Social Entrepreneurship

A For-Profit Approach to Filling the Gap in International Environmental Policy

By
Climate fund note
Social Entrepreneurship : A For-Profit Approach to Filling the Gap in International Environmental Policy - Nicole Marquez

Abstract

As environmental issues become a growing concern for policy makers, the difficulty of creating international policy becomes evident. With the rise of renewable energies and advances in technology, there exists the potential for using social entrepreneurship as a means of addressing environmental issues while meeting the energy demands and needs of many countries. For-profit businesses create appropriate incentives and benefits while at the same time avoid the issue of state sovereignty and bridge the divide between developed and developing countries. At the same time, social entrepreneurship has its own limitations and has the potential to fill only part of the gap that international and domestic environmental policy is unable to accomplish.

Introduction

Through social innovation, organizations can take a for-profit approach towards addressing environmental concerns. Businesses could focus, for example, on providing clean energy and in the process fill some of the gaps that government policy along with non-governmental organizations are incapable of tackling. This approach has been successful in addressing other social issues, as seen in San Francisco’s SOMA neighborhood where there is a popular restaurant called the Delancey Street whose history is even more popular than its menu. Normally, being listed in Zagats is a good enough reason to visit a restaurant in this “foodie” city. But the purpose Delancey Street serves offers another compelling reason. In 1971, Mimi Silbert founded Delancey Street with the help of a thousand dollar loan and initially took in four residents.1 Silbert’s idea was to create a place where those who had hit rock bottom could receive an opportunity to re-enter society. The result of this innovative business model was a famous restaurant as well as a foundation meeting the needs of those who had slipped through society’s safety nets. Her “extended family” model meant that everyone contributed to the success of the business venture, thereby instilling a sense of ownership and pride in the workers for the prosperity of the business.2 This example of social entrepreneurship demonstrates how a for-profit business can address the social needs of society more efficiently and effectively than many government policies and programs. The same spirit and model of dealing with social concerns at Delancey Street can be successfully applied to addressing international environmental concerns.

Social Innovation and the Environment

Social innovation or entrepreneurship addresses social problems through entrepreneurial means. By creating a restaurant for the residents to run, the Delancey Street Foundation created a self-sustaining foundation. Similarly, environmental entrepreneurship is gaining ground amongst businesses. Environmental entrepreneurship is defined as “the practice of creating a healthier environment by making wise business choices.”3 This can be seen in many of the small changes that businesses are making to reduce their ecological impact— from universities using biodegradable utensils in their cafeterias to businesses installing compact fluorescent light bulbs in their buildings to reduce electricity use. In this way, companies and organizations are adapting their everyday business practices to address growing environmental concerns, often in a cost-reducing manner. Social and environmental entrepreneurship are seen as two separate things. But there is the possibility for social innovation to focus on environmental issues, and the environmental needs of society have created an opportunity for businesses to profit from environmentally focused entrepreneurship.

As new technologies are being developed in the field of renewable energy, there is the opportunity to utilize these new tools through a for-profit business model. One example is Google.org’s RechargeIT project, which is an “initiative that aims to reduce CO2 emissions, cut oil use and stabilize the electrical grid by accelerating the adoption of plug-in hybrid electric vehicles and vehicle-to-grid technology.”4 The main ideas behind this Google.org project are the Smart Grid and the Vehicle to Grid (V2G) concepts. A Smart Grid is a power grid that is able to send power in multiple directions based on supply and demand.5 The current grid system allows energy to move in only one direction—from the power company to the consumer. A Smart Grid would allow the consumer to send energy back to the power company, where it could then be redistributed based on demand elsewhere.6 This technology would be able to pull power from different sources, allowing for cleaner energy to be used over traditional coal fired power plants.

