SOCIAL IMPACT DEFINITION
Social impact is a term designed to demonstrate positive or negative outcomes to people or the planet. COVID-19 has only further exposed these gaping cracks in the social fabric globally, highlighting a wide range of 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 being within key social impact ecosystem players.
SOCIAL IMPACT PILLARS
Social impact can be achieved through a system change, often connected like a maze of social impact ecosystem players. These terms are well understood by key institutional players, associations, investment pillars, and key impact measurement terms.
KEY SOCIAL IMPACT TERMS
- Asset Owners
- Asset Managers
- Assets or Enterprise
- Impact Legal Structure or Entities
- Impact Association or Organizations
- Impact Themes
SOCIAL IMPACT TERMS ASSOCIATED WITH KEY ENTITIESFind out a list of common terms associated with key impact entities
Asset Manager is a broad term used by an institutional fund manager or private equity who manages different assets (fund). They often engage with an asset manager to manage a large chunk of investments. They often invest in private or public equity company to achieve desired financial and social impact results.
- Asset Class A grouping of similar types of investments. Includes Equity (stocks), Fixed Income (debt), Cash and Cash Equivalents, and Real Estate and Commodities.
- AUM Assets Under Management. The total market value of assets that an investment company or financial institution manages on behalf of investors. Describes how much of an investor's money, an investment company controls.
- Aggregation of Impact Gathering and analyzing data on your impact in a summarized format that is meaningful and useful to understand specific social and/or environmental objectives.
- Abatement cost: A cost borne by many businesses to remove and/or reduce an undesirable item that they have created. Abatement costs are generally incurred when corporations must reduce possible nuisances or negative byproducts created during production.
- Asset Managers Handle the day-to-day activities related to an asset's operation; asset managers focus on maximizing social impact for investment purposes.
- Angel investor Angel investors invest in small startups or entrepreneurs. Often, angel investors are among an entrepreneur’s family and friends. The capital angel investors provide may be a one-time investment to help the business propel or an ongoing injection of money to support and carry the company through its difficult early stages.
- Diversification A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio constructed of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.
- Double Bottom Line The simultaneous pursuit of financial and social returns on investment – the ultimate benchmark for a social enterprise or a social sector business.
- Fund Manager A fund manager is responsible for implementing a fund’s investing strategy and managing its portfolio trading activities. A fund can be managed by one person, by two people as co-managers, or by a team of three or more people.
- Foundation A permanent fund established and maintained by contributions for charitable purposes.
- Impact Fund A fund with goals to generate measurable and beneficial social and/or environmental impact in addition to financial return.
- Impact Investing Investing that aims to generate specific beneficial social or environmental effects in addition to financial gain. Made into companies, organizations, and funds to generate social and environmental impact alongside a financial return.
- Investor Any person or organization who commits capital with the expectation of financial returns. Investors utilize investments to grow their money and/or provide an income during retirement (for individuals), such as an annuity. Generally prefer to minimize risk while maximizing returns.
- Responsible Investment An investment strategy that seeks to generate both financial and sustainable value. Also called Socially Responsible Investment, Sustainable Investment, Ethical Investment, Green Investment, and Triple-Bottom-Line Investment.
- Return On Investment (ROI) Measures the amount of return on an investment relative to its cost.
- Wealth The condition of well-being, whether personal, professional, environmental, social, or financial.
- Warehouse Investment Form of inventory financing in which loans are made to manufacturers and processors based on goods or commodities held in trust as collateral for the loans.
SOCIAL BUSINESS, NON PROFITS etc
Enterprise or Asset is often a term used in relationship with Asset Owners or Asset Managers. There are many examples of enterprises, large businesses, small and medium-sized businesses (SMB), 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. For charities, it involves achieving adequate and reliable financial resources, 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 controlling interest is held by a venture capitalist firm.
American Evaluation Association (AEA)
The American Evaluation Association is a professional association of evaluators devoted to the application and exploration of program evaluation, personnel evaluation, technology, and many other forms of evaluation. AEA has approximately 7100 members representing all 50 states in the United States as well as 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. 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, 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 addressing 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 organizations from 40 countries across a huge range of sectors and disciplines, share a common goal: to change the way society accounts for value.
NEW FRONTIERS OF SOCIAL IMPACT
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 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 is the commitment of a group of actors from different sectors to a common agenda for solving a complex social problem.
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).
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 in order to catalyze the participation of co-investors 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.
An organization set up to provide help and raise money for those in need. Related to Non Governmental organizations (NGOs), Nonprofit organizations, Not for profit organizations.
The “fourth sector” is an emerging sector of the economy which 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.
A bond to fund environmental friendly projects. Financial projects to combat pollution and cultivate environmental friendly technologies such as energy efficiency, sustainable agriculture, fishery, forestry and water management, protection of aquatic and terrestrial ecosystems and clean transportation.
Alternatively referred to as environmental technology or cleantech, this term is used to describe a collection of modern technologies and approaches that maximize human, environmental, and economic benefits. Specifically, green tech utilizes advancements of 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; utilization of solar, wind and other renewable energy sources for power; biological water treatment and gray water recycling; biofuels; and energy-conserving electronics.
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.
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.
A corporation or an association that conducts business for the benefit of the general public without shareholders and without a profit motive.
Pay for Success Bond
Also know 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
Fund to strategically invest in order to achieve their corporate societal engagement strategy.
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 engage with global policymakers.
- Beneficiaries The individuals, groups, or organizations, whether targeted or not, that benefit, directly or indirectly, from the intervention
- Blockchain A distributed database that is used to maintain 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 & 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 findings, conclusions, and recommendations produced by an evaluation apply to other settings and contexts.
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 costing of environmental impacts caused by the corporation.
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 performs as a steward of the natural environment. Social criteria examine how a company manages relationships with its employees, suppliers, customers, and the communities where it operates. Governance deals with 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.
An environmental impact is the result of environmental impacts on human health and welfare.
Integration of ESG factors measuring the sustainable and ethical impact of investment for long-term risk assessment.
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 incorporating lessons learned into the decision-making process of both recipients and donors. An evaluation also refers to the process of 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.
A process of adding games or game-like elements in a non-game context to increase user engagement.
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.
Global Reporting Initiative. It is an international independent organization that helps businesses, governments, and other organizations understand and communicates the impact of business on critical sustainability issues such as climate change, human rights, corruption, and many others.
Gross National Happiness. Philosophy trying 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.
Positive and negative, primary and secondary long-term effects produced by an intervention, directly or indirectly, intended or unintended.
The process of identifying the future consequences of current or proposed action. 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 produced by an intervention – positive and negative, intended and unintended, direct and indirect. This means that an impact evaluation must establish what has been 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 goals and financial goals. We put in place 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.
Suggested by The Impact Management Project
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. Learn more: Impact Measurement
Impact Reporting and Investment Standards. The library of common indicators describes 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.
The creation or reinforcement of 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 that 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 also to compare a company’s finances and performance against other businesses within its industry.
A management tool used to improve the design of interventions, 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.
The products, capital goods, and services that result from a development intervention. May also include changes resulting from the intervention, which is relevant to the achievement of outcomes.
A result or consequence of an intervention’s outputs.
Collection of all numbers around impact.
Communication of numbers to give context to quantitative impact.
The preparation and publication of 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. When the business grows, the impact grows.
The effect of an activity on the community's social fabric and the well-being of the 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
See Pay for Success Bond
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 (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 the year 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.