Putting a measure on social good

By Stephanie Denamps

Social enterprises are a new type of hybrid organisations. They are businesses without having profit as their main or only objective. They are charities without relying primarily on grants funding. With players on both ends of the spectrum expanding and getting into social enterprise, the continuum becomes increasingly broad and diverse.

A question of raising interest is on the possible evaluation of their impact. How can we compare these organisations to one another? How can we measure the effect they have on their beneficiaries and on society as a whole? With limited funds being distributed by the government and foundations, and with individuals wanting to participate more in their communities’ development, everyone wants to know where is a good place to invest time or money.

Unfortunately, because the sector is so new and heterogeneous, the answer might not be so straight forward. There is not one simple bottom line with a generally accepted indicator such as “net profit”. In fact, players in this sector distinguish themselves by having a double or even triple bottom line. There is not a standardised model to capture positive and negative flows such as the Net Present Value (NPV) used in purely financial analysis. Yet social businesses need to make investment decisions for themselves and need to attract external investors.

Some organisations have developed their own methodologies based on what they believe are the most appropriate criteria. For example, the Acumen fund applies the Best Available Charitable Option (BACO) Ratio methodology to measure the “social impact” of the projects they choose to fund. Others are trying to develop universal tools that could serve all purpose-driven organizations. Among these, the most successful to date seems to be the Social Return on Investment (SROI), which aims to quantify non-financial returns as much as possible.

The reality is that a consensus is far from being reached. There is not an industry standard, perhaps because there is not even a clearly defined sector yet. However, even though we might never reach a blueprint model, these efforts contribute to evidencing successes and best practices. They help develop a shared identity, a common language and bring to light what matters the most for the people running and funding these organisations. Pioneers in this movement are likely to be setting the grounds for the numerous smaller players coming along and looking for a benchmark.

In the meantime, probably the best advice is for organisations to focus on transparency, reflecting financially the flows that can be quantified logically and bringing out the rest as precisely as possible. Creativity and simplicity in the reporting might also do the trick (see the HCT report developed by Candice, a former OnPurpose Associate). In the end, what will continue to move investors attracted to this sector is the human, social or environmental contribution they can make, and often a heartfelt story will be more powerful at conveying this than a set of numbers.