By Waka Itagaki
International organizations such as the United Nations (UN) and the World Bank have significant purchasing power. In 2014, the UN purchased $17.2 billion in their procurement process. Despite this purchasing power, international organizations have arguably not made the most of it to generate social impact across the world. “Buy Social,” a procurement process that seeks not only economic value but also social and/or environmental impact, has the potential to be transformative. This article highlights the benefits and challenges of Buy Social compared to “Socially Responsible Procurement,” and recommends that international organizations implement Buy Social.
There is no widely agreed term to describe this kind of socially conscious procurement. This article uses “Buy Social” but other names include “Social Procurement,” “Socially Impactful Procurement,” “Social Impact Purchasing,” “Social Purchasing,” and “Socially Impactful Purchasing.” It is important to note that Buy Social is different from Socially Responsible Procurement, which is already implemented by international organizations.
Socially Responsible Procurement applies negative or positive screens to bidders by using a “do no harm” approach. For example, the UN buys from companies that meet labor standards of the International Labour Organization (ILO). Socially responsible procurement typically only considers if a bidder is a business with social consideration, and does not measure the outcomes.
Buy Social goes beyond the “do no harm” approach by proactively buying goods and services that have the potential to create social and/or environmental impact. Buy Social focuses on outputs and/or outcomes and addresses social and/or environmental issues relevant to an organization’s strategy and operations. Buy Social also encourages organizations to measure and report their impact. One example would be an organization that purchases goods from a social enterprise that gives job opportunities to the poor, trains them, and sells products made by them to markets. In this example, the organization would measure its impact via the number of jobs created thanks to the procurement, the number of those who get out of poverty, or another relevant metric.
Governments in advanced countries, including the United Kingdom and Canada, have already promoted Buy Social. In 2013, the British government passed the Social Value Act, which requires commissioners to think about social, economic and environmental benefits when purchasing goods and services domestically. Following the passage of the Act, the British encouraged public authorities to identify social value priorities, determine socially impactful suppliers, select successful bidders, and manage contracts, including measuring contracts’ social value. The British government also supports the effective implementation of the Social Value Act by offering Social Value Awards and social value procurement training.
The UN and the World Bank have not fully developed their own Buy Social policies and practices. Particularly, there is much to be improved with regards to the social aspect of Buy Social. In the UN system, “sustainable procurement is mostly associated with environmentally friendly or green procurement,” and the social value potential of procurement is not fully acted upon. The UN applies negative or positive screening regarding labor standards and human rights. In addition to setting rules around labor standards for its procurements, the World Bank also adopts a supplier diversity principle, which provides opportunities for access and growth of minority, women, and disabled-owned business enterprises (MWDBEs). However, the assumption that MWDBEs have social impact is not always necessarily correct.
Given their purchasing power, international organizations have the potential to achieve greater social impact by implementing Buy Social. Buy Social can benefit international organizations, goods and service providers, and the international community as a whole.
Benefits of Buy Social over Socially Responsible Procurement
Benefits for International Organizations
Buy Social will benefit international organizations in a couple of important ways. First, international organizations can move towards obtaining their goals such as achieving the Sustainable Development Goals (SDGs), ending extreme poverty, and promoting shared prosperity. Buy Social enables selecting goods or service providers that contribute to their goals. Taking the SDGs as an example, the UN can contribute to the second goal, “Zero Hunger,” by using the food catering service of a social enterprise that utilizes the “Table for Two” program. Every time someone in a developed country orders a meal through Table for Two, the company makes a donation to tackle hunger and malnutrition in developing countries. Such a social enterprise cannot be selected under the current Socially Responsible Procurement system.
Also, the review of existing procurement systems will bring more effective public expenditure. One of the key organizational challenges facing multilateral organizations is bureaucratic rigidity. The rigidity may lead to the issue that international organizations use the same bidders over time. Buy Social will give international organizations an opportunity to review their existing procurement systems, and select more effective contractors.
