Social Impact Definition and Terms
Social impact is a term designed to demonstrate positive or negative outcomes for people or the planet. COVID-19 has only further exposed these gaping cracks in the social fabric globally, highlighting many inequities that will continue to impact people's lives and degrade environmental outcomes disproportionately. The purpose of this article is to provide a quick dictionary of terms within key social impact ecosystem players.
Enterprise (Social Purpose Organization)
Enterprise or Asset is often used in relationships with Asset Owners or Managers. There are many examples of enterprises, large businesses, small and medium-sized businesses (SMBs), B-Corps, and even nonprofits.
Financial sustainability for a social enterprise is the degree to which it collects sufficient revenues from the sale of its services to cover the full costs of its activities. It involves achieving adequate and reliable financial resources for charities, normally through a mix of income types.
A company or entity in which an investor makes a direct investment. More commonly used in the venture capital vernacular to describe a company in which a venture capitalist firm holds a controlling interest.
Association and Membership
The American Evaluation Association is a professional association of evaluators devoted to applying and exploring program evaluation, personnel evaluation, technology, and many other evaluation forms. AEA has approximately 7100 members representing all 50 states in the United States and over 60 foreign countries.
The Global Impact Investing Network. A nonprofit organization dedicated to increasing the scale and effectiveness of impact investing around the world.
The International Integrated Reporting Council. A global coalition of regulators, investors, companies, standard setters, the accounting profession, and NGOs – seeks to raise awareness and encourage companies to include non-financial information in their regular reports.
The Organization for Economic Co-operation and Development. It uses its wealth of information on a broad range of topics to help governments foster prosperity and fight poverty through economic growth and financial stability. Also, it helps ensure the environmental implications of economic and social development are taken into
Social Capital Markets. The network of investors, entrepreneurs, and social impact leaders addresses the world’s toughest challenges through market-based solutions by convening ideas and capital to catalyze positive change.
Social Value International. A global network focused on social impact and social value. Their members, comprised of 40 countries across many sectors and disciplines, share a common goal: to change how society accounts for value.
Impact Institutions and Structures
A benefit corporation that is certified by B Lab.
A class of corporations that voluntarily meets higher standards of corporate purpose, accountability, and transparency. The major characteristics of the benefit corporation form are 1) a requirement that a benefit corporation must have a corporate purpose to create a material positive impact on society and the environment; 2) an expansion of the duties of directors to require consideration of non-financial stakeholders as well as the financial interests of shareholders; and 3) an obligation to report on its overall social and environmental performance using a comprehensive, credible, independent and transparent third-party standard.
Corporate Social Responsibility. An organization's initiative to take responsibility beyond profit maximization.
CSR may also be referred to as “corporate citizenship” and can involve incurring short-term costs that do not provide an immediate financial benefit to the company but instead promote positive social and environmental change.
The Community Development Financial Institution. A private-sector financial institution that focuses on personal lending and business development efforts in local communities. CDFIs can receive federal funding through the U.S. Department of the Treasury by completing an application.
Donor-Advised Funds. Charitable giving vehicle sponsored by a public charity that allows you to make a contribution to a charity and be eligible for an immediate tax deduction, and then recommend grants over time to any IRS-qualified public charity.
Financial institutions are dedicated to funding new and upcoming businesses and economic development projects by providing equity capital and/or loan capital.
Development Finance Institutions
The term ” development finance institutions ” (DFI) encompasses not only government development banks, but also non-governmental Microfinance organizations, that match grants to attempt to promote community development, decentralization of power, and local empowerment. Measures of the social cost of DFIs that receive public funds, help to check whether DFIs are good uses of public funds, i.e., if the social benefit of a DFI exceeds the social cost, then public funds are indeed well-spent, further improving social welfare.
Development Impact Bonds
Development Impact Bonds. Provide upfront funding for development programs by private investors, who are remunerated by donors or host-country governments—and earn a return—if evidence shows that programs achieve pre-agreed outcomes.
The “fourth sector” is an emerging sector of the economy that consists of “for-benefit” organizations that combine market-based approaches of the private sector with the social and environmental aims of the public and non-profit sectors.
