The clearest definition of social enterprise in the UK is given by the British Council:
“Social enterprises are businesses which trade in order to address social and environmental problems. They generate income like other businesses, but reinvest all or most of their profits into their social mission. They create jobs, reduce inequalities and are accountable for their actions, bringing together the entrepreneurial skills of the private sector and the values of public service.”
British Council: https://www.britishcouncil.org/society/social-enterprise
The accepted Government-backed definition of social enterprise used by the UK social enterprise sector bodies such as Social Enterprise UK and Social Enterprise Mark CIC comes from the 2002 Department of Trade and Industry report 'Social Enterprise: a strategy for success' report as:
“A business with primarily social objectives whose surpluses are principally reinvested for that purpose”.
The G8 Social Impact Investment Taskforce (https://www.gov.uk/government/groups/social-impact-investment-taskforce) has published reports that have dramatically advanced the development of a global social economy. The Social Impact Investment Taskforce was announced by Prime Minister David Cameron at the G8 Social Impact Investment Forum in June 2013. It aimed to catalyze the development of the social impact investment market.
The term "social enterprise" has been in use since the 1970s.
The original concept of social enterprise was first developed by Freer Spreckley in 1978, and later included in a publication called Social Audit – A Management Tool for Co-operative Working published in 1981 by Beechwood College (http://www.locallivelihoods.com/cmsms/uploads/PDFs/Social%20Audit%20-%20A%20Management%20Tool.pdf). Twenty years later Spreckley and Cliff Southcombe established the first specialist support organisation in the UK Social Enterprise Partnership Ltd. in March 1997.
In the original publication the term social enterprise was developed to describe an organisation that uses Social Audit. Freer went on to describe a social enterprise as:
“An enterprise that is owned by those who work in it and/or reside in a given locality, is governed by registered social as well as commercial aims and objectives and run co-operatively may be termed a social enterprise. Traditionally, 'capital hires labour' with the overriding emphasis on making a 'profit' over and above any benefit either to the business itself or the workforce. Contrasted to this is the social enterprise where 'labour hires capital' with the emphasis on social, environmental and financial benefit.”
The term "social investment" is used in the UK since the 1990s. Most UK-based studies contain the term in combination with terms such as "impact entrepreneur", "impact investment", "social impact investment" and many tortured derivations thereof.
II. Characteristics
Three common characteristics of social enterprises as defined by Social Enterprise London (Established in 1998, Social Enterprise London (SEL) is the strategic agency for the development of social enterprise, working with individuals, enterprises, organisations, government and other statutory bodies to provide enterprising solutions to social and environmental challenges and to create new ways of doing business. https://www.sel.org.uk) are:
· Enterprise orientation: They are directly involved in producing goods or providing services to a market. They seek to be viable trading organisations, with an operating surplus.
· Social Aims: They have explicit social aims such as job creation, training or the provision of local services. They have ethical values including a commitment to local capacity building, and they are accountable to their members and the wider community for their social environmental and economic impact.
· Social ownership: They are autonomous organisations with governance and ownership structures based on participation by stakeholder groups (users or clients, local community groups etc.) or by trustees. Profits are distributed as profit sharing to stakeholders or used for the benefit of the community.
The three areas of social, environmental and financial benefits used for measuring social enterprise became known as the Triple Bottom Line. The term was coined by John Elkington in 1994.
The Triple Bottom Line (or otherwise noted as TBL or 3BL) is an accounting framework with three parts: social, environmental (or ecological) and financial. Many organizations have adopted the TBL framework to evaluate their performance in a broader perspective to create greater business value.
The triple bottom line consists of social equity, economic, and environmental factors. The phrase, "people, planet, and profit" to describe the triple bottom line and the goal of sustainability, was coined by John Elkington in 1994 while at Sustain Ability (Elkington, John (1999). Cannibals with forks : the triple bottom line of 21. century business. Oxford: Capstone. ISBN 9780865713925. OCLC 963459936: https://www.worldcat.org/title/cannibals-with-forks-the-triple-bottom-line-of-21-century-business/oclc/963459936), and was later used as the title of the Anglo-Dutch oil company Shell's first sustainability report in 1997. As a result, one country in which the 3P concept took deep root was The Netherlands.
