The effect of an activity on the social fabric of the community and well-being of the individuals and families. Social impact landscape is full of a maze, many frameworks, many tools.
In this article, you will learn different social impact methods and understand how they differ from each other. Before we dive to understand them, let’s look at popular rating system in a financial industry called MorningStar. MorningStar measures standardized metrics such as profit, revenue and other important benchmarking between different business enterprises. The nearest equivalent to social impact in the social sector is MIX Markets for Micro-finance and IRIS for SGB/SBA. IRIS is the catalog of generally-accepted performance metrics that leading impact investors use to measure the social, environmental, and financial performance of their investments. Investment Funds report data for an individual investment through a B-Analytics that can be reported in IRIS format, which can later be used to communicate and benchmark various social impact. Frequently these self-reported data can be falsely reported because of wrong intentions and lack of proper interpretation. If an organization uses standardization data, frequently context is lost making data irrelevant.
With better data, we can direct capital to grow the social enterprises that are making the most difference.
We will go over commonly used social impact approaches today and point out SoPact’s focus area and approach to improve a better outcome.
When social impact evaluators communicate findings to funders, there is a fundamental lack of common approach. Let’s start by understanding four most common approaches in this domain from bottom-up.
Compare Social Impact Measurement Methods Randomized Control Trial at bottom are primarily used by impact researchers who lead evidence-based research approaches. Though these methods can be justified in a many long-term studies, often they are useful in proving or disproving – if treatment is effective for a selected program. Unfortunately, this approach can be costly, often error prone and time consuming. More importantly, they do not provide immediate feedback.
Program Outcome Improvement
is more useful when beneficiary group requires agile feedback and regular interventions such as disability employment, HIV/AIDS outcome, Patient outcome etc. Unlike survey-based approach, these system manage beneficiary lifecycle and manage program outcome.
Funder Impact Measurement
Often this area is looked as a traditional M & E from funder perspective. The challenge with current approaches is that there is a limited agreement between funder and investee/grantee on measurement language and limited sharing reduces impact envisioned by funders. Later in the section, I will demonstrate SoPact’s collaborative approach allows to create shared measurement – improving a long lasting effect on intervention.
Standards Based Benchmarking
Social impact measurement practices can be seen as a pyramid, where B-Analytics/GIIN works with IRIS 3.0 at the top. Though they are leading impact measurement service for social impact funds, their approach has major transparency issues. For Example: IRIS does not include any metrics about immunization rates - or even about health. One of the many IRIS Partner Metrics systems being developed with the Center for Health Market Interventions does include health metrics,….. one of which is “Health Intervention Completion Rate” But imagine being the manager of this impressive immunization program and having to enter 33% in an investor form that included that metric - it just doesn’t capture the impact that you have been working so hard for.
A grouping of similar types of investments. Includes Equity (stocks), Fixed Income (debt), Cash and Cash Equivalents and Real Estate and Commodities.
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 investors 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 be able to understand specific social and/or environmental objectives.
A cost borne by many businesses for the removal and/or reduction of an undesirable item that they have created. Abatement costs are generally incurred when corporations are required to reduce possible nuisances or negative byproducts created during production.
handle the day-to-day activities related to an asset's operation, asset managers focus on maximizing social impact for investment purposes.
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.
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.
The individuals, groups, or organizations, whether targeted or not, that benefit, directly or indirectly, from the intervention.
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 blockchain is managed by a peer-to-peer network, collectively adhering to a protocol for validating new blocks.
Blockchain for Social Impact
Using blockchain technology to ensure positive economic, social and environmental impact.
A benefit corporation that is certified by B Lab.
A base case (also called a no build), which is a realistic representation of expected future conditions without the project,
B Lab is a non-profit organization headquartered in Wayne, Pennsylvania, which created, and awards, the B Corporation certification for for-profit organizations.
A class of corporation 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.
A term used to describe an investment philosophy used by investors seeking to profit from environmentally friendly companies. Clean Tech firms seek to increase performance, productivity, and efficiency by minimizing negative effects on the environment.
A communication network. The word “cloud” often refers to the internet, allowing online processing and storage as well as electronic access to software and other resources.
The process of integrating diverse metric sets into an investment portfolio for measuring and managing the impact