Collective Impact: Collective impact is the commitment of a group of actors from different sectors to a common agenda for solving a complex social problem.
Cooperative: Firm owned, controlled, and operated by a group of users for their own benefit. Each member contributes equity capital, and shares in the control of the firm on the basis of one-member, one-vote principle (and not in proportion to his or her equity contribution).
Corporate Governance: The framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company’s relationship with its all stakeholders (financiers, customers, management, employees, government, and the community).
Catalytic First Lost Capital: Catalytic first-loss capital refers to socially- and environmentally-driven credit enhancement provided by an investor or grant-maker who agrees to bear first losses in an investment to catalyze co-investors participation that otherwise would not have entered the deal. Catalytic first-loss capital has gained recent prominence in impact investing dialogue as more investors look to enter the market.
Charity: An organization set up to provide help and raise money for those in need. Related to non-governmental organizations (NGOs), Nonprofit organizations, and not-for-profit organizations.
Fourth Sector: The “fourth sector” is an emerging sector of the economy that consists of “for-benefit” organizations that combine market-based approaches of the private sector with the social and environmental aims of the public and non-profit sectors.
Green Bond: A bond to fund environmentally friendly projects. Financial projects to combat pollution and cultivate environmentally friendly technologies include energy efficiency, sustainable agriculture, fishery, forestry and water management, aquatic and terrestrial ecosystems protection, and clean transportation.
Green Tech: Alternatively called environmental technology or clean tech, this term describes a collection of modern technologies and approaches that maximize human, environmental, and economic benefits. Specifically, green tech utilizes advancements in modern environmental science, biotechnology, and engineering to provide products and services in a way that least degrades natural resources and in some cases, regenerates them. Common examples of green tech include materials recycling; using solar, wind, and other renewable energy sources for power; biological water treatment and gray water recycling; biofuels; and energy-conserving electronics.
MRI: Mission-Related Investment. An investment made using assets from a foundation’s endowment that seeks to create social impact as well as typically risk-adjusted financial returns. Similar to Impact Investing.
NGO: Non-Governmental Institution. A non-profit, citizen-based group that functions independently of government. NGOs, sometimes called civil societies, are organized on community, national, and international levels to serve specific social or political purposes and are cooperative rather than commercial in nature.
Non-Profit: A corporation or an association that conducts business for the general public's benefit without shareholders and a profit motive.
Pay for Success Bond: Also known as “Social Investment Bond”, “Pay for Success Financing”, “Social Benefit Bond” or “Social Bond”. A contract between the public sector and one or more non-government entities to address social challenges. Commitment to improving social outcomes that will result in public savings and reduce taxpayer expenses.
Pay for Success Financing: See Pay for Success Bond
Pension Fund: Fund to strategically invest in order to achieve their corporate societal engagement strategy.
Philanthropy: An act or gift done or made for humanitarian purposes.
Program Responsible Investments (PRI): Principles for Responsible Investment. Encourage investors to use responsible investments to enhance returns and better manage risk. Does not operate for its own profit but engages with global policymakers.
Impact Measurement Terms
Beneficiaries : The individuals, groups, or organizations, whether targeted or not, that benefit, directly or indirectly, from the intervention
Blockchain: A distributed database maintains a continuously growing list of records called blocks. Each block contains a timestamp and a link to the previous block. A peer-to-peer network manages a blockchain, collectively adhering to a protocol for validating new blocks
.Blockchain for Social Impact: Using blockchain technology to ensure positive economic, social, and environmental impact.
Disruptive Innovation: A process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves upmarket, eventually displacing established competitors. Clayton Christensen coined the term in 1995.
Development Evaluation: An evaluation approach can help social innovators develop social change initiatives in complex or uncertain environments. Developmental evaluation (DE) originators liken their approach to research & and development in the private sector product development process because it facilitates real-time, or close to real-time, feedback to program staff, thus facilitating a continuous development loop.
Double Bottom Line: Simultaneous pursuit of financial and social returns on investment – the ultimate benchmark for a social enterprise or a social sector business.
