In short, a social business is an enterprise that aims to address social or environmental problems while generating revenue. A significant part of the profit from this type of business is reinvested in the company’s activities or in tackling social problems.
No, this is not the CSR policies of the big companies that we know; it is an innovative business model that is not driven solely by profit maximization, but has an explicit mission to address social or environmental needs and bring about positive change through its activities.
Sounds complicated? Let’s look at an example!
Imagine a company that produces and sells garments made from recycled materials. Its aim is to reduce the negative environmental impact of textile waste. (By the way, did you know that the textile industry is the world’s second biggest polluter?) It fulfills its social mission, but not only.
To be defined as a social business, it must reinvest a large part of its profits (the percentage varies by country; in Romania, it’s 90%) back into the company’s activities or socially-oriented programs.
How is a social business different from a regular business?
As our example shows, the differences between a social business and a regular business are related to the mission and the way profits are managed. Rather than being guided solely by market logic and profit maximization, social economy entities aim to improve the well-being of communities and address social needs.
Here are the two most important things that make the difference between a social business and a regular business:
A social business contributes to solving a social problem, such as supporting people with disabilities, protecting the environment, fighting poverty etc. Social enterprises are a new type of enterprise, their role is to solve a social problem using business tools: producing and selling products and services.
In a typical business, profit is distributed to shareholders or reinvested in the business to increase its value and generate more profit. In a social business, according to Romanian law, at least 90% of the profit of the business must be reinvested in achieving the stated social purpose.
Examples of inspiring social business
Even though many people may not have heard about social businesses until now, the concept is already widespread around the world. In the European Union, there are 2.8 million social economy enterprises, representing 10% of all businesses in the EU. Nearly 13.6 million people—approximately 6.2% of the EU workforce—are employed by social economy enterprises. In Romania, we have 2,924 social enterprises, of which 1,967 have valid certification (according to RUEIS, July 2024). Below are some examples of social businesses that inspire us!
Coffeels
Coffeels is a social café located in Cluj-Napoca, right in the city center at 1 Gheorghe Șincai Street. Coffeels sells specialty coffee, and 4 out of its 6 employees are people with disabilities. Thus, in addition to enjoying quality coffee, customers of Coffeels support the integration of vulnerable individuals by making their purchases.
Atelierul de Pânză
Atelierul de Pânză is a social business that was born out of the desire to contribute, as much as possible, to finding environmentally friendly solutions to replace the classic plastic bag. The workshop produces reusable bags from cotton textiles and 30% of the business’s employees are people with disabilities. Since 2018, the Cloth Workshop has been Ikea’s sewing service provider.
Nod Verde
Nod Verde is a food hub established by the Civitas Foundation for Civil Society, where you can purchase local products from households and farmers in Cluj County and the surrounding areas. Nod Verde sells and promotes local products through both an online store and a physical one, and its profits are directed towards programs that support local and sustainable agriculture.
How is social enterprise status recognized?
In Romania, businesses can request recognition of their status as a social enterprise by obtaining a social enterprise certificate.
The certificate is granted upon request if the businesses include the following cumulative criteria in their documents (Art. 8, paragraph 4 of Law no. 219/2015 regarding the social economy):
- They operate for social purposes and/or in the general interest of the community.
- They allocate at least 90% of their profit/surplus to social purposes and statutory reserves.
- They commit to transferring any remaining assets after liquidation to one or more social enterprises.
- They adhere to the principle of social equity towards employees and management, ensuring fair salary/remuneration levels, with no differences exceeding a ratio of 1 to 8.
This certificate is granted for a period of 5 years, with the possibility of renewal.
Social insertion entreprises
One type of social business is the social insertion enterprise. An insertion social enterprise is a business that employs disadvantaged individuals who are part of vulnerable groups. In such an enterprise, at least 30% of the employed staff or cooperative members must belong to the vulnerable group.
The status of an insertion social enterprise is certified by granting a social label, which is valid for 3 years from the date of issuance.
