A $500 Billion+ Market Opportunity for Real Impact: Three Ways Corporations Can Engage in Social Procurement
Social procurement is the focus of growing attention in the social business sector. The term refers to the practice of corporations buying products or services from social enterprises, thereby enabling them to scale their operations and their impact – while allowing the corporation to advance its environmental, social and governance (ESG) goals.
As Yunus Social Business discussed in a NextBillion article earlier this year, the practice has gained momentum in recent years, from the German software company SAP’s commitment to sourcing 5% of its addressable spend from social businesses by 2025, to the decision by several major corporations in the U.K. Buy Social Corporate Challenge to collectively spend close to £165 million on social enterprises within the initiative’s first five years. Funders are also getting involved, with a $50 million fund announced this month, aimed at supporting procurement practices that increase opportunities for farmers, food producers, social enterprises and other organisations led by people of colour in the United States.
Significantly, this momentum was also reflected at this year’s World Economic Forum at Davos, where social enterprise was on the formal agenda for the first time – and where Yunus Social Business, together with SAP and BCG, launched a report on the market opportunity for social procurement. The report estimated the overall market volume of social procurement at more than $2.5 billion today, and projected that it could reach $506 billion over the next decade. Since global procurement budgets amount to trillions of dollars, dedicating even a small percentage of these budgets to social enterprises could generate billions of dollars in new revenue for the sector – and substantial new impact for both corporate ESG efforts and the communities and causes they target. As Alexandra van der Ploeg, Global Head of Corporate Social Responsibility at SAP put it in the report: “We are excited by the impact potential of social procurement to support livelihoods around the world—and we also consider it as a potential source of competitive advantage for our clients.”
Below, I’ll discuss three ways corporations can get involved in social procurement, as explored in Yunus Social Business’ Social Procurement Manual, which offers practical guidance for integrating social businesses into corporate value chains.
Three Ways Corporations Can Engage in Social Procurement
Though the concept of social procurement may seem relatively new, in practice, large corporations around the world have already adopted it as a strategy for creating social impact through their purchasing power. They are incorporating it into their procurement practices in three key ways:
Direct Spend: This corporate spending involves sourcing both commodities for use in manufacturing new products, and manufactured goods to be sold to consumers. Direct spending offers a multitude of opportunities for a corporation to integrate social enterprises into its supply chain. A prime example is The Body Shop’s work with Plastics for Change, a social business that aims to improve the lives and working conditions of informal waste collectors in emerging economies. By creating a marketplace platform that enables corporations to obtain its ethically sourced and high-quality recycled materials, Plastics for Change makes it easier for them to incorporate these supplies into their products – which The Body Shop is doing by using recycled plastic as packaging material for its shampoo bottles.
Indirect Spend: This consists of a company’s spending on information technology, marketing and office management. One strong example of the impact of using social procurement for these items is AmaliTech, a social enterprise that cultivates digital talent in sub-Saharan Africa and connects young workers to the rising global market for digital services. AmaliTech does this in two ways: first, by equipping youth in Ghana and Rwanda with the digital skills they need to become employment-ready through training and development programs. And second, by connecting these trainees with employment opportunities in Europe, focusing on corporate contracts around services like web and mobile app development, software testing, and media and design. With a commitment to train over 3,000 individuals and create over 1,000 jobs to empower Africa’s next generation of tech leaders by 2025, AmaliTech’s role in creating positive social impact can clearly be seen. By contracting young African talent through its services, corporations can play an essential role in boosting that impact.
Services Spend: This spending involves services related to labour (e.g., office cleaning) and HR, distribution, and product end-of-life (e.g., recycling). Groupe Ares in France offers a good example of how this spending can generate a social impact. The enterprise drives social inclusion by enabling individuals with mild disabilities to enter the workforce, and since 2020, it has partnered with sustainable sneaker brand VEJA to provide warehousing and logistics services that engage these workers to support VEJA’s distribution efforts.
The Growing Global Movement Toward Social Procurement
As these examples show, purchasing from social businesses means supporting the impact causes they are driving, especially because social enterprises are typically:
- Responsible, with 75% of them tying their impact to the SDGs, and over 50% certified by a third party
- Diverse, with up to three times higher minority ownership representation than traditional small and medium-sized enterprises in the U.K. Additionally, up to 95% of social enterprises directly benefit marginalised and vulnerable groups in the local communities they work in.
But as Alexandra van der Ploeg mentioned in our market opportunity report, the reasons for corporations to engage in social procurement go beyond doing good for society, as the practice can actually create competitive advantage in the corporate space. Based on Yunus Social Business’ Social Procurement Manual, which highlights survey results from over 40 corporate leaders, social entrepreneurs and intermediary organisations, 60% of corporate leaders see social procurement as a way to meet customer demand for socially sourced products and services – which ultimately creates brand differentiation and loyalty. And over 50% see social procurement as a pathway to achieve larger company-wide ESG targets.
Given these multifaceted benefits, it’s clear why social procurement is increasingly considered an effective and practical way for corporations to achieve both social value creation and competitive advantages. And as the practice of social procurement steadily grows on the corporate side, the social business landscape is rapidly maturing to meet the demand. If these trends continue, social procurement is likely to become a fixture of corporate ESG efforts – and a key driver of greater scale among social enterprises.
Photo credit: CucombreLibre