Due Diligence: An investigation or audit of a potential investment confirms all facts, such as reviewing all financial records, plus anything else deemed material. Due diligence refers to the care a reasonable person should take before entering into an agreement or a financial transaction with another party. When sellers perform a due diligence analysis on buyers, items that may be considered are the buyer’s ability to purchase and other elements that would affect the acquired entity or the seller after the sale has been completed.
Data: Information collected by a researcher. Data gathered during an evaluation are manipulated and analyzed to yield findings that serve as the basis for conclusions and recommendations.
External Validity: The degree to which an evaluation produces findings, conclusions, and recommendations that apply to other settings and contexts.
Environmental Accounting: Environmental accounting refers to a) national accounting: physical and monetary accounts of environmental assets and the costs of their depletion and degradation; b) corporate accounting: the term usually refers to environmental auditing but may also include the cost of environmental impacts caused by the corporation.
ESG: Environmental, Social, and Governance. A set of standards for a company’s operations that socially conscious investors use to screen investments. Environmental criteria look at how a company behaves as a natural environment steward. Social criteria examine how a company manages relationships with its employees, suppliers, customers, and the communities where it operates. Governance involves a company’s leadership, executive pay, audits, internal controls, and shareholder rights. Investors who want to purchase securities that have been screened for ESG criteria can do so through socially responsible mutual funds and exchange-traded funds.
Environmental Impact: An environmental impact results from environmental impacts on human health and welfare.
ESG Integration: Integration of ESG factors measuring the sustainable and ethical impact of investment for long-term risk assessment
Evaluation: The systematic and objective assessment of an ongoing or completed project, program, policy, design, implementation, and results. The aim is to determine the relevance and fulfillment of objectives, efficiency, effectiveness, Impact, and Sustainability. An evaluation should provide credible and useful information, enabling the incorporation of lessons learned into the decision-making process of both recipients and donors. An evaluation also refers to determining the worth or significance of an activity, policy, or program. As systematic and objective as possible, an assessment of a planned, ongoing, or completed intervention. In some instances, evaluation involves the definition of appropriate standards, the examination of performance against those standards, an assessment of actual and expected results, and the identification of relevant lessons.
Gamification: A process of adding games or game-like elements in a non-game context to increase user engagement.
GIIRS: Global Impact Investing Rating System. A B Lab project assesses companies and funds' social and environmental impact (but not the financial performance), using a rating approach analogous to Morningstar investment rankings or rating agency credit risk ratings.
GRI: Global Reporting Initiative. It is an international independent organization that helps businesses, governments, and other organizations understand and communicate the impact of business on critical sustainability issues such as climate change, human rights, corruption, and many others.
GNH: Gross National Happiness. Philosophy tries to measure the collective health of a country. Attempts to measure the total sum of economic output and net environmental impacts, the spiritual and cultural growth of citizens, mental and physical health, and the strength of the corporate and political systems. Impact positive and negative, primary and secondary long-term effects produced by an intervention, directly or indirectly, intended or unintended.
Identifying the future consequences of current or proposed action and analyzing, monitoring, and managing the social consequences of development.
The impact chain represents how a social purpose organization achieves its impact by linking the organization to its activities and the activities to outputs, outcomes, and impact. The impact chain forms the central line running through the impact plan.
Provides information about the impacts an intervention produces – positive and negative, intended and unintended, direct and indirect. This means that an impact evaluation must establish the cause of observed changes. Typically involves collecting baseline data for both an intervention group and a comparison or control group and the second round of data collection after the intervention, sometimes even years later.
The process of channeling the holistic impact of the organization into creating sustainable business value in the ecosystem. An ongoing process of figuring out which effects experienced by people and the planet are material, both positive and negative. Guided by this assessment and our intentions and constraints, we set impact and financial goals. We established the governance and processes to deliver consistently on those goals. Still, we also continue to learn about people and the planet's experience and use that information to adapt our goals and improve.
A table that captures how an activity makes a difference is how it uses its resources to provide activities that lead to particular outcomes for different stakeholders.
Measuring and managing the process of creating a social and environmental impact to maximize and optimize it.
