Companies are increasingly looking to maximise their positive social impact by offering their business skills to for-profit social enterprises (SEs) – and early returns have achieved strong results.
Corporations, both globally and within Asia Pacific, have been strategically increasing their corporate social responsibility (CSR) efforts in an attempt to create tangible and long-lasting benefit to the environment, communities and other social stakeholders. This frequently includes offering donations and volunteer time to non-government organisations (NGOs) and charities.
However, “Working with a social enterprise is such a great opportunity for a business,” said Steven Okun, Head of Public Affairs at KKR Asia, at the SharingValueAsia summit on October 9 in Singapore.
“A social enterprise is a for-profit business that puts a social return first and its financial return second. It gives you the ability to take what you do every day as a business and transfer that to a social entrepreneur with a mission to generate a social return as well as a financial one.”
SEs have a distinct role to play in developing markets: they are a vehicle for social change, and often fill a void left by the public sector by catering to marginalised demographics. They are companies that go above and beyond the social mission of other for-profits by not just offering jobs to workers in an impoverished community, for example, but also enhancing inclusion, focusing on eco-sensitivities and offering targeted social services. They differ from NGOs and other non-profits because they are revenue-generating, and investors into these companies expect a financial return in addition to a social return.
These differences make SEs desirable partners. They are self-sufficient and do not depend on infrequent grants and charitable handouts, which creates a positive multiplier effect. The greater the business’ growth, the more jobs a company can create, the greater access to social services they provide, and the greater opportunity their employees and their families have to rise out of poverty.
“In some ways working with a social enterprise is an easier collaboration as businesses are effectively working with other businesses to serve a social mission. But at the end of the day, a social enterprise is a business, so many services or skillsets that many of us in the business community have can very effectively meet the needs of social enterprises,” said Rob Kraybill, Managing Director of Impact Investment Exchange (IIX), which connects social enterprises (SEs) with mission-aligned investment.
“Social enterprises are typically looking for investors, rather than grants.”
However, becoming self-sustainable is a challenge. SEs are businesses that maximise improvements in human and environmental well-being, yet many of their founders lack the scale, financial savvy and management know-how to fulfil their growth potential, which stunts their social impact despite the very best intentions. Many SEs seek third-party funding (from impact investors or angel investors) to help finance their business growth, yet without a commanding knowledge of financial housekeeping, many approach investors before becoming “investment ready” – meaning they are prematurely approaching investors who would otherwise be interested to extend financing.
This is where corporations, which bring deep technical knowledge to the table, can help.
One example of a technical assistance project that has had a multiplying positive impact is East Bali Cashews (EBC), an SE which is the first large-scale cashew processing facility in Bali. EBC uses sustainable, eco-friendly business practices to process unshelled cashews, package and sell them to the domestic and international markets.
It was founded by American entrepreneur Aaron Fishman, who saw an opportunity for villagers to process and package locally grown cashews in Bali, rather than export the nuts overseas for production. This created steady employment in a community where per capita income was US$2 per day, specifically targeting women from farmer households. Most of these women are illiterate and have never held formal, salaried employment. In 2013, Fishman partnered with IIX and KKR to receive technical assistance to scale its cashew production and hire more villagers. Members of KKR’s private equity team met with EBC’s team on a pro bono basis to develop a financial model and business plan, assess the appropriate capital structure and liquidity requirements for the business and create an investment structure for new funds, which enabled the company to raise US$900,000 and expand its operations.
This new funding and the improvements enabled EBC to create nearly 100 new jobs by December 2013, which not only supports EBC workers and their families with steady employment, but also gives them access to critical social services. Now, 90% of EBC’s approximately 200 workers are women. The goodwill proliferated in 2014. Fishman, his wife and members of the EBC’s board found that, in providing women with job opportunities, it was also necessary to give these employees an opportunity to continue their work without concern for child care. This led them to expand their impact on the community by launching an early learning center, called AnaKardia Kids. AnaKardia Kids fills an important gap within the community by providing children with a pre-elementary school education for the first time. This is a key tool to put village students ahead of the curve as they enter the formal school system.
Brian Rogove, CEO, Asia Pacific, of Cognita Schools – a private school operator owned by KKR globally – heard about EBC. He saw an opportunity for Singapore-based Cognita teachers to volunteer their time to teach new AnaKardia Kids teachers and provide lesson plans. Teachers and parents at Cognita schools also donated equipment for the new site.
“We’ve done a lot of CSR both in terms of a corporate level and each individual school. Sometimes that’s simply volunteering time, sometimes that writing a cheque and sometimes that’s raising funds,” Brian Rogove, CEO, of Cognita Asia Pacific, said on the panel. “We’ve done a lot of work at a local level with some NGOs, but when we learned about his opportunity we thought, ‘this is our business – operating schools and training teachers is an expertise that we can provide…it seemed like a logical thing to do. The easiest thing would be to write a cheque but this was a pretty interesting project to get involved with.”
Following EBC’s successful fundraise, expert networking firm GLG saw further opportunities. The company was in the process of launching its GLG Social Impact Fellows, a year-long program connecting leading nonprofits with GLG’s teaching membership of over 375,000 subject-matter experts. Yet in witnessing EBC’s impact on its community, members of GLG broadened the scope of the Fellowship to include social enterprises into the program. EBC is now part of the first class of the GLG Fellowship.
“East Bali Cashews is a special case for us because we have 11 NGOs and one social enterprise,” said Kevin Legg, Managing Director of GLG in Singapore. “We’ve learned a lot from this experience… We’ve had to migrate what the goal is and our definition of what an expert is [to cater to an SE]. This project has a five starts for us – including a social enterprise into the Fellowship has a big thumbs up.”
The successful partnership between EBC, KKR, IIX, GLG and Cognita underscores that corporations, many of which are already interested in charitable giving and volunteerism, can maximise their impacts. If companies’ skills can be leveraged to assist socially responsible businesses to become self-reliant, it’s possible to have an even greater impact than if the firm were to make a one-off charitable donation. This would not only help society at large, but it could also serve as a model for other corporates to follow, generating an even greater good.
Moreover, projects do not need to be a one-off experience: the successful partnership between KKR and EBC has given KKR the encouragement to embark on its second technical assistance program in the region. It is now working with Glovax, a Manila-based company that provides affordable vaccinations to the Philippines’ neediest patients. The goal is to leverage KKR’s experience working with global healthcare companies to help Glovax expand its distribution channels, raise much-needed capital and keep more of patients across the country healthy. “A social enterprise puts social returns first, but they also want a financial return and they need know how to unlock and deliver returns to their investors’ satisfaction,” said Okun.
“You have a lot of social enterprises out there and you’ve got a lot of money that wants to invest in them, through high-net-worth individuals, foundations or through family offices. But a lot of social enterprises aren’t investment ready. The big question is how do we get them ready, and many corporations have skills that can take them a step closer to reaching their goal.”