By definition, social procurement leverages the purchasing power of companies to achieve broader social impact objectives. It goes beyond responsible sourcing which integrates and manages ESG criteria into the procurement process. Instead, it focuses on buying goods, materials, or services from social businesses with the explicit intention to create net positive impact.
Why is that relevant?
The World Bank estimates that 150 million people have fallen back into poverty during COVID – roughly the same number of people that escaped poverty in the eight years between 2012 and 2019. Recent social unrests in Colombia, South Africa and Tunisia demonstrate an increasing sentiment that our current economic model is not serving society and calls for drastic improvements. This pressure and the increasingly apparent business case for action are why companies are starting to prioritize environmental sustainability and social impact in their supply chain strategy. In fact, 86% of supply chain leaders mention that sustainability is a competitive differentiator. But many companies struggle to overcome the ‘compliance’ trap that limits their activities on risk management and prohibits long-term value capture. Instead, companies need to move up the “supply chain sustainability ladder” and gain an understanding of how they can drive positive impact for the company, planet and society.
Benefits of Social Procurement
Companies are increasingly feeling the advantages (and pressures) to become more environmentally and socially sustainable. The number of corporate climate pledges has doubled in 2020. CFOs are facing increasing pressure from investors to act on those pledges and improve their ESG ratings. But as outlined above, many companies struggle to put these pledges into action. That is where social procurement and its relentless focus on impact-first value creation provides an important tool in a company’s toolbox to innovate for inclusion and sustainability. Yunus Social Business (YSB) has conducted soon-to-be-launched research with the support of Porticus to understand exactly how companies benefit and why there is a business rationale for buying from social businesses.
One key finding was that social businesses are increasingly competitive. 86% of supply chain managers find social businesses to be competitive on quality and 64% on price – while adding a range of non-financial benefits to the company and its employees. In fact, over 80% of companies report a significant positive impact on employee engagement and 85% report that social procurement informs their supply chain practices through innovation and mindset shift.
Therefore, it is no surprise that significant companies are leading the front by committing to social procurement. For example, SAP announced it will be sourcing 5% of its volume through social businesses by 2025. The question is, how even more companies can be motivated to engage in social procurement. Therefore, YSB’s research also focused on key motivating factors for companies. The answers vary by industry, the core purpose of the company as well as the maturity of their social and environmental commitment and its ability to be linked to the business. Out of all these drivers, five core reasons have been identified.
Follow the company’s core values, purpose, and culture
Answer customer demand for socially sourced products and services, that create brand differentiation for the company
Develop new business, distribution, or innovation models in collaboration with social enterprises
Reach the company’s Environmental, Social and Governance and / or sustainability targets
Respond to the rising awareness and public concern about sustainability and inclusivity of global supply chains
|The main driver was a desire to authentically live our purpose as an organisation. Lots of businesses run around and talk about organisational purpose but we wanted to find a way to express that purpose beyond cutting a check to a charity. We wanted to embed a mechanism to address some of the greatest challenges in the world into our existing business model.”
Tim Coldwell President at Chandos Construction
|Ultimately, any of our competitors can build a great office, school, or leisure centre. But it’s on the topic of social value where we are able to differentiate: how is your school building going to create a legacy? It’s how you’re going to engage the young people and the community there? That is what can make your proposal stand out. And I think it’s a differentiator in the construction sector.
Group Community Investment Manager, Wates
|When it comes to innovation, there’s not only one system, it’s not only technical innovation. There is a different way of doing business overall, such as partnering more, relying more on external parties, collaborating more. And to me the relationship between Terracycle and Suez is a good example and business case of it. But it’s a different way of doing business and getting out of the comfort zone of only supply/customer.
Margaux Luc Senior Partnerships & Project Development Manager at Suez
|When we created our sustainability strategy, we looked deeper into growing inequalities, to see how we could support vulnerable and marginalised people. Above and beyond the work that the IKEA Foundation is doing, we wanted to know what we could do that is embedded in our core business. This is why we started eight years ago to test doing business with social businesses and social entrepreneurs.
Åsa Skogström Feldt
Managing Director, IKEA Social Entrepreneurship
|COVID has acted as a push towards the topic of social sourcing. Today, people had an experience of products running out of stock – such as toilet paper. So I think there is a more general understanding of the relevance of supply chains, especially with this whole rhetoric around building back better and building back differently. People are actually starting to wonder what this means for the products they are buying.”
Elizabeth Chick-Blount Executive Director at Buy Social Canada
A maturing sector.
Right now, this momentum is owed to a few corporate leaders paving the way through concrete commitments for social procurement – already creating a revenue opportunity for social businesses worth billions of USD each year. On the other hand, this demand for social procurement is met by an increasingly mature sector: Intermediaries are offering specific non-financial support for social procurement, impact investing provides ever-increasing access to finance for mission-driven entrepreneurs and social businesses themselves are becoming more and more competitive on price, volume and quality. Inspiring initiatives like the COVID Response Alliance for Social Entrepreneurs at the World Economic Forum have brought together diverse groups of companies, intermediaries and experts. Such cross-sector initiatives will further contribute to the development of the ecosystem.