Impact Reporting and Investment Standards. Common indicators describe an organization's social, environmental, and financial performance. Seeks to standardize the definitions of commonly used indicators.
The financial, human, and material resources used for development intervention.
Creating or reinforcing a network of organizations to effectively generate, allocate, and use human, material, and financial resources to attain specific objectives is sustainable.
A characteristic of our mental states and experiences represents something other than itself and gives a sense of something. This representational character of mind or consciousness – its being “of” or “about” something – is intentionality.
Overall strategy aligning societal, environmental, and business objectives to increase business value.
Presentation of an organization's economic, social, and environmental impact.
Key Performance Indicator. A set of quantifiable measures a company uses to gauge its performance over time. These metrics are used to determine a company’s progress in achieving its strategic and operational goals and compare its finances and performance against other businesses within its industry.
A management tool is used to improve interventions' design, most often at the project level. It involves identifying strategic elements (inputs, outputs, outcomes, impact) and their causal relationships, indicators, and the assumptions or risks that may influence success and failure. It thus facilitates planning, execution, and evaluation- of a development intervention.
A livelihood comprises the capabilities, assets (including material and social resources), and activities required for living. A livelihood is sustainable when it can cope with and recover from stress and shocks and maintain or enhance its capabilities and assets both now and in the future while not undermining the natural resource base.
Metrics and Standards
Used by investors to invest in revenue-generating social enterprises to generate social and/or environmental impact.
Defining what matters is at the core of materiality. In business and sustainability, materiality refers to identifying and prioritizing the environmental, social, and governance (ESG) issues that are most significant to a company and its stakeholders. It involves determining which issues have the potential to impact the company's long-term success, reputation, and value creation.
Materiality goes beyond simply identifying all possible ESG issues. It requires a careful analysis of their relevance and significance to the company, considering factors such as stakeholder expectations, regulatory requirements, industry standards, and emerging trends. By understanding what matters most, companies can focus on addressing the most material issues to their business and stakeholders.
Defining materiality involves a comprehensive assessment that considers both internal and external perspectives. Internally, companies must consider their business strategy, operations, risks, and opportunities. Externally, they must engage with their stakeholders, including investors, customers, employees, communities, and NGOs, to understand their concerns and expectations.
The materiality process typically involves conducting a materiality assessment, including surveys, interviews, benchmarking, and stakeholder consultations. The findings of this assessment help companies identify the most relevant ESG issues and prioritize their actions accordingly. The results are often presented in a materiality matrix or report, which visually represents the importance and impact of each issue.
Defining what matters through materiality is not a one-time exercise but an ongoing process. As business and societal landscapes evolve, so do the material issues. Companies must regularly review and update their materiality assessments to ensure they remain aligned with changing expectations and emerging risks.
Ultimately, materiality enables companies to focus their resources and efforts on the most important issues for sustainable value creation. By addressing these material issues, companies can enhance their performance, mitigate risks, build trust with stakeholders, and contribute positively to society and the environment.
The products, capital goods, and services result from a development intervention. It may also include changes resulting from the intervention, which is relevant to achieving outcomes.
A result or consequence of an intervention’s outputs.
Quantitative impact refers to the collection and analysis of numerical data that measures the extent and magnitude of the impact created by an intervention. It involves systematically gathering and evaluating various quantitative indicators to provide a comprehensive understanding of the intervention's effectiveness.
By quantifying the impact, organizations can assess the tangible outcomes and progress toward achieving their goals. This data-driven approach helps make informed decisions, set realistic targets, and monitor the intervention's success over time.
Quantitative impact measurement involves using key performance indicators (KPIs) and other metrics to quantify the changes brought about by the intervention. These metrics can include financial figures, such as revenue generated or cost savings, as well as social and environmental indicators, such as the number of people reached, reduction in carbon emissions, or improvement in education outcomes.
By collecting and analyzing quantitative data, organizations can gain insights into the effectiveness and efficiency of their interventions. It enables them to identify areas of success and areas that require improvement, allowing for evidence-based decision-making and strategic planning.