People, the social equity bottom line
The people, social equity, or human capital bottom line pertains to fair and beneficial business practices toward labour and the community and region in which a corporation conducts its business. A TBL company conceives a reciprocal social structure in which the well-being of corporate, labour and other stakeholder interests are interdependent.
Planet, the environmental bottom line
The planet, environmental bottom line, or natural capital bottom line refers to sustainable environmental practices. A TBL company endeavors to benefit the natural order as much as possible or at the least do no harm and minimize environmental impact. A TBL endeavor reduces its ecological footprint by, among other things, carefully managing its consumption of energy and non-renewables and reducing manufacturing waste as well as rendering waste less toxic before disposing of it in a safe and legal manner. "Cradle to grave" is uppermost in the thoughts of TBL manufacturing businesses, which typically conduct a life cycle assessment of products to determine what the true environmental cost is from the growth and harvesting of raw materials to manufacture to distribution to eventual disposal by the end user.
Profit, the economic bottom line
The profit or economic bottom line deals with the economic value created by the organization after deducting the cost of all inputs, including the cost of the capital tied up. It therefore differs from traditional accounting definitions of profit. In the original concept, within a sustainability framework, the "profit" aspect needs to be seen as the real economic benefit enjoyed by the host society. It is the real economic impact the organization has on its economic environment. This is often confused to be limited to the internal profit made by a company or organization (which nevertheless remains an essential starting point for the computation). Therefore, an original TBL approach cannot be interpreted as simply traditional corporate accounting profit plus social and environmental impacts unless the "profits" of other entities are included as a social benefit.
III. The British context
According to figures in the UK’s State of Social Enterprise Report 2015 (https://www.socialenterprise.org.uk/state-of-social-enterprise-report-2015), the most comprehensive research undertaken into the state of the sector, the social enterprise export market in Britain is growing. The number of social enterprises that export goods or services grew to 14% in 2015. This is more than the 11% of UK businesses that export regularly.
The report shows that social enterprises in the UK are thriving, outperforming their mainstream SME counterparts in nearly every area of business: turnover growth, workforce growth, job creation, innovation, business optimism, and start-up rates.
Key Statistics from the State of Social Enterprise Report
· A dynamic movement: Close to half (49%) of all social enterprises are five years old or less. 35% are three years old or less – more than three times the proportion of SME start-ups. In terms of new business formation in the UK, social enterprise is where the action is.
· At the forefront of economic recovery: The proportion of social enterprises that grew their turnover over the past 12 months is 52%. A greater proportion of social enterprises are growing than mainstream SMEs (40%).
· Making a profit, making a difference: 50% of social enterprises reported a profit, with 26% breaking even. Almost all use the majority of those profits to further their social or environmental goals.
· Focused where most needed: 31% of social enterprises are working in the top 20% most deprived communities in the UK.
· Operating globally: The proportion of social enterprises that export or license has grown to 14%. For over 1⁄3 of these, international trade accounts for between 11% and 50% of income.
· It’s all about business: 73% of social enterprises earn more than 75% of their income from trade.
· Stronger than ever in public services: 27% of social enterprises have the public sector as their main source of income, an increase on 2013 and 2011. 59% of social enterprises do some business with the public sector.
· Innovation pioneers: The number of social enterprises introducing a new product or service in the last 12 months has increased to 59%. Among SMEs it has fallen to 38%.
· An inclusive and diverse leadership: 40% of social enterprises are led by women; 31% have Black Asian Minority Ethnic directors; 40% have a director with a disability.
· Job creators: 41% of social enterprises created jobs in the past 12 months compared to 22% of SMEs.
· Not just any jobs: 59% of social enterprises employ at least one person who is disadvantaged in the labour market. For 16% of social enterprises, this group forms at least half of all employees.
· Paying fair: The average pay ratio between social enterprise CEO pay and the lowest paid is just 3.6:1 – for FTSE 100 CEOs, this ratio stands at 150:1.
· Not getting in on the Act: 49% of social enterprises operating in public sector markets say they’re yet to see it arrive in tender documents – there is much to do before the Social Value Act works as intended.
· Appropriate funding and finance still key: 44% of social enterprises sought funding or finance in the last 12 months and 39% believe its lack of availability is a barrier to their sustainability. Just 5% of SMEs think access to finance is a barrier.
