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Feb 21, 2018

ESG is not Social Enterprise

Talking about social enterprise and social impact is getting confusing because the words are being used to apply to any business that is good. I love good businesses: but I prefer referring to them as socially responsible, conscious capitalist, sustainable, or ESG (environmental, social, governance). These terms refer to companies that try to assist their communities or at least do no harm.  Unfortunately, the large investment houses hope to gain more business by launching “impact” funds, but those funds don’t invest in social enterprises. Rather, they limit their investments to publicly-traded ESG companies—and Morningstar reinforces that by naming its ESG review program a “sustainable investing” program.

Everyone has their own definition of social enterprise but the definitions I prefer are ones that recognize the TREMENDOUS DIFFICULTY of maintaining a viable business AND incurring the financial costs of creating social impact. On the homepage of our website we define social enterprises as  businesses that intentionally integrate social impact as a non-negotiable component of their business model through the people they employ or the social missions they support.

Non-negotiable means that the social impact ALWAYS is created. Profits that are transferred to charities only when the business has a good quarter is not what social enterprises do. Hiring a disabled, formerly incarcerated, or formerly trafficked individual when they can fit into the workflow is not what social enterprises do. Social enterprises ALWAYS transfer profits or they ALWAYS hire these challenging folks.  

Similarly impact investing is investing in a company that ALWAYS creates an impact that is separate from its product or service.  A company that recycles or creates alternative energy or provides healthcare is socially responsible but creating social impact means more.  It means that, on top of creating their product, they are producing an additional, meaningful, significant impact.  

Yes, a social enterprise has two value propositions:  its product or service and its social impact.  

So when a company says it is a social enterprise—or when an investment company says it is an impact fund—push them about the two value propositions and how non-negotiable is the creation of that social, second value proposition. You may find these terms have been degraded to mean only “responsible” companies and investments. That is good—but it doesn’t merit being called a social enterprise or impact investing.

Want to know some true social enterprises? Browse our online marketplace listing of Central Ohio’s over-100 real social enterprises. And follow our progress on Facebook,  Twitter, and LinkedIn in our partnership with the Better Business Bureau to create a program where you can be sure the company you buy from is a social enterprise and is truly creating the social impact they claim.

Allen Proctor, President & CEO
SocialVentures