Economics of Corporations Investing in social enterprises - A win-win model

The main goal of any business is profit making. Does investing in social ventures and Corporate social responsibilies mean diverting from the goal? Not really. It in fact, could be a win-win model.

Let us analyze this from two viewpoints:

1. From the eyes of an investor (a company or an individual)

A few statistics:

89% of US consumers are likely to switch brands to the ones associated with a cause [1]

42% of North American respondents reported that they would pay extra for goods and services from companies committed to positive social and environmental impact [2]

The idea we derive from the above stats is that investing on Corporate Social responsibilities can put companies in a winning situation.

A decision to invest in social enterprise or a social cause differentiates a firm from its competitors. This will ultimately boost their brand in the eyes of investors and consumers. For example, Whole Foods' environmental stewardship is an integral part of its brand identity and contributes to its pricing power.

Consulting companies like Deloitte have come up with programs to see prospective clients in social enterprises to solve social issues. This benefits the company in two ways: firstly by generating revenue through the profits earned and secondly by increasing job satisfaction of employees by providing opportunities to them to see the social impact.

2. From the perspective of a social entrepreneur (or a prospective social entrepreneur)

The lack of funding opportunities is one of the major disadvantages that the social entreprises have faced. There is a high chance that the number of companies investing on social enterprises will increase over the next few years. This can be proved by a concept of economics called "Evolutionary game theory" where the frequency with which particular decision is made changes over time in response to the decision made by other (competitor) firms.

It is important to make the Shareholders and customers aware of such decisions. The firm markets its social investment decisions via distribution channels like social media. This would benefit the social enterprise as well as it serves as a source to market their brand as well.

There have been many new approaches to funding social enterprises recently. One of the initiatives is provision of social impact bonds by Governments to private investors who are paid a return only if the public project succeeds. It allows private investors to take calculated risks in order to make profits. The government, for its part, pays a fixed return to investors for verifiable results and keeps any additional savings. Because it shifts the risk of program failure from taxpayers to investors, this mechanism has the potential to transform political discussions about expanding social services.

[1] http://www.conecomm.com/2015-cone-communications-millennial-csr-study-1

[2] http://www.nielsen.com/us/en/insights/reports/2014/doing-well-by-doing-good.html