The Vehicle to Grid (V2G) component of the RechargeIT project deals with the supply side of the Smart Grid. V2G is “a concept where electricity that is stored or generated from a vehicle could be transmitted to the grid if the vehicle is plugged in.”7 Technology such as this, once fully developed, can be utilized in a for-profit manner. During periods of low demand, electric companies supply consumers with clean power first. But during peak consumption periods, those sources of clean energy become exhausted and power companies rely on electricity produced from burning coal. By making V2G technology feasible, “you could create a system that had enough cars that were not being used during peak times, were connected to the grid, and had the capability to send this excess energy back into the grid, or into another source that might use the energy, you would prevent the need to use less clean energy sources.”8 Plug-in hybrid car owners thus have an incentive to sell their electricity back to the grid. Power companies would buy their cleaner electricity in the same manner that they purchase electricity produced from coal burning plants. These hybrid cars essentially act as batteries for the power grid, able to buy cheap, clean power during low demand periods, and sell back that same clean power during high demand at substantial profit. The higher cost of hybrids cars over traditional gas consuming cars is further mitigated by this opportunity to sell electricity. And in the end, carbon emissions and oil consumption are reduced.

Another manner in which social innovation can be applied towards environmental concerns can be seen in the emergence of ecotourism. As a growing number of people are becoming more aware of conservation issues, there is a greater draw to participate in tourist programs that allow you to carry out conservation projects. On the Caribbean coast of Costa Rica there are volunteer organizations that supply volunteers with home stays or cabins, provide meals, and allow participants to work on projects that are geared towards protecting turtle nests and eggs. A search on the volunteer job placement site Idealist.org using the term “turtle” returns forty results, most of which are located in Costa Rica and Mexico and are programs similar to that described above.9

This type of business combines conservation with tourism. The conservation efforts are funded and carried out by the tourists. The travelers pay for their experiences as well as donate their time to make these projects work. Compared to a non-governmental organization that spends a large portion of time fundraising and soliciting donors, this model removes the funding problem because the volunteers and tourists who come to work at the organization are the ones who finance it through participation fees. These participation fees are minimal compared to ordinary hotel stays and meals, giving the benefit of a good deal to the traveler and free labor and profit to the organizations. While these organizations may not be appeal to all travelers, many find the experience to be rewarding as can be seen through the Web sites that are being created by former volunteers in support of their experience.10

International Impact of Environmentally Focused Social Entrepreneurship

Social innovation, as seen with Delancey Street, can tackle certain social problems more effectively than government programs. In this manner, for-profit businesses aimed at addressing environmental problems may be able to address these issues more effectively than the traditional means of international treaties and non-governmental organizations. There are three distinct advantages that social innovation has over international law and non-governmental organizations. First, the business approach deals with the issue of state sovereignty that plagues many international treaties. Second, by creating the proper incentives, the cost of conserving and protecting the environment is mitigated. And last, the common problem faced by many non-government organizations of securing funding is removed. This eliminates the problem of dependency on a few, large donors that some groups face.

One of the greatest difficulties that the international community faces when dealing with environmental issues is a problem that plagues international law in general. International law is a system that is based on the idea of state sovereignty. Under Article 1 of the Montevideo Convention on the Rights and Duties of States, “the state as a person of international law should possess the following qualifications: a) a permanent population; b) a defined territory; c) government; and d) capacity to enter into relations with the other states.”11 State sovereignty is further emphasized in Article 8, which states that “no state has the right to intervene in the internal or external affairs of another.”12 While the idea of absolute state sovereignty is beginning to wane with increased levels of interdependence brought about by globalization as well as the growing focus on human rights by the international community, the autonomy of nations is still respected to a certain degree. As a result, some states are reluctant to ratify international treaties, as they would restrict some of the country’s sovereignty. The United States, for example, has refused to ratify a number of treaties, from the Kyoto Protocol13 to the United Nations Convention on the Rights of the Child.14 While the United States may not have ratified certain treaties such as the Kyoto Protocol because of particular aspects with which U.S. government and policymakers disagreed, the refusal to ratify the UN Convention on the Rights of the Child raises a more complicated issue of state sovereignty.

