Like Warren Buffett, an American business magnate will say “If you are in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.” Overtime, there has been an increasing interest of philanthropic organisations and the government aid to address social and environmental challenges through different initiatives.
But then, it is important for these organisations to evaluate if their engagements in terms of social impact investment is worthy of continuous funding and support, hence, the adoption of a system of measurement to determine whether impact investing is out weighing social return on investment will be of a great importance.
Often times, our deeds and conducts either make or destroy value, perhaps, bring great emancipation to the world around. However, this value we create goes beyond what we can measure in financial term. Social return on investment (SROI) is a framework for measuring and accounting for this much broader concept of value; it seeks to reduce inequality and environmental dreadful conditions and improve wellbeing by integrating social, environmental and economic costs and benefits.
SROI measures change in ways that are pertinent to the people or organisations that experience or contribute to it. It tells the story of how change is being created by measuring social, environmental and economic outcomes as well as uses monetary values to represent them.
The value of SROI
As a method of social accounting, SROI has mostly been used to assess the performance of social enterprises. However, various trends have encouraged broader applications of SROI related to CSR. These include an increased demand for proving and communicating the business benefits of corporate social responsibility (CSR) efforts, and standardization trends in CSR reporting. SROI can be used as a tool to address some of these issues, and applied to a broader range of initiatives related to CSR.
SROI can also be used as a tool to evaluate social impact after investments have been made in social ventures. Corporations that invest in social issues through their own programs, or through non-profits, can assess the difference that corporate contributions have made – not only of financial resources, but also of human and in-kind resources. The availability of such data can illustrate gaps and opportunities for social investment that can catalyze social change, and benchmark data can be useful in assessing the “biggest social bang for the buck.”
More so, SROI can be used by corporations to influence their community investment decisions. SROI can be used to identify and assess, among a range of potential social investment opportunities, which candidates hold potential to generate the greatest social impact relative to financial investments. For CSR investments, the inclusion of social variables provide a more accurate assessment of risk and return, and can facilitate improved due diligence. Capturing metrics before investments have been made can also provide a useful baseline to compare to when assessing social impact.
In tracking performance, SROI has been used by managers of non-profits or social enterprises to inform their projections, strategic planning and performance assessment. As a management tool analysing social value creation, SROI can track social performance against the social objectives, to inform decision making processes, and to recognize the social value created for targeted groups. There are applications to other groups, for example, some socially responsible investment (SRI) funds refer to the SROI for their social investments and express it in terms of outputs – such as the number of units of social housing built per dollar invested.
Knowledge of social return on investment will broaden your prospect or rather give you a better understanding on how SRIO is measure relatively to impact investment and help you strike a balance between return and impact. Furthermore, to help in understanding the concept of SROI it is important to look at impact measurement and value from different stand point in other to clarify your view as regard the subject matter.
Impact measurement is an important way of evaluating and putting our progress on check, it could also serve as a yardstick in identifying opportunities for improvement and understanding the social and environmental returns on investments, however, the better we could measure our impact, the better we can maximise it.
Consequently, the social and environmental performance needs to be measured with the same level of toughness as financial performance – which is very common in all different kinds of businesses. Measuring financial performance can offer important insight. Impact investing goes beyond the need of potential investor but rather ensures value creation for investors, investees and beneficiaries, impact measurement foster transparency and accountability for delivery on the intended area of impact.
The growth of impact investing has led to an exceptional focus on impact measurement, with the aim of understanding both financial and social return on these investments. However, impact measurement is multifaceted in practice, and varies in approach and rigidity, with a number of techniques and practices rising from diverse organisations. This carries a risk for the emerging field of impact investing; if a certain level of obstinacy in impact measurement is not established across the industry, the label “impact investing” runs the risk of becoming diluted and used merely as a marketing tool for commercial investors.
Objectives behind impact investing measurement
The idea behind impact investing measurement is to estimate the impact of every investment. Impact investing organisations are so much interested on the value their investments create as this helps them to prioritise where to invest their resources in order to create the desired impact. Also, the reason behind impact measurement is to monitor the progress which may supplement financial data whether the investee’s performance is on track, which can be used to compare target and actual on specified impact metrics. In preparing this write up, inspirations were drawn from NEF’s economics as if the people matter; Sinzer’s The Beginners Guide To Social Return on Investment, and A Guide to Social Return on Investment.