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NZ needs to clear the barriers to social enterprise

Business for good: why New Zealand needs to clear the barriers to social enterprise

Innovation in the fast-growing sector of social enterprise is being hampered by a lack of knowledge, outdated laws and under-developed capital markets.

Social enterprise lies between pure business and pure charity. Some social enterprises are for-profit, such as Eat My Lunch, which gives a free lunch to a child in a low-income neighbourhood for every lunch bought. Others are not-for-profit, such as fair trade store Trade Aid. What defines them is their driving purpose to effect positive social, cultural or environmental change, and trading is a means to that end.

Jamie Newth, who teaches innovation and entrepreneurship at the University of Auckland Business School, researched innovation and social entrepreneurship in one of the world’s largest NGO’s. One of his findings was that innovations are not solely shaped by the visions of social entrepreneurs, but the expectations and beliefs of all stakeholders involved.

“Social entrepreneurship is far more contested because it needs to be commercially viable and make a positive impact, and this requires input from a greater range of stakeholders,he says.

There’s no shortage of innovative ideas or enthusiasm, and social enterprise has the potential to make a significant difference.

“We need to make it easier to start and grow social enterprises so we can realise their economic and social value,” he says.

An estimated 20,000 social enterprises now exist in Australia, contributing around two per cent of GDP, according to Social Traders Australia. In the United Kingdom, there are an estimated 70,000 social enterprises contributing £55 billion to the UK economy.

“New Zealand lags behind Europe, North America and Australia in the maturity of the sector, especially in the government’s role in creating the space for social enterprise to thrive,” says Newth.

“Our government financially supports the private sector to enhance economic development, and the charitable sector because of its social impact, but social enterprises that achieve both are unable to access such support. In fact they’re inadvertently penalised for being hybrid.”

Also, there are very few “impact investors” in New Zealand.

“The rapid growth in capital markets for impact investment – investment for both financial return and social impact – which we see internationally is not happening here.”

He points to the Global Impact Investing Network (thegiin.org), founded in 2009, whose members include philanthropic arms of multinationals, NGOs and major banks.

“Investors are increasingly looking for investment opportunities that allow them to do good as well as generate a financial return.”

Newth’s own start-up, Soul Capital, is an impact investment fund that will make growth capital available to social enterprises and sustainable businesses.

Difficulties getting funding was one of the barriers flagged at the official launch of Social Enterprise Auckland at the Business School this month, called “Beyond Purpose: Making money count”, which Newth led.

Other barriers included:
• Lack of information and support on how to grow social enterprise
• Lack of understanding of what social enterprise actually is – social enterprise needs a public voice
• Unlike the United States and United Kingdom, New Zealand doesn’t have a specialised legal form to make it easy for funders, investors and others to support social enterprises
• Charities law is outmoded by ways we achieve social change now. Other modern economies have updated their legislation, but we have not.
• Social enterprises need to work harder to get the right business model and structures in place to attract investment
“Non-profits talked about looking to social enterprise to increase their impact and generate new sources of income, but said they were constrained by their existing business model,” Newth says.

Associate Professor Christine Woods, who teaches in management and international business at the Business School, says more students are engaging in social entrepreneurship.

“We see it in the Velocity entrepreneurship programme, in our classrooms. Students want to make a difference, meaning is important, not just accumulation and money.”

Newth agrees. “They’ve grown up in a corporate social responsibility era, so business with a social mission is a natural progression for them. They also have a far stronger social justice orientation – they’re not willing to ignore our social and environmental problems anymore.”
Woods says the Business School is playing its part in fostering social enterprise through teaching and research.

“Students are looking to use business to solve problems, and businesses and non-profits are increasingly blending the type of value they create. This requires different skill sets than we traditionally teach.”

Social Enterprise Auckland also works to develop the sector and drive sustainable change in Auckland. Its members show how varied enterprises are: from North Shore-based Pallet Kingdom, which trains up disadvantaged youth to make rustic-chic furniture from discarded pallets, to Conscious Consumers, whose app guides consumers to over 300 businesses accredited as sustainable.

Says Newth, “The business community needs to pay attention to social entrepreneurship because society is no longer happy for businesses to disregard their social and environmental impact.”

ENDS

Key points:
• Social enterprise lies between pure business and pure charity. Social enterprises trade for positive social, environmental or cultural change
• New Zealand lags behind other developed economies in the maturity of its social enterprise sector
• Legal changes, buy-in from business and finance, and upskilling of social entrepreneurs in business models are all needed


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