Building Impactful Corporate Supply Chains

As the case has been made for working towards the Sustainable Development Goals, a necessary ingredient to success is ecosystem-wide collaboration. But collaboration between various stakeholders is no easy task – it requires more than just a shared goal, but a concrete strategy to get there. Social procurement can play a powerful role here, not only because it can leverage corporate buying power to scale impact, but also because it offers a shared value model which can apply to social businesses, corporations, and investors. 

According to the Social Procurement Manual, social procurement is the practice of corporations buying goods and/or services from social businesses, with the intention of creating social and/or environmental impact through their corporate procurement function. It is a growing global movement that enables companies to drive impact through their daily operations, going beyond the “do no harm” mentality and into the “deliver value” approach. 

While the relevance of social procurement to social businesses and corporations may seem clear, what is the relevance of social procurement to corporate social investors including corporate foundations, impact funds, and accelerators?

• Social procurement can be a way for investors to safeguard their social business investments. If a social business has an outstanding purchase order from a corporate partner, that social business is likely to be in a position of financial stability. By creating opportunities for social businesses to sell to corporations, investors can actively strengthen the financial health of the social businesses. As a result, they can exit their investment knowing that the impact is assured, thanks to the financial self-reliance of the social enterprise through social procurement.
• For corporate investors, social procurement can be a way to nurture future suppliers for their parent company’s direct, indirect or services value chain. This is the idea behind IKEA Social Entrepreneurship’s partnership with Yunus Social Business in improving the working conditions and livelihoods of informal waste workers in India. This investment fund, which includes technical assistance and capacity-building for social businesses working in the waste sector, takes a long-term view in contributing to IKEA’s ambition to become fully circular and climate positive by 2030.

During the EVPA session, we discussed the different ways that investors can play an active role in moving social procurement forward as a collaborative strategy to scale impact. The role that investors can play can be distilled into two main pathways:

1. Innovative financing - Across all markets, a lack of financing opportunities represents a challenge for social business growth. Investors can play a role in unlocking working or growth capital for social businesses, particularly if there is the security of a corporate purchase order in the equation. Another way of ensuring that a social enterprise reaches maturity is by providing support across the continuum of capital, depending on the development stage of the investee. Take for example Rabobank, its philanthropic vehicle Rabo Foundation and its impact investing arm Rabo Rural Fund. While the Rabo Foundation supports early-stage farmer cooperatives in developing countries by means of low interest credit, the Rabo Rural Fund can provide them with the next step financing during their pre-commercial phase, before they can become eligible for ‘normal’ financial loans from local partner banks of Rabobank or other local commercial lenders.
2. Non-financial support - While most impact investors already offer non-financial support to their portfolio companies, this non-financial support is often geared towards general business growth, for example with marketing or legal training. To actively enable the growth of social procurement, investors can help social businesses become “corporate-ready” by specifically supporting social businesses with corporate supplier onboarding processes, or by making network connections between social entrepreneurs and corporate procurement managers. Corporate social investors are uniquely positioned to provide this kind of support. They not only provide access to their related company’s expertise, assets and networks, but they can also create an entry point to the relevant business functions, i.e., procurement. During the discussion, Neven Marionovic, President of Euclid Network, shared an overview of the status quo, challenges and sentiments that about 2,000 of Europe’s social enterprises have towards social procurement based on the 2022 European Social Enterprise Monitor. 

Although social procurement provides a win-win situation for all stakeholders involved, it remains an emerging movement that has yet to penetrate into mainstream business practices. One reason for this is that most corporate senior management still require some convincing to rethink their traditional procurement practices. In this case, corporate social investors can use their leverage from within the company to highlight the cross-functional benefits that working with social businesses can bring. With IKEA Social Entrepreneurship for example, working with social businesses through their waste fund not only creates the opportunity for real impact creation, it also enables IKEA to acquire in-depth knowledge about the waste value chain and how to innovate within it - benefits that cross over from the corporate social investor function, to procurement, to research & development. In these ways, social procurement can be an effective key to ecosystem-wide collaboration towards the SDGs and corporate social investors can play a vital role in accelerating the movement. 
     
Interested in learning more about the topic? Reach out to Jo Bautista (Yunus Social Business) and Nicolas Malmendier (EVPA).