By ratifying an international treaty, a commitment to uphold the treaty is put into place. With the United States, ratifying an international treaty creates a conflict between the hierarchy of the Constitution and domestic law and international law. In the U.S. legal system, the Constitution is considered the highest law. By ratifying an international treaty, either international law will have to take precedence or it will be below the Constitution, in which case the United States would not be able or willing to adhere to the treaty. With the Convention on the Rights of the Child this can be seen as a conflict between protecting the child and the parents’ right to raise and educate their child as they see fit. As a result, the United States has been unwilling to ratify this treaty. The United States has maintained its sovereignty and the independence of its domestic law from international law. For many industrialized and powerful countries this is a common issue. By ratifying these treaties, they partially cede control over their country. As such, international treaties need to take a neutral stance in order to gain support. If the change is too radical or large, the countries will either refuse to ratify the treaty, or will ratify it but then simply ignore it. As a result, state sovereignty greatly complicates the issue of international treaties. Social innovation, on the other hand, is a business that addresses environmental concerns. Under this paradigm, there is no threat to state sovereignty as the business operates under domestic laws. International agreement is not necessary as each business operates under the laws of the country in which it is located. Social enterprises can be run like a multinational corporation or a model can be exported to other countries to be followed locally. Eve Ensler coined the approach of exporting a model internationally with the “Vagina Monologues.”15 On her Web site, she provides a toolkit for groups to produce performances of her play. In order to download the toolkit certain guidelines must be agreed upon, and then after the play a certain percentage of the proceeds are donated back to Ensler’s charity, V-Day.16 The remainder of the profit is then donated to the organizing group’s charity of choice, so long as it works towards the goal of ending violence against women and girls.17

For an international treaty to be ratified, many countries must agree on an issue. Factors that can complicate negotiations are not only the number of countries involved, but also the issues at stake. With a social innovation, the state maintains authority in this situation as the business is subject to the already established rules and laws of the state. In this scenario, law is not being created, as with international treaties, but rather domestic law is being obeyed.

While sovereignty is the main issue for industrialized countries with regards to international treaties, the cost of complying is often a hindering factor for developing countries, especially with environmental treaties. When a consensus is attempted in terms of new levels of carbon emissions, industrialized countries push for stricter standards. Developing countries, on the other hand, push for looser restrictions for themselves. They see harsh restrictions as a double standard that would keep them from industrializing as fast as if environmental standards were more lenient. Because industrialized countries were able to industrialize without limitations, they were able to develop faster, and that is a freedom that environmental treaties would in some ways deny developing countries. Poorer countries also arguably have more to lose with strict standards; while an industrialized country might have to pay more for clean electricity, an unindustrialized country might have to forgo electricity altogether for large segments of the population. As a result, developing countries push and are granted a different set of standards to follow. While industrialized countries are the largest polluters of carbon emissions, China and India are increasing their production of greenhouse gases.18 It is estimated that in a few years China will be the largest polluter of greenhouse gases, if it is not already.19 This indicates that while industrialized countries may be doing the greatest harm at the moment, this will not always be the case, and while industrialized nations may have had an advantage in their ability to industrialize quickly, developing countries still need to be held accountable if meaningful reductions are to be agreed upon.

While international treaties implement restrictions, social entrepreneurs can instead create businesses that are self-sustaining, profitable, and remove the cost issue that developing countries are fighting so strongly against. Social innovation creates innovative solutions to the problems at hand while international treaties on the environment focus more on restrictions. Ecotourism is one way in which revenue could be generated in developing countries instead of exploiting their natural resources. The business that is created provides a sustainable source of revenue. Tourism would generate profit as well as bring in volunteers to help maintain the natural resources and wildlife. The Ocean Rider Seahorse Farm in Hawaii provides another model in which revenue can be generated. In an attempt to reduce the aquarium market for seahorses, this business sells farm-raised seahorses.20 The sale of farm-raised seahorses sustains the company in addition to reducing the demand for wild seahorses, which have been over-fished and are now endangered.21

This model also addresses the final problem that faces organizations working in both industrialized and developing countries. Many non-governmental organizations (NGOs) spend a large portion of their time and energy on securing financial support from donors. This creates several problems for the organizations themselves as well as the communities they are trying to serve. The need to find backers takes up a large portion of the NGO’s time and resources that could otherwise be spent on the projects it is trying to implement. Another problem that this dependency creates is that certain donors will provide money to organizations that are working only towards goals that are in line with the donor’s objectives. As a result, NGOs may be forced to alter their goals to be more aligned with their sponsor’s aims. While this readjustment may be necessary for the NGO’s survival, the new purpose may not be what the community needs or it may focus on short-term, measurable goals, as opposed to long-term, structural goals whose success is harder to measure.22 The effect on the community could be that either the NGO is generating little to no change or that it is in fact harming the community.