Moreover, quantitative impact assessment provides a standardized and objective way to compare interventions and measure their relative success. It allows for benchmarking against industry standards, best practices, and previous performance, enabling organizations to track progress and make data-driven adjustments to their strategies.
Overall, quantitative impact assessment plays a crucial role in understanding the effectiveness and efficiency of interventions. By collecting and analyzing numerical data, organizations can gain valuable insights, demonstrate accountability, and continuously improve their impact on society and the environment.
The qualitative impact goes beyond the numbers and focuses on the narrative behind the quantitative data. It involves capturing the stories, experiences, and perspectives of individuals and communities affected by an intervention to provide a deeper understanding of its impact.
While quantitative impact measurement provides valuable metrics and indicators, qualitative impact adds richness and context to the numbers. It allows for a more comprehensive assessment of the social and environmental changes an intervention brings, highlighting the human stories and qualitative dimensions that cannot be captured through numbers alone.
Through qualitative methods such as interviews, focus groups, and case studies, organizations can gather firsthand accounts and personal narratives that shed light on the real-life implications of their interventions. These stories provide insights into the lived experiences of individuals, their perceptions of change, and the broader social dynamics at play.
Qualitative impact assessment also helps uncover unintended consequences, unforeseen challenges, and hidden opportunities that may arise from an intervention. It allows organizations to understand the nuances and complexities of the impact they are creating, enabling them to adapt and refine their strategies accordingly.
Organizations can paint a more holistic picture of their impact by combining quantitative and qualitative approaches. The numbers provide quantitative evidence, while the stories and narratives add depth and meaning. Together, they create a more comprehensive understanding of the intervention's effectiveness and its implications for individuals, communities, and the environment.
Ultimately, qualitative impact communication brings the numbers to life by giving them context and human relevance. It helps stakeholders connect with the impact deeper, fostering empathy, understanding, and engagement. Organizations can inspire action, drive change, and create a lasting positive difference by effectively communicating qualitative impact.
Preparing and publishing an account about an organization’s social, environmental, employee, community, customer, and other stakeholder interactions and activities and, if possible, the consequences of those interactions and activities. Contains both financial and descriptive non-quantified information.
An organization that promotes economic, social, and environmental impact alongside generating revenue is a powerful force for positive change. These organizations strive to create a meaningful impact on society and the environment by focusing on sustainability and responsible business practices. They understand that their success is not solely measured by financial gains but also by the positive outcomes they achieve.
As these organizations grow and thrive, their impact expands exponentially. They can implement larger-scale initiatives and make a greater difference in the world with increased resources and reach. They leverage their revenue generation to fund social and environmental projects, support local communities, and drive innovation towards a more sustainable future.
By integrating economic, social, and environmental considerations into their business models, these organizations create a holistic approach to growth. They prioritize the well-being of all stakeholders, including employees, suppliers, customers, and the communities in which they operate. They foster strong relationships and build trust by actively engaging with these stakeholders, further amplifying their impact.
In this interconnected world, the actions of these organizations ripple far beyond their immediate sphere of influence. They inspire others to adopt similar practices and contribute to a collective effort to address pressing global challenges. As more organizations embrace this mindset, the potential for positive change grows exponentially, creating a ripple effect that can transform industries and societies.
Ultimately, an organization that promotes economic, social, and environmental impact alongside generating revenue is a catalyst for a more sustainable and equitable future. By redefining success beyond financial metrics, they demonstrate that profit and purpose can coexist and that businesses have the power to be a force for good. Through their commitment to creating a positive impact, they inspire and empower others to join the movement towards a more sustainable and inclusive world.
Social impact refers to the profound effect of an activity or intervention on a community's social fabric and the overall well-being of individuals and families. It encompasses the positive changes and improvements resulting from initiatives aimed at addressing social challenges and creating a more equitable and inclusive society.
When an activity has a social impact, it goes beyond simply generating economic value. It reaches the core of human existence, touching the lives of individuals and families in meaningful ways. This impact can manifest in various forms, such as improved access to education, healthcare, and basic necessities, enhanced social cohesion, increased employment opportunities, reduced inequality, and greater empowerment of marginalized communities.
