Over the past few decades, the boundaries between the three sectors - public (government), private (business), and social (non-profit) - have been blurring as many pioneering organizations have been blending social and environmental aims with business approaches. There are many expressions of this trend globally, including corporate social responsibility, microfinance, venture philanthropy, impact investment, social enterprise, and others. As this activity matures, it is becoming formalized as a ‘fourth sector’ of the economy.
A social enterprise is one of the new hybrid organizational models formed to address a variety of societal challenges utilizing business methods. A social enterprise differs from other businesses in that a social impact is a direct purposeful result of operations rather than a byproduct. Social goals are typically enshrined in the organization’s statute or other binding documents approved by its founders. Another difference between social enterprise and business as usual is profit distribution; in a social enterprise, profit from commercial activities is distributed according to social goals.
The development of social entrepreneurship in Ukraine attracted attention and started to receive support from the international community in the early 2000s. Since 2015, social entrepreneurship in Ukraine has expanded because of donor support specifically targeting new challenges connected with the conflict in eastern Ukraine and deterioration of the socioeconomic situation. The number of social enterprises actively doing business has risen, from 41 in 2013 to 150 in 2017.
Despite dynamic development of social enterprises that address the issues of employment, social protection, and social inclusion, there is still no legal definition of a social enterprise. It would be reasonable to use the definition adopted by the European Union, according to which social enterprises combine societal goals with an entrepreneurial spirit. Such organizations concentrate on achieving wider social, environmental, or community objectives. Their main goal is to strengthen a social impact rather than just make a profit for their owners and shareholders. Such enterprises often employ socially vulnerable population sections, thereby promoting their inclusion, employment, societal unity, and reduced inequality. Social enterprises operate by means of producing goods and services and use their profits primarily to achieve social objectives. They function in an open and responsible manner, particularly involving employees, consumers and stakeholders affected by their commercial activities. In other words, a social enterprise, regardless of its legal form, is part of business the key task whereof is to make positive social or community impacts.
Most social enterprises in Ukraine are non-governmental organizations that know and meet the needs of the community in which they work. They address the problems of the entire community rather than of the vulnerable population groups they are established for. At the local level, public authorities and individuals benefit from the innovative approaches applied by social enterprises to close the gaps that cannot be closed otherwise. Social enterprises focus on achieving wider social, environmental, or community objects, not on maximizing their profits. This considered, their funding needs differ from those of traditional business and they are not a part of a traditional investment community. As a result, donors act as the key source of funding for social enterprises. The grants provided by the donors are quite important to support social enterprises at the start-up phase but further scale up and sustainability remain to be a challenge. One way of enhancing the development of social entrepreneurship could be by introducing hybrid funding, a combination of grants and investments. It is critical to establish interaction with the business community, which can provide mentoring support to promote the growth and scaling up of social enterprises.
Despite the existing challenges and barriers, there are positive trends in Ukraine: civil society is becoming stronger, new community initiatives are emerging, and new kinds of businesses focused on sustainable development and social responsibility are taking hold. And, the number of successful social enterprises is growing. Stories about successful social enterprises change attitudes about this sector and motivate an increasingly greater number of people to support and even establish social enterprises.
Based on research conducted by Pact in Ukraine in 2018. Full report is available at http://pactukraine.org.ua/sites/default/files/2018-06/APEA_REPORT_eng.pdf
Directory of Social Enterprises of Ukraine 2016–2017. Available at http://www.socialbusiness.in.ua/index.php/sotsialni-pidpryiemstva/katalog