The Ocean Rider Seahorse Farm is not reliant upon a few donors who could then dictate or alter the foundation’s programs and methods. This funding problem affecting many NGOs is removed when an organization is following a for-profit model. Similarly, the SunEnergy Power Corporation (SEPC) is able to generate its own revenues and not rely on the government or other sponsors for support. It is a “for-profit corporation organized to develop commercial-scale solar electric projects in the U.S. The after-tax earnings of SEPC are used to partially fund SunEnergy Power International (SEPI), its nonprofit 501(c)(3) sister organization which designs and implements sustainable renewable energy projects around the world.”23 This financial freedom ensures that the organizations are able to accomplish what they set out to do and are able to meet the demands of the community, and not the demands of their donors. Social innovation allows organizations to run a business, and through the actual process of running a business create social change. With both the example of the Vehicle to Grid (V2G) system being researched by Google.org’s RechargeIT and ecotourism in Costa Rica, the product that is being sold is what is targeted at helping the environment. With the V2G system, consumers are able to sell clean energy back to the grid, and with ecotourism, volunteers are paying to work and protect the environment and wildlife. In both situations, the business is able to sustain itself through this system of generating funds while at the same time address environmental issues. In each of these three ways, social innovation targeted at environmental problems is able to overcome some of the serious problems that face both international treaties and non-governmental organizations focused on the same issues. As businesses, social enterprises create the proper incentives, making the organization self-sustaining, while working within the laws and authority of the host country.

Limitations of Social Innovations Aimed at Environmental Issues

While there are difficulties that social entrepreneurship is better at overcoming than the government, this is not true for all issues. The Delancey Street foundation is adept at helping convicts transition back into society, but this for-profit model is not an effective way to address all of society’s issues. Rather it is a supplement to various social policies and programs in place. Social innovation targeted at environmental issues face three main limitations to addressing environmental problems in this manner that international treaties and non-governmental organizations are more capable of handling. The first constraint is that social innovation has limitations in the scope of issues that it can address. The second constraint is that the model cannot be applied to all countries, because each country is at a different stage of development and possesses different technologies. The final way in which social innovation may not be as effective as international treaties and NGOs is that there is no monitoring body to ensure that the organizations and companies are providing the services they claim. In each of these situations, there are different means by which environmental issues could be addressed more effectively through international treaties and the work of NGOs than with social innovation.

The first area in which social innovation faces a constraint is in terms of the scale of the issues that it can address. There are two ways in which this issue arises. As a business, a product is being sold, whereas with an international treaty an issue is being addressed. An international treaty can require a reduction of carbon emissions by a certain percentage. In order to reach that goal a variety of methods can be utilized. In contrast, a social enterprise is providing a product or service that in the process is aiding environmental efforts. The Vehicle to Grid technology being explored by Google.org is looking for a way in which power can be sent back to the grid. The business in itself does not address or fix the environmental problem of greenhouse gas emissions. It is simply creating the incentives for environmentally focused entrepreneurship.

In addition, the actions that are taking place focus on a specific issue in a specific location. With ecotourism, the product being sold is in fact conservation. The limitation that this business faces is that conservation occurs only in the area where the business is operating. An ecotourism organization operating in Costa Rica is able to protect only the animals that inhabit its plot of land in Costa Rica. Other animals in other countries are not protected by this enterprise’s actions, as would be the case with changes in policy and international treaties. The same is true for Ocean Rider Seahorse Farm. It is providing an alternative to endangered seahorses for aquarium owners, but it does not address the medicinal market for sea horses. As a result, social innovation in this sense is able to create change only at the local level. While it might raise awareness locally as well as abroad, the company itself does not create changes at the policy level through its everyday business practices. These companies are one of many means to an end.

Social innovation is limited in other ways by the organization’s physical presence. As each country has different technologies and is at different stages of development, these factors place restrictions on which social entrepreneurship models will be successful. The Vehicle to Grid technology being explored by Google.org would not create a successful business in all countries. There are certain basic features of a country that are necessary in order for this technology to be implemented. If a country lacks a highway infrastructure and paved roads, then the Vehicle to Grid concept would not be useful in terms of reducing this country’s carbon emissions and dependency on oil. However, if this country also had a limited electricity grid, an off-grid solar water heating business might be lucrative. As advances are made in renewable energy, new technologies may not be useful to countries that have no use for those technologies, but that does not mean there are not opportunities for entrepreneurship.

