of the potential of this model for financially-sustainable drivers of social impact. Social businesses deliver both social and environmental outcomes without requiring annual infusions of capital, sustaining themselves through their business models.

Carolina Alvear, FEMSA’s new Director of Sustainability, even compared the potential of social businesses to “outsourced R&D." And it's a field that is growing quickly.

The summit attracted over 700 attendees and opened with the Minister of Economy of Mexico and a plenary panel of no fewer than 12 CEOs and philanthropists (from FEMSA and CEMEX to Danone Waters to the heads of the Televisa and Siemens foundations). The message over the two days was that we need a new capitalism that truly delivers the social and environmental outcomes we need, and that social business can be a major contributor to building that new system.

There are already successful examples in the field, including the venture behind Yunus’ Nobel Peace Prize, Grameen Bank, which has reached over 8 million borrowers. About 97 percent of customers of the social business are women, and the company now counts some 2,500 branches in more than 80,000 villages.

Another example, Grameen Shakti, by 2012 introduced solar power to 1 million impoverished households in Bangladesh after its first 16 years in business. It will be to 2 million households by next year.

And then there are the newcomers to the social business scene, like Perfect Day. The German coffee house company sources directly from farmers in India, enabling a living wage and an affordable cup of joe. Up next: a program to source from farmers in Haiti.

I was fortunate to sit next to Christian Vanizette from the exciting platform Make Sense, which he and his co-founders started in France. The global Web service enables social entrepreneurs to succeed by connecting them to others that can help them. In three years, they’ve helped about 450 social entrepreneurs in 86 cities.

Finally, close to my heart, I learned about the Fundación Haciendas del Mundo Maya (Haciendas Foundation of the Mayan World), which is working with the Mayan communities in Mexico’s Yucatan to improve their economic station through jobs making goods from the ancient henequen plant. The crop was displaced by nylon used to make rope and hammocks, undermining the regional economy. Now, the communities get income from the sale of henequen plant products to fair-trade buyers.

Scouting social businesses

My favorite part of the social business summit was the Pecha Kucha session, where a series of new social entrepreneurs presented their pitches in the Pecha Kucha style using 20 slides shown for 20 seconds each. It kept the presentations fast-paced, and you had to be paying attention the whole time to be sure not to miss key information.

Three presenters – all of whom have committed to taking no dividends and who return 40-60 percent of revenues to workers – were particularly compelling:

  • 1. Team MyBo! is made up of students from Kyushu University in Kyoto, Japan. They saw the massive waste from their culture's reliance on vending machines – at their university alone, over 1 million drinks are consumed each year – and are now developing MyBo!, a drink refill vending system that will be cheaper than pre-packaged soda and track individual impact on the environment for each customer.
  • 2. I loved the style and heart of the Tee Hee Hee crew from Malaysia working to address poverty and waste. They take scrap fabric to employ single mothers in the poorest part of Malaysia’s capital city and make them into hip skirts, using market research to ensure their products will be purchased at the prices offered. This team seems like a perfect partner for a clothing retailer to help drive environmental and social impact with a sustainable revenue model that can scale beyond this first market.
  • 3. Finally, B Energy is bringing a mobile biogas energy solution to help the millions of women who continue to spend hours hunting for wood to use on inefficient and deadly stoves. This biogas backpack is only 10kg, and with it the entrepreneurs sell an efficient and cost-effective biogas stove to eliminate the use of wood. The businesses can be set up by single homeowners with access to biogas from livestock, or at a village scale where microfinancing enables customers to afford it. Directors in Ethiopia and Chile have already signed on to help franchisees in their regions.

While compelling on their own, I believe the scaled impact of social business will require several additional steps.

First, a sharing of lessons learned among the businesses themselves. Second, a central marketplace so that supportive consumers can drive their purchasing dollars toward these companies and their impact (similar to the B Corporations’ marketplace, B Corp Store). Third, companies will need investors who are willing to take on the inherent risk that accompanies startups, but without the potential upside of a big exit, or even profits – a sustainable revenue model with zero dividends. Fourth, there must be a supportive ecosystem to provide innovators a platform to develop their business ideas into models that can attract investment and enable long-term success.

FEMSA, a $19 billion company and Coca-Cola’s largest bottler in the world, focuses on the fourth pillar.

Headquartered in Mexico and operating in 10 Latin American countries and the Philippines, FEMSA has invested in a 386MW wind farm for its manufacturing needs. Corporate water funds have been set up to restore watersheds that serve as a source for FEMSA beverage products. The company has also initiated local food sourcing for its chain of Oxxo convenience stores.

At the macro level, however, many emerging economies still struggle with meeting demand for economic opportunity and social services, which results in instability. Supporting social business creation helps create jobs and hope for young people while delivering social impact.

I left the GSBS hopeful for many reasons, primarily because there are so many young, creative, smart, hard-working innovators dedicated to making the world a better place by using new models that are self-sustaining – and potentially scalable and replicable.

Through partnerships with major corporations who have the capital, infrastructure and relationships to help them, this can grow to reach material impact. I can’t wait to see what has been learned by the 2015 summit, which will be held in November 2015 in the dynamic city of Berlin.

For additional reading regarding sustainable brands and companies, please refer to the following links:

How the Retail Industry is Adapting to the Sustainability Agenda
Sustainability Trends Impacting Firms Across Industries
Constructing Sustainable Business Models