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April 29, 2021

Q: What Is a Social Enterprise?

Learn about social enterprises, impact investing, and UN SDGs.

Ask Liquid: What is a social enterprise?

Ask Liquid Finance and Accounting Operations

Are you interested in becoming a social entrepreneur and need to learn the terminology? Read on to learn about social enterprises, ESG companies, impact investing, and UN SDGs.

What is a Social Enterprise?

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While most social enterprises used to be funded primarily via grants, now they are often revenue-generating operations. The concept of a social enterprise was developed in the 1970s in the UK as a contrasting alternative to traditional commercial enterprises. It was then popularized by Muhammad Yunus (Nobel Peace Prize laureate and Grameen Bank founder) in 2009. 

Social enterprises comprise for-profit businesses, social impact startups led by social entrepreneurs, non-governmental organizations (NGOs), and not-for-profit organizations working to change our world for the better. They have clear missions to create a social impact — whether it’s environmental impact, social change, or helping people in need. The Social Enterprise Alliance defines social enterprises as: “Organizations that address a basic unmet need or solve a social or environmental problem through a market-driven approach.” 

In short, social enterprises aim to do good in the world, usually while also managing operations in a sustainable and environmentally responsible manner. In 1994, John Ellington coined the term triple bottom line for this sustainability framework to assess a business’s contribution to social impact, environmental sustainability, and economic profit. The triple bottom line — social, environmental, economic — is also sometimes referred to as the 3 Ps of sustainability for people, planet, profit.

What are Environmental, Social, and Governance (ESG) companies?

From an investor perspective, social enterprises are categorized as Environmental, Social, and Governance (ESG) companies. There has been a marked increase in interest in impact investing and ESG investing as more and more people are interested in responsible investing.  

What is impact investing?

Impact investing is making investments made to generate positive — and measurable — impact (social, environmental, etc) while also getting a competitive financial return. Impact investments can be made in both emerging and developed markets. Impact investors target a range of returns from below market to market rate, depending on the individual investors’ strategic goals. 

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    The impact investment market has been growing rapidly and provides capital to address the world’s most pressing challenges in sectors and industries such as climate change, renewable energy, sustainable agriculture, clean water, conservation, biodiversity, carbon capture, and microfinance — as well as affordable and accessible basic services including housing, healthcare, mobility, and education. 

    Impact investments can be made across asset classes, including but not limited to cash equivalents, fixed income, venture capital, and private equity. 

    What are UN Sustainable Development Goals (SDGs)?

    All United Nations Member states adopted the UN Sustainable Development Goals (SDGs) in 2015 as a call to action to protect the planet, end poverty worldwide, and ensure that all people all around the world enjoy peace and prosperity by 2030. There are 17 SDGs — also known as Global Goals — and they are interconnected. Most social enterprises work towards supporting many of the United Nations SDGs. 

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    Category: Ask Liquid Finance and Accounting Operations

    Updated: April 9, 2021

    Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.

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