Another way in which social innovation needs to be country specific is in terms of the level of development of each country. A politically unstable state may make it unfeasible to operate and run a business. In this situation, a business would be no more effective than an international treaty or an NGO. Or in some situations where there appears to be stability, there may be corruption. Here, the country laws in which the enterprise is located may not actually protect the company. With corruption, inefficiencies run rampant and the effectiveness of the social innovation is reduced. As a result, the incentives in place are skewed and the profits that would be used to run the organization are instead used to work within a corrupted system through bribes and pay-offs. These inefficiencies can reduce the effectiveness of social innovation.

The final problem with using social entrepreneurship to address social issues is related to the lack of monitoring that goes on in regards to the business. While the company itself is required to follow the country’s laws, it is difficult to tell how much monitoring is actually occurring in terms of the benefits being derived from the business. In 2005, Nestle began marketing a line of coffee under a fair trade label called Partner’s Blend.24 This line of coffee is more expensive, but the market for fair trade goods is more inelastic than goods that do not fall under this label.25 The requirements to be considered fair trade are not clearly defined, and as a result consumers purchase these goods without really understanding the implications. It is estimated that “only 10% of the premium paid for Fairtrade coffee in a coffee bar trickles down to the producer.”26 This exemplifies how businesses can abuse the label of fair trade because what is considered or labeled fair trade is not closely monitored. Here consumers are the victims of big businesses, while farm workers receive only a small portion of the gains. This example demonstrates how a profit driven approach can abuse and exploit an indicator, such as the fair trade label, in an effort to raise revenues. Conversely, a company that is motivated by environmental issues may find it difficult to compete against larger corporations. To offset this imbalance and readjust the incentive system, stricter regulations and enforcement are required. In addition, the government can encourage the proper use of indicators with incentives such as tax cuts. This could reward companies that are motivated by environmental issues as well as encourage companies that are motivated by profit.

The fair trade label requirements can also create other problems. One is that in order to qualify, the produce needs to come from small, independent farms. By focusing only on this group, workers at large farms, while just as poor, are hurt by these requirements.27 Demand shifts to these small farm goods, driving down prices and thus demand for goods produced at larger farms. The farm workers are the ones who suffer in these situations as the farm owners pass on the lower prices through lower wages. The same lack of monitoring can occur with companies aimed at environmental issues. The requirements for ecotourism are not easily defined, nor is it easy to determine what makes ecotourism different than ordinary tourism aside from the self-designation. As with fair trade, the same ambiguity exists over the designation and definition of a label.

In addition, as new technologies are being developed to deal with energy concerns, there is also a lack of information and data confirming that a new technology is better for the environment than what it is replacing, especially in the long run. For example, biofuel was hailed as the answer to oil, but it too creates waste and has its own set of drawbacks.28 New types of waste are created with new sources of energy as was the case with biofuel, when the technology was being hailed as the answer to oil. Over time, the effects of biofuel on the environment are being better understood and this technology is not as clean as originally thought.

Conclusion

As demonstrated, social innovation has the potential to address environmental issues in new ways that would overcome some of the hurdles faced by international treaties and non-governmental organizations. At the same time there are problems that all of these methods face, as well as new problems that arise for social entrepreneurs. As a result, social innovation can help bridge the gap in places where international policy may be unable to, but it is not a panacea nor is it a replacement for the methods already in place to address environmental concerns. Rather, it is another tool that governments and environmentalists should consider in dealing with issues that concern the environment.

Notes

Nicole Marquez is a second-year Masters student at the Johns Hopkins School of Advanced International Studies (SAIS). She is concentrating in International Policy and International Economics. Prior to SAIS, Nicole spent a year as a Case Assistant at McDermott Will and Emery LLP, followed by a year working as a Recruiting Coordinator for the Legal Department at Google, Inc. She completed her Bachelor of Arts in Public Policy and Economics at Stanford University.