Procurement: Unlocking Investment, Investment Unlocking Impact

The following provocation by Dr Seán Barnes forms one part of Financing the Future, our dynamic content project exploring the market opportunities for impact investment in Aotearoa New Zealand. The project is produced by Pure Advantage and promoted in association with the Impact Investing National Advisory Board Aotearoa New Zealand and the Responsible Investment Association of Australasia. Access the full project here.

Social Procurement in New Zealand

There is growing interest in social procurement in New Zealand. Both public and private organisations are recognising the opportunity of using procurement as a tool to deliver sustainability objectives. For some organisations it is a proactive aspiration to grow their positive impact through using their supply chain for ‘good’. For others, it is a growing realisation of the reputational risk of ‘greenwashing’; talking about sustainability while you drive a lowest-price procurement agenda.

So what is the scale of the opportunity in New Zealand? The total annual expenditure of NZ$561 billion by NZ business from a Stats NZ Enterprise Survey 2017-18 and NZ$100 billion by NZ Government and related Crown entities are both very large numbers. There is a significant opportunity to leverage this expenditure to deliver social, cultural and environmental outcomes by utilising a social procurement approach and enabling greater access to this expenditure for impact-driven suppliers.

Globally, the opportunity of using procurement to create real and lasting impact is formally recognised by the Government and business sectors in many countries including Australia, the United Kingdom, Canada and across the European Union. New Zealand is fast-following this group with notable local initiatives including the ground-breaking work of The Southern Initiative in Auckland creating pathways to work, in Auckland Transport infrastructure projects, and the leadership by organisations such as NZ Post using social enterprise and social procurement to enhance sustainability in the NZ Post supply chain. Impact investment has a critical role to play in scaling social procurement in New Zealand, particularly through investing into the establishment, capability and/or scaling of social enterprises. These mechanisms are outlined further.

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Government as a Market Builder

For Governments, a great example of what can be achieved at a national level is the Indigenous Procurement Policy (IPP) used by the Government of Australia. Launched in 2015, this policy set targets, mandatory set-asides and participation mechanisms for indigenous-owned businesses. The IPP has grown government expenditure with indigenous business from A$6.2 million in 2012-13, to over A$300 million per annum currently. The impact of this expenditure is considerable given that every dollar spent enables employment opportunities for indigenous job-seekers at a rate 15 times greater than an average business. Investment has played a critical role in enabling indigenous businesses to build capability and to scale to meet the increasing demand enabled by social procurement. Start-up capital requirements and the necessary collateral for bank funding were two key challenges identified in a recent report on indigenous business. This has required innovative models of investment aligned to the needs of these businesses, such as the $50 million Fortescue-ANZ partnership, which made capital available to organisations normally excluded from conventional lending.

The Victorian State Government Social Procurement Framework (a) extends support beyond indigenous business, to both social enterprises and disability businesses and (b) puts social procurement at the centre of government procurement to leverage approximately AU$25 billion annual spend on goods, services and construction. The policy approach also focussed on opportunities to work alongside mainstream private-sector businesses to deliver social and environmental outcomes through their supply chains.

This form of policy is also emerging in New Zealand. For example, the New Zealand Government has introduced the Construction Skills Action Plan as a targeted approach to increasing diversity, training and employment opportunities in the construction sector by leveraging Government procurement. The opportunity for new social enterprises focussed on employment and environmental outcomes to establish and grow in the construction sector to deliver these intended outcomes is obvious. In addition, the requirement for investment into existing and emerging forms of business to enable these social outcomes has already been identified, particularly for small and medium enterprises (SMEs). Who could be the first potential Fortescue-ANZ impact investment partnership of New Zealand?

Procurement Unlocking Investment

Social procurement can play a key role in unlocking tangible impact investment opportunities at an organisational level too. Vanguard Laundry  is an Australian social enterprise that provides commercial laundry services. Since opening in 2016, the impact of Vanguard has been considerable;  it has significantly raised the financial independence, housing security, health and wellbeing of over 30 employees. This social enterprise is innovative due to the role procurement led to its formation. The business was established around a significant and long-term laundry contract opportunity with a local hospital identified in 2014. Investment was vital to establish Vanguard like any new business, however it was a hard road to secure capital. Ultimately, the organisation secured the necessary $7 million of investment from 72 different sources.

Vanguard has demonstrated the possibility of establishing a new fit-for-purpose social enterprise around a long-term contract opportunity, and securing new and aligned capital investment to make it a reality. Equally though, it has demonstrated the need to create financing mechanisms that recognise, and are specific to, impact-led initiatives and their needs.

Procurement Unlocking Investment, Investment Unlocking Impact

New Zealand organisations, both public and private, are reimagining procurement to enable the delivery of social, cultural and environmental outcomes. While the potential impact of this opportunity is considerable, targeted and aligned investment in social enterprise and impact-led suppliers will be required to make it a reality.

The need for investment into both contract readiness and contract delivery is obvious. This investment will also need to recognise that the majority of social enterprises are small, the outcomes sought are complex in nature, and that the mechanisms and approaches may need to be creative.

Impact investment offers an approach based on mutual benefits that could unlock new mechanisms and scales of ‘deal-flow’, necessary to enable social procurement. Building strong and innovative partnerships around tangible procurement opportunities can make this a reality.