Municipalities can support social enterprises better

Social enterprises play a crucial role when addressing public issues and are essential when meeting the global Social Development Goals (SDGs). However, social enterprises face challenges when it comes to, for example, financing issues and obtaining government assignments. Other challenges relate to measuring and communicating about their public impact and conveying the unique nature of these enterprises.

‘In order to identify these challenges, PwC conducted a preliminary study together with Social Enterprise NL', says Mark Hillen, co-founder of Social Enterprise NL. ‘The results point the way for policymakers, municipalities and social enterprises, and call for a follow-up study to ensure a better cost-benefit analysis and improved policy-forming.’ 

An insight into public benefits and the accompanying (additional) costs

The study focused on social enterprises whose mission is to improve the participation of people with work-related disabilities. The aim was to gain an insight into public benefits and the accompanying (additional) costs, and how they manifest themselves in the business model of these companies. Sixty social enterprises took part in the survey.

Most respondents said that employing people who are disadvantaged in the labour market is accompanied by economic benefits. For instance, this could lead to more assignments from the national government, municipalities and other organisations with an SROI obligation. SROI (Social Return on Investment) is an obligation for suppliers of the government, which they can honour by deploying social enterprises as a partner or sub-contractor. Besides such benefits, they also receive a wage costs subsidy to compensate for their lower labour productivity. Some of the smaller and recently founded respondents receive funding from private philanthropic funds.

Another study finding is that social enterprises incur a substantial amount of additional costs when supporting employees who are disadvantaged in the labour market: support-related costs for coaches and buddies, training of personnel, administration costs, system costs and practical costs such as transport and damage-related costs. According to half of the respondents, the extra costs decrease the longer that employees are employed. Various companies stated that coaching always continues to be necessary. The responses also showed that far from all additional costs are compensated. And this comes at the expense of operating results. 

Follow-up study for policymakers, municipalities and social enterprises

Once the data had been examined, we invited fourteen social enterprises and four funds to discuss the results. They confirmed that social enterprises encounter sizeable additional costs per FTE, while these additional costs help to reduce costs for the government. A follow-up study into this issue will be important for the public cost-benefit analysis. ‘As far as this analysis is concerned, it is important for social enterprises to personally supply effective impact-related and financial data, in order to better understand and stimulate the value and growth potential of these companies', states Mark Hillen. 

Help social enterprises to remain competitive 

Following on from the preliminary study, Social Enterprise NL and PwC advise the public sector to perform a follow-up study. This study must help to answer the following question: ‘how can the government help social enterprises to remain competitive?’. Policymakers or municipalities can ask the national government to compensate for (some of) the additional costs of social enterprises. This compensation can offer opportunities for growth and improve participation, and thus be financially advantageous for the government.

Wineke Ploos van Amstel, chief sustainability officer at PwC Netherlands: ‘This survey shows that not enough social enterprises deem their cooperation with municipalities to be productive. This means there are ample opportunities on this front, because municipalities have an essential role to play in the chain and often also act as the procuring party. So, this potential is not being exploited. And that is a shame, certainly for organisations that solely focus on making a positive impact on society.'

Acquisition of data

Social Enterprise NL and PwC compiled a survey in order to collect relevant information. Social Enterprise NL shared this survey with the social enterprises. 

A total of sixty companies took part in the survey, and the collected results were analysed. Seventeen of these companies have a turnover of less than one million euros, and four have a turnover of over ten million euros per year.

This is a preliminary survey based on the data provided by respondents. The results are indicative and can serve as input for more in-depth research and discussions. 

The employee groups that are best represented at the companies are people with mental health issues/disorders, people who have been unemployed for a long time, people with a physical disability, newcomers and residence permit holders. Other represented groups include people with a mental disability, academic dropouts who are eighteen years or older, people with non-congenital brain damage, and several other groups such as pensioners and ex-detainees.