On 3 October, the United States Department of Veterans Affairs launched a Social Impact Bond...
Social Business: the intersection of Ethics, Innovation, Social Impact, Entrepreneurship and Profitability
Social business is an alternative business model which prioritizes a positive impact on society or the environment over profit targets. It is an innovative and dynamic concept, the growth of which is linked to new financing methods. We review the origins, current state and future perspectives of social business.
A hybrid business model
Social business promises to breathe new life into the economy by prioritizing human beings as the central business concern rather than profits.
Notably promoted by Muhammad Yunus, the 2006 Nobel Peace Prize laureate and pioneer of microcredit, social businesses aim to provide solutions to social and environmental issues, all while being economically sustainable, regardless of their legal status (non-profit organizations, cooperatives, companies…).
To square this circle, social businesses cover their costs and sometimes generate profits, which are then reinvested. They do not, however, seek to maximize profits for redistribution as dividends but rather to develop their actions and support their beneficiaries. For investors or lenders, the success of a social business is therefore measured by its impact on the environment or the lives of those who benefit from its actions, rather than returns on investment.
By proposing a viable alternative model, social businesses constitute a real catalyst for change. They bring economically sustainable solutions to major societal problems like hunger or malnutrition, food waste, accommodating and integrating refugees, as well as access to drinking water, electricity, medical care, financial services, housing, education for people who drop out of schooling systems, etc.
social businesses constitute a real catalyst for change.
A growing influence around the world
In France, according to a Bpi study, companies in the social and solidarity economy (SSE) accounted for nearly 2.4 million jobs in 2014, or one in eight private sector employees! What’s more, the sector saw a 24% employment growth rate between 2000 and 2014, compared to 4.5% for non-SSE employment! This trend is expected to continue, as nearly 600,000 jobs are set to be renewed by 2020.
This healthy economic outlook is confirmed in other countries: according to data from Social Enterprise UK, more than half of companies active in the social sector saw their turnover increase in 2014, while 28% kept it constant.
Financial innovation in the service of social businessSocial business is also a major source of innovation for the banking sector, and its business model has led to the creation of crucial financial innovations.
Here are a few examples:
- Microfinance is a solution to facilitate access to credit for the most disadvantaged populations. Microfinance generates social impact and durably improves the microborrower’s quality of life by enabling them to launch or develop a revenue-generating activity. In 2016, global microfinance accounted for a 102 billion dollar credit portfolio and benefited 132 million microborrowers. Meanwhile, microfinance institutions recorded a 9.4% annual growth in credit portfolio and a 9.6% increase in customers.
- Impact investing (or financing with a social impact) involves investing savings in companies with a strong social or environmental impact. It is another innovation undergoing rapid growth with impact investing now accounting for 250 billion dollar in sums outstanding worldwide, having grown by more than 146% between 2014 and 2016.
- Social Impact Bond (SIB) was started by British non-profit organizations in 2010 to finance a reintegration program for detainees. Today SIB has grown into a financing system repaid by governments on maturity once the project’s social targets are met. All SIBs operate on this model, and involve a precise, measurable impact target that determines repayment, alongside an often innovative social action which, if successful, will result in public savings far greater than the capital to repay. Around 40 SIBs have been implemented in the United Kingdom, Australia, the United States, Belgium and Portugal for amounts ranging from 400,000 to 20 million euros. In France, this new financial instrument goes by the name of “Social Impact Contract” (Contrat à Impact Social, or CIS); BNP Paribas played a significant role in popularizing and standardizing CIS, signing the very first of its kind with the French microfinance organization ADIE.
Speech of Jean-Laurent Bonnafé, Director and Chief Executive Officer of BNP Paribas
For the Global Social Business Summit event, which took place on the 7th of November 2017 in Paris, Jean-Laurent Bonnafé, Director and Chief Executive Officer of BNP Paribas, has spoken on partnerships between the Social Business and Bank.
The international BNP Paribas social business strategy
BNP Paribas is currently the sole commercial bank with a structured international strategy to support social businesses on several continents. At the end of 2016, the Group's support to social businesses amounted to 641 million euros, a 38% growth compared to 2015 on a like-for-like basis. More than 930 social businesses (both customers and partners) in seven countries have already benefited from the Group's support.
When including microfinance, the Group's total support amounts to 890 million euros.
Recent BNP Paribas initiatives include:
- Structuring and coordinating one of the first two CIS carried out in France (in 2016), with 1.3 million euros allocated to financing a microfinance-based entrepreneurship scheme in isolated rural areas (320 people sustainably reintegrated and 2 million euros in public savings), the ADIE being the project carrier.
- In the United States, investing in an 11-million dollar SIB dedicated to child welfare in the State of Connecticut.
- Establishing five Finansol-certified shared return funds, including the first solidarity fund dedicated to private investors.
- Participating in the creation of microfinance institutions, including Microstart in Belgium and MicroLux in Luxembourg, in 2016.
- Developing, in 2015, a methodology for assessing the social and/or environmental impact of SSE stakeholders.
BNP Paribas aims to be an innovative Group in its financial offer while helping society as a whole. Social businesses offer an alternative model that can reconcile economic profitability with a positive impact on society.
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