By focusing on social impact, organizations and initiatives can create a ripple effect of positive change that uplifts entire communities. They recognize that a thriving society is built on the well-being and flourishing of its members, and they actively work towards addressing systemic issues and creating opportunities for all.
Social impact is not limited to the immediate outcomes of an activity but extends to the long-term sustainability and resilience of communities. It involves considering the broader social implications of actions and interventions, understanding the interconnectedness of social systems, and working towards inclusive, participatory, and equitable solutions.
Measuring and evaluating social impact is essential to ensuring accountability and understanding the effectiveness of interventions. It involves collecting quantitative and qualitative data to capture the tangible and intangible outcomes of activities. This data-driven approach helps organizations assess their initiatives' success, identify improvement areas, and make informed decisions to maximize their social impact.
Ultimately, social impact represents the transformative power of individuals, organizations, and communities coming together to address social challenges and create a better future. We can build a more just, compassionate, and sustainable society for all by prioritizing the well-being and empowerment of individuals and families.
Social Impact Investing
Investments into businesses to generate social and/or environmental impact alongside generating revenue.
Sustainable Accounting Standard Boards. An independent standard board sets industry-specific corporate sustainability disclosure to ensure that disclosure is material, comparable, and decision-useful for investors.
Social Benefit Bond
See Pay for Success Bond
A social bond, also known as a pay-for-success bond, is a financial instrument that serves as a unique and innovative way to address social challenges and promote positive change. It brings together investors, governments, and service providers in a collaborative effort to achieve specific social outcomes.
Similar to traditional bonds, social bonds involve raising capital from investors. However, the key difference lies in how the funds are utilized. Instead of being allocated for traditional purposes like infrastructure or business expansion, social bonds are specifically designed to fund social programs and initiatives that aim to address pressing societal issues.
The success of a social bond is linked to the achievement of predetermined social outcomes. These outcomes are typically aligned with the United Nations Sustainable Development Goals (SDGs) and focus on areas such as education, healthcare, poverty alleviation, and environmental sustainability. The bond issuers, often governments or social enterprises, enter into agreements with service providers who are responsible for implementing and delivering the social programs.
The impact of these programs is rigorously measured and evaluated through data collection and analysis. If the predetermined social outcomes are successfully achieved within a specified timeframe, the investors receive financial returns on their investments. However, if the outcomes are not met, the investors may receive reduced or no returns.
The use of social bonds has gained significant traction in recent years as a means to mobilize capital for social impact. They provide an opportunity for investors to align their financial goals with their desire to make a positive difference in society. Additionally, social bonds encourage collaboration and accountability among stakeholders, fostering a collective effort to address social challenges effectively.
By expanding the scope of traditional financial instruments to encompass social impact, social bonds contribute to a more inclusive and sustainable future. They demonstrate the potential for finance to catalyze positive change, unlocking new avenues for addressing societal issues and improving the well-being of communities.
Social Return on Investment. A method for measuring values that are not traditionally reflected in financial statements. Including social, economic, and environmental factors, which can identify how effectively an organization uses its capital and other resources to create value for communities.
Social Venture Capital
Unlike traditional venture capital - investors look beyond financial return and risk-reward models when deciding where to place their money.
To meet the needs of the present without compromising the ability of future generations to meet their own needs.
Theory of change
Theory of Change (TOC) documents the change – or impact – that you seek accountability and internal organizational awareness of potential challenges. In the ToC, the primary challenges indicated are your underlying assumptions.
Essentially, it's all about understanding the long-term goal and mapping backward in a way that irons through details. By doing this, you might uncover gaps or potentially at-risk assumptions.
United Nations Sustainable Development Goals. Also known as “Transforming Our World: The 2030 Agenda for Sustainable Development”. Established in 2015 and consists of 17 Global Goals and 169 Targets to combat sustainable development issues by 2030.
United Nations Millennium Development Goals. Established in 2000 and consists of 8 international goals for 2015 to combat sustainable development issues.
United Nations General Assembly. Established in 1945 under the Charter of the United Nations. Occupies a central position as the chief deliberative, policymaking, and representative organ of the United Nations.
A person with a strong belief that the world will be a better place in the future.
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