What exactly is social enterprise? It is doing business with a double bottom line: one bottom line is the profit generated and the other bottom line is the fulfillment of a social/environmental mission.
It is true that I have rarely agreed about anything with the giant trash company Waste Management Inc. (WMI). On one issue, though, they have for many years articulated a challenge that most of us agree with, that being the financial difficulty of responding to local governments’ calls for increased services without increased payment. People and governments want more recycling and also composting without necessarily paying enough for these increased services. Recycling and composting are necessary for our Earth and we need to answer the question as to who pays for these services at a level that makes them profitable.
As we know, in most of the U.S.A., a pure profit motive still drives the waste industry toward landfilling because it is cheap and easy compared to the “greener” alternatives. My column today proposes that there is room in our industry for adding new landfill diversion services using a new business strategy that doesn’t require the profit motive to be the primary driver. This new approach, called Social Enterprise (SE), can be used as a separate subdivision of your company, or as a way to completely restructure.
What exactly is social enterprise? It is “doing business with a double bottom-line” – one bottom line is the profit generated and the other bottom line is the fulfillment of a social/environmental “mission”. In fact, fulfilling a specific mission, such as recycling or composting, is the primary purpose for the business and any profits made are used to support the growth of the mission.
Why would a purely for-profit waste company want to do this? In my experience, the social enterprise approach can allow for the fulfillment of community landfill diversion goals and make a profit as well. We implemented this strategy in Colorado by working with the local governments to establish the community goals and then laying out a business plan that produced a 10% profit level for Eco-Cycle, a private nonprofit organization, (if we fulfilled the agreed upon mission). This approach does require a new “open book” kind of management, and it need not apply to everything a company does (i.e. landfilling). I am speaking here of the resource recovery path where it is so hard to make a profit doing comprehensive recycling, composting and hard-to-recycle programs (like mattresses, electronics, plastic bags, etc.).
An exciting new development in the SE sector is taking place right now in the U.K. and Canada where “social procurement” movements have arisen that are supporting social enterprise start-ups and government funding of relevant contracts, including in the recycling and composting sectors. In England especially the recent passage of the Social Value Act mandates that ALL government bids for work now require the bidder to offer “social value” along with their lowest financial bid, thus ensuring that a social enterprise approach will get preferential treatment for receiving taxpayer funds for contracted community services. This approach can lead to a “shared benefit” approach to managing the risks of the recycling and composting industries.
Any for-profit trash company could easily create a social enterprise spin-off and incorporate it as a “low-profit limited liability company”, known as an L3C (instead of a traditional LLC). Legally there are very few elements of an L3C that make it different than a traditional LLC, and now in 10 states the L3C is a legal vehicle for doing business. The core difference of the L3C is that it is a business set up to fulfill a mission first and make money second. The official definition is:
A low-profit limited liability company (L3C) is a legal form of business entity in the United States that was created to bridge the gap between non-profit and for-profit investing by providing a structure that facilitates investments in socially beneficial, for-profit ventures by simplifying compliance with Internal Revenue Service rules for program-related investments, a type of investment that private foundations are allowed to make.
This point about “foundation investment” is important because it also relates to local government spending. These are new sources of money for supporting your recycling and composting services! The social procurement movement is pushing government contracts to be given increasingly to social enterprises because they bring more “Value For Money” (VfM) to the government and our communities. Social enterprise approaches in the waste sector could lead to creative new contracts because they are promising to reach community recycling and composting goals, while getting paid to do it.
A few examples of social enterprise projects in the waste industry include:
“Veteran Compost” runs composting facilities and collection routes in the Washington, D.C., metro area. Turning food scraps into high-quality, marketable compost, the veteran-owned business is also dedicated to providing quality employment opportunities for U.S. veterans.
“BlueStar Recyclers” employs people with autism and other disabilities to dismantle electronics, providing valuable employment to an underserved population. By serving this under-employed population, BlueStar is replacing the need for social services to these populations, a tax-payer savings of $18 per hour worked.
“Habitat for Humanity’s ReStores”: are nonprofit home improvement stores and donation centers found in communities nationwide. With more than 850 locations, ReStores are keeping used building materials, furniture, and home accessories out of landfills and helping disadvantaged populations both through employment and by providing quality materials at reduced prices.
“Eco-Cycle’s Center for Hard-to-Recycle Materials (CHaRM)” is a one-stop shop in Boulder, Colorado for recycling the “hard-to-recycle” materials that make up 10-15% of our discards. The CHaRM provides a missing piece of local Zero Waste infrastructure for hard-to-recycle materials that are often labor-intensive to recycle, require special handling procedures, or do not have enough inherent value to be recycled at a profit. CHaRM recycles items such as electronics, mattresses, block foam packaging, books, textiles, yoga mats, porcelain sinks, fire extinguishers, and small plastic appliances.
If our industry is going to evolve so that we can make a profit doing recycling and composting, we need to drop the word “waste” and become the “resource management industry”. The economics of the resource management industry are different than the economics of the waste management industry. A social enterprise approach recognizes that fact and demands that the community participates in paying the additional costs that a cleaner greener future will require. The traditional waste companies are service companies, and if the financial reward is there they will offer all kinds of services, including Zero Waste services that move resources away from landfills and incinerators and back into productive reuse. The Social Enterprise approach offers a bridge to the future where someday, hopefully, a pure profit motive would accomplish the same thing, but since that day isn’t here yet it doesn’t mean we have to sit on our hands and do nothing.
Anyone running a waste company today can add a social enterprise element to their business plan, and add value to their existing hauling activities. There aren’t many conferences yet in America on this topic, but if you’re interested I highly suggest meeting up with me at the next global gathering about social enterprise this September in Christchurch, New Zealand at the Social Enterprise World Forum (SEWF).
If an international trip isn’t in your budget this year, then plan ahead to SEWF 2018 where the 10th Annual meeting will return to Edinburgh, Scotland, the home of the Social Enterprise Movement. What could possibly be better than a round of golf on the old links while discussing the evolution of the resource management industry?
This blog originally ran on Waste360.
Eric Lombardi is President of Zero Waste Strategies Inc. and Senior Advisor to Eco-Cycle International. Lombardi is recognized as an authority on the social and technical aspects of creating community-based Zero Waste resource recovery programs.