Finally, Buy Social’s emphasis on local content means that local offices of development organizations can enhance compliance with community values and needs. Local offices work for the development of local communities, but they are still developing local sourcing practices. In 2014, the share of UN procurement from developing countries and countries in economies in transition was 62.8 percent. While the UN has made some progress, there is still room for improvement. The current Socially Responsible Procurement Framework utilized by the UN and World Bank has not set the amount of procurement from local communities as a key indicator. Buy Social enables more local sourcing by prioritizing it.
Enhancing transparency and accountability can be another benefit, especially when organizations publish procurement impact reports, as is encouraged by Buy Social.
Benefits for Goods and Service Providers
Buy Social will expand the opportunities for socially impactful businesses, especially small and medium-sized enterprises (SMEs). In Socially Responsible Procurement framework, companies are able to get a contract as long as they meet the required labor standards or they are MWDBEs. In such conditions, multinational companies that follow the standards or MWDBEs are selected. Multinational companies can set a lower price than SMEs due to economies of scale. If international organizations implement Buy Social, it will open the door for SMEs to join the procurement process. Stable and sustainable revenue coming from international organizations can support the growth of SMEs.
Contracts with international organizations not only bring in revenue but also credibility, which leads to better access to capital. SMEs typically have low creditworthiness and face difficulty in obtaining loans or getting investments. There are many SMEs with social impact that cannot expand their business because of the lack of capital. Credibility through contracts with international organizations can help to address this issue. SMEs also might be able to raise awareness about themselves through procurement. In general, raised awareness makes it easier for them to participate in the international development field.
Transactions with international organizations can also have the function of capacity building. It is difficult for SMEs to start working with Fortune 500 companies, as they require bidders to meet specific requirements, including demonstrating the capacity to adequately supply goods and services. In contrast, public-minded organizations are able to support SMEs to build capacity. For example, in the United States, universities have contributed to capacity building for local SMEs through their procurement process.
Benefits for the International Community
The international community also receives benefits from Buy Social practices by international organizations. First, Buy Social will develop a market of socially beneficial products. International organizations can affect the market both directly and indirectly. Their procurement practices have the potential to influence other public authorities and socially minded companies to make them consider implementing Buy Social.
The expansion of the market could increase the number of socially impactful businesses. Demand of socially impactful goods and services will incentivize social entrepreneurs to found enterprises and/or non-profit organizations that contribute to society. It will also make existing contractors and other companies think about achieving social value. Through communication with international organizations about social considerations, existing contractors may gain new understanding of how they can offer social value through their work.
Needless to say, the target population to which goods and services aim to deliver social impact will improve their lives.
Although Buy Social will bring these benefits, international organizations have to overcome many challenges for its implementation. Before implementation, they have to confront the associated costs. These include the increased prices of products and services; increased personnel expenditure for the reform; costs for system changes including changes in organizational policies, guidelines, and technical systems; and additional training for procurement officials. These costs may discourage organizations from implementing Buy Social. Also, as the UN mentions, member states may be concerned about their suppliers being barred out of the UN market because they fail to meet social impact criteria. To overcome such challenges, strong leadership and commitment is required. Buy Social cannot be initiated without committed leadership.
Even after the inception of Buy Social, international organizations will face other challenges. One key challenge is a demand and supply mismatch. Even if international organizations want to buy certain products, there is a chance that there are no socially impactful businesses that provide those products. Or socially impactful businesses might not be able to supply the growing demand due to a lack of capacity. In addition, international organizations might have difficulty in finding socially impactful suppliers. A directory of socially impactful business such as the Buy Social Directory is needed for addressing this issue.
While international organizations will likely face challenges in implementing Buy Social, they, along with suppliers and the international community, have the potential to benefit from socially impactful procurement. Procurement is not just a back-office function anymore. It should be understood as a critical and strategic component of socially impactful practices in the UN system and other multilateral organizations. These actors should start considering Buy Social if they truly want to make the world better.