Social return on investment (SROI) is a principles-based method for measuring extra-financial value (such as environmental or social value) not otherwise reflected or involved in conventional financial accounts. The method can be used by any entity to evaluate impact on stakeholders, identify ways to improve performance, and enhance the performance of investments. The SROI method as it has been standardized by Social Value UK, formerly called the Social Return on Investment (SROI) Network, provides a consistent quantitative approach to understanding and managing the impacts of a project, business, organisation, fund or policy. It accounts for stakeholders' views of impact, and puts financial 'proxy' values on all those impacts identified by stakeholders which do not typically have market values. The aim is to include the values of people that are often excluded from markets in the same terms as used in markets, that is money, in order to give people a voice in resource allocation decisions. A network was formed in 2008 to facilitate the continued evolution of the method. Globally, there are some 2000 members of this network, called Social Value International (formerly the SROI Network).
Development While the term SROI exists in cost–benefit analysis (CBA), a methodology for calculating social return on investment in the context of social enterprise was first documented in 2000 by REDF, formerly the Roberts Enterprise Development Fund. This is a San Francisco-based philanthropic fund which makes long-term grants available to organizations that run businesses for social benefit. Since then the approach has evolved to take into account developments in corporate sustainability reporting as well as development in the field of accounting for social and environmental impact. Interest has been fuelled by the increasing recognition of the importance of metrics to manage impacts that are not included in traditional profit and loss accounts, and the need for these metrics to focus on outcomes over outputs. While SROI builds upon the logic of cost-benefit analysis, it is different in that it is explicitly designed to inform the practical decision-making of enterprise managers and investors focused on optimizing their social and environmental impacts. By contrast, cost-benefit analysis is a technique rooted in social science that is most often used by funders outside an organization to determine whether their investment or grant is economically efficient, although economic efficiency also encompasses social and environmental considerations. In 2002, the Hewlett Foundation's Blended Value Project was brought forward by a group of practitioners from the US, Canada, UK and Netherlands who had been implementing SROI analyses together to draft an update to the methodology. A member of this group coauthored a guidance-style article in the California Management Review on the subject around this time. A larger group met again in 2006 to do another revision which was published in 2006 in the book Social Return on Investment: a Guide to SROI. New Economics Foundation in the UK began exploring ways in which SROI could be tested and developed in a UK context, publishing a DIY Guide to Social Return on Investment in 2007. The UK government's Office of the Third Sector and the Scottish Government commissioned a project beginning in 2007 which continues to develop guidelines that allow social businesses seeking government grants to account for their impact using a consistent, verifiable method. This resulted in another formal revision to the method, produced by a consortium led by Social Value UK, published in the 2009 Guide to SROI, since updated in 2012. Developments in the UK led to agreement between Social Value International and Social Value UK on eight principles. These are:
Involve stakeholders. Understand what changes. Value the things that matter. Only include what is material. Do not over-claim. Be transparent. Verify the result. Be responsive. There is a strong emphasis on the first principle, involving stakeholders. The third principle, 'Value the things that matter', includes the use of financial proxies and monetisation of value, and is unique to the SROI approach. These eight principles were renamed "Social Value Principles" by Social Value International in 2017, and guidance standards for each are being produced. Several software providers exist to support users to collect and manage data for SROI analysis. In 2009–2010 proponents affiliated with Social Value UK proposed to establish linkages between SROI analysis and IRIS, an initiative to create a common set of terms and definitions for describing the social and environmental performance of an organization. Some organisations that have used SROI have found it to be a useful tool for organizational learning.
Primary purpose While in financial management the term ROI refers to a single ratio, unlike Social Earnings Ratio (S/E Ratio), SROI analysis does not necessarily refer not to one single ratio but more to a way of reporting on value creation. It bases the assessment of value in part on the perception and experience of stakeholders, finds indicators of what has changed and tells the story of this change and, where possible, uses monetary values for these indicators. It is an emerging management discipline: a skill set for the measurement and communication of non-financial value. Therefore, the approach distinguishes between "SROI" and "SROI Analysis". The latter implies: a) a specific process by which the number was calculated, b) context information to enable accurate interpretation of the number itself, and c) additional non-monetized social value and information about the number's substance and context.
The Principles of Social Value There are eight principles of SROI, referred to as the Principles of Social Value.
… excerpt ends here. Continue reading the full article.
