Can We Buy Social Impact?

I’m writing this week to say congratulations to our newly elected Members of Parliament, and to bring social procurement to their attention as an issue that ties together economy, environment, and social inclusion—all issues that were pivotal in the campaign period and the various party platforms.

All parties agree that businesses and markets thrive under clear, predictable rules and regulations. It’s time now for Canada to restore its tarnished reputation as a leader and ‘walk the talk’ with a practical plan to enhance the economy by looking beyond financial-only measurement.

“Voting with your dollars” is out

Consumer sovereignty is an empty promise.

The idea that enlightened consumers ‘voting with their dollars’ for companies that showcase social and environmental benefits can foster significant positive social change is a weak one. Information asymmetry in the market and the low buying power of individual consumers are just two reasons why ‘consumer sovereignty’ is, and always has been, an empty promise. 

One of the key obstacles to adopting a healthier economic system is that we’re in a real rut with traditional financial accounting (micro) and GDP (macro) as our main ‘measuring sticks’ for decision-making. We can see all around us the disastrous consequences of our insistence on using these measures to make spending decisions and to allocate resources to achieve non-financial outcomes that matter—like ecological health and community well-being. A dollar value simply does not capture enough information to make good decisions.

Even so, the demand for ways to measure non-financial outcomes has been frustratingly flat, outside of the niche world of philanthropic foundations, international development agencies, and some impact investors. If it’s large-scale changes we’re after, it’s small businesses we should look to—98.2% of all businesses have fewer than 100 employees and can account for over 50% of the economic output from the private sector, depending on the year. If they were to shift their way of accounting for value, it would fundamentally transform the Canadian economy and society. 

Some small to medium enterprises (SMEs) are venturing into social purpose territory for the marketing value, or to attract and retain talent, or simply because they are motivated to ‘do the right thing,’ but there are very few clients or markets for SMEs that can justify the expense of a very rigorous approach to measuring and reporting on social and ecological outcomes. The challenge is that impact measurement can be costly, and most SMEs have little financial incentive to move voluntarily off their financial accounting standards to something new and more complicated. 

Social procurement is in

Addressing the shortcomings of the mainstream approach to business requires not just strength of will, but government intervention. A new approach is emerging that complements the familiar top-down strategies of stricter product or pollution standards, labelling laws, or other market regulations: social procurement. 

Social procurement is “the achievement of strategic social, economic and workforce development goals using an organization’s process of purchasing goods and services.” At the level of one company, or even a big institution like a hospital, directing purchasing dollars and hiring decisions towards social and ecological goals can make a measurable difference to the local community, but we’re still not at ‘system level’ impacts. 

At the level of the Federal Government, though, adding some purchasing criteria (other than price, of course) has the potential to make a seismic shift in the business landscape. If the Federal government were to implement, across all of its $20 Billion or so in annual purchasing, the kind of social procurement policies that have been successfully piloted at corporate, municipal, and provincial levels it could be the tipping point at which businesses pursuing a social purpose go from early adopter territory to mass market acceptance.

Social procurement may be the tipping point that brings social impact to mass market acceptance.

This could conceivably happen within a decade, or sooner still if the political will is there. SMEs are advised to watch for developments on this front. Imagine all the Canadian SMEs starting to measure and report on the social and ecological impacts of their value chains, because that was the requirement to bid on government contracts…. It would present myriad new options for entrepreneurs to diversify our most resource-extraction-dependent regions, and (perhaps) infuse some evidence-based sanity into the political leadership of the economy. 

With policy leadership at the top (i.e. at the Federal level), it would tip cascading implementation by Provinces, Municipalities, Institutions (Universities, Schools, Hospitals) and then Corporations. It could overnight create strong demand for all economic actors to demonstrate the value that they create on a multi-capital basis.

This would complement the momentum at the grassroots level: Vancouver, Toronto, Hamilton, Waterloo, Windsor and other cities are at various stages of progress in enacting social purchasing policies, and supporting intermediaries (conveners, resource hubs) to bring new entrepreneurs and workers into the market. More will join if enabling provincial and federal legislation is in place. 

Policy alone is not enough

Even if legislation were passed at all levels of government tomorrow, SMEs will require tools and frameworks for impact measurement to be able to respond effectively to the opportunity that such a change would represent. Much as we couldn’t expect businesses to start from a blank Excel sheet and (overnight) create financial statements for prospective investors. Possible, maybe, but too onerous to be viable. 

They will need conceptual frameworks—i.e. the social impact equivalent of the standards for financial accounting. The Common Approach to Impact Measurement is a useful starting point for SMEs to orient themselves to social impact measurement at a high level, and can help SMEs decide whether any of several business-specific impact measurement frameworks are a good fit for them—like the B Impact Assessment, the Future Fit Business Benchmark, Reporting 3.0, and so on. Each has benefits and drawbacks and will be better suited to organizations of different sizes, in different sectors/markets, and with different levels of capacity and sophistication with respect to measurement and performance monitoring.

The tools, models, and frameworks we need already exist.

SMEs will also need software tools—analogues to tools like Quickbooks, business intelligence dashboards, and the like; this is where tools like Demonstrating Value, the Centre for Social Innovation’s Impact Dashboards, and Sametrica offer platforms for data collection, analysis, and reporting, as well as support for the associated work of developing impact strategies and models. 

Finally, SMEs will need the skilled interpreters, guides, and ‘impact analysts’ to help them through this learning curve. Organizations like Junxion help guide organizations to choose and use the tools and approaches that are right for them, and integrate social-purpose-driven decision making into the core management and strategy functions of the business. 

As a B Corp ourselves, we share the vision of “a global economy that aligns its activities toward achieving our common purpose of a shared and durable prosperity for all.” We invite Canada’s new leaders to join us in taking steps towards that new economy.

 

Garth Yule is a Managing Director at Junxion. You can reach him via [email protected].

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