by Dr Jessica Sklair (Stipendiary Fellow, ILAS)
On 15th May, ILAS and Canning House will jointly host the event Corporate Social Responsibility in Latin America: what potential for new global trends in the region?, bringing together practitioners from the business, academic and third sectors to discuss the development of CSR in Latin America. One of our objectives in hosting this event is to explore the emergence of recent trends, such as ‘social business’. Social businesses (also know as social enterprises, impact businesses or B Corporations), use business models to create products or services designed to address social problems. Where most traditional companies put profits before other objectives, social businesses prioritise social change alongside (or sometimes ahead of) financial return.
This blog post explores the growth of this trend in Latin America through an interview with Maure Pessanha, executive director of Artemisia, a pioneering incubator for social enterprise start-ups in Brazil. Artemisia promotes and supports the sector through a range of activities, designed to accelerate social businesses, educate future leaders, systemise and disseminate learning within the sector and engage other organisations (especially corporations and philanthropic foundations) to support and partner with emerging entrepreneurs. While social business has grown quickly in Brazil, the country’s current political and economic crisis is bringing new challenges to the sector. Below, I discuss with Maure how Artemisia has been working to develop the sector, and how the organisation is facing these challenges.
Q. Can you tell me a little about how Artemisia came about?
Artemisia was founded in 2004 by the investment fund Potencia Ventures, with the objective of bringing together social impact and economic viability in Brazil. At the start, Artemisia worked with young people from low-income communities, with ideas for social initiatives that could generate income. But around 2008 we began to think about the types of initiative and entrepreneur that we were supporting. We realised then that the initiatives that had a strong business outlook tended to be more successful, both in terms of their social impact, and in relation to their long-term sustainability. So we began to research models for social business, but we couldn’t find any references from within Brazil. Our main reference was Muhammad Yunus [founder of the Grameen Bank for microcredit], who had already written Banker to the Poor at this time. So in Brazil, I think we were one of the first organisations to start talking about the idea of ‘business for good’.
Q. So how did you go about developing the social business sector in Brazil?
Well around that same time, around 2008, we decided to define more clearly what kinds of businesses we were going to support. Because we wanted to incubate businesses with a high level of social impact, we began to ask ourselves: which are the sectors where social business can have a long-lasting, structural impact in Brazil? And we chose four areas: education, health, financial services and housing. At the beginning it was very challenging. We wanted to support businesses that provide products and services in areas like education and health, areas which – at that time – everyone saw as the government’s problem, or as a problem for NGOs, not as a problem that the business sector should be trying to solve. People found it hard to understand what we were doing. So we said ok, what do we need to do to create an ecosystem for this in Brazil? And we started working on a range of different ways of supporting this ecosystem.
Q. So what differentiates a social business from an NGO?
In our vision, having a business model means that you can attract more talent, because the business model works as an incentive. This model also means that the entrepreneur has more control over his or her capital, because she or he can plan around the business’ investment cycles. Also, this way of thinking – like a business – means that the entrepreneur needs to have a really excellent social product, because people are paying for it. And I think this creates a dynamic where you always have to find the best solution for the social problem you’re trying to tackle. In the third sector, NGOs are held back by the fact that they’re always having to chase after funds. So I think social business brings together questions of sustainability, and of constantly improving the service you’re providing, and the business model allows entrepreneurs to access a much greater volume of capital.
Q. What specific challenges and opportunities does the social business sector face in Brazil?
When Artemisia was founded in 2004, Brazil was in a period of economic growth. Everyone was very optimistic about the economic outlook for the country, income was growing for the majority of the population, and people were talking about a middle-class boom. But this growing prosperity wasn’t being mirrored in access to broader services necessary to ensure people’s quality of life. So people were earning more money, but education systems were still very poor, health systems were still very poor, access to quality housing was very low, and the majority of people still didn’t have access to adequate financial services. But despite all this, it was an optimistic moment, an interesting moment. We also had a government then that – despite other problems – had a strong commitment to social policy, to issues of diversity, of inclusion. Today, the situation is very different.
Q. So the relationship between the social business sector and the public sector is important …
We’ve always thought about social business as a complement to what the public sector can offer. For example, SUS [Sistema Único de Saúde, Brazil’s public health system] is a marvellous system, but there are some things that SUS can’t keep on top of, so let’s work with businesses that can fill these gaps. During the early years at Artemisia, we were working with the idea that social businesses would be able to build bridges with the public sector, and we had a government then that was open to this kind of idea. Today, we’re seeing a return to a more difficult economic scenario, and we’re in a very uncertain political situation. So although we now have social businesses that could provide services to the public sector, that now have the structures in place for this, the entrepreneurs behind these business are worried that working with the government will bring too much reputational risk. On the other hand, in Brazil, the sectors that we’re working in – health, education, etc. – have really high levels of regulation, the state is very present. So if you want to have an impact in these areas, you have to work with the government. There are some initiatives that are trying to work in this direction, but people working in the public sector are also more wary of signing contracts for this kind of innovation. So both sides are wary. And lots of social businesses that we helped to incubate have closed down in the last three years.
Q. Do you have any examples of social businesses you’ve supported, that have been particularly successful?
There’s one business, called Programa Vivenda, who are really changing the rules of the game in relation to the issue of housing. Vivenda works in favelas (shanty towns), with very low-income families, and they offer renovation services for these families’ homes. Housing in Brazil is a central problem, but the problem here is not the availability of new homes, it’s a problem of improving existing homes, because housing in the shanty towns is of very low quality. So the renovations that Vivenda do aren’t aesthetic renovations, they’re renovations designed to improve the living conditions – and ultimately the health – of these very vulnerable families. So for example, they might be designed to resolve problems of damp, of poor ventilation, or to improve plumbing systems, so that animals or sewage can’t get into families’ homes. Vivenda offers a professional service that the family pays for, and the renovation is carried out in a maximum of six days. They’ve also set up a fund with the Brazilian bank Itaú, which lends money to the families to pay for Vivenda’s services. These loans are paid back in 19 instalments, which makes it affordable for the families. Vivenda has just managed to secure this fund with a value of five million reais [around one million pounds], which will finance 1,500 renovations. And when the families finish paying back the instalments, the money goes back into the fund. So the service that Vivenda provides is very innovative, it’s a really great initiative.
Q. So what does the future look like for social business in Brazil?
Well, as I have already said, the situation is quite difficult at the moment … but on the other hand, the ecosystem as a whole for social businesses has developed really fast. Many of the things that we dreamt about ten years ago, that we thought would take a really long time to happen, are already happening. We dreamt about shifting social business from the realm of philanthropy into the realm of business, and we’ve managed to do that. And very quickly, I thought that would take twenty years!
Interview carried out in São Paulo, Brazil on 17/04/18. ILAS and Canning House’s joint event on CSR in Latin America will take place on 15th May 2018. For more information and to register to attend, please visit:
The views expressed in this article are the author’s own and do not necessarily represent the position of ILAS or the School of Advanced Study, University of London
Dr Jessica Sklair is a Stipendiary Fellow at the Institute of Latin American Studies. Her current research looks at the financialisation of development in Brazil, with particular focus on impact investment – the practice by which philanthropic investors and development agencies finance social businesses and Bottom of the Pyramid schemes, in the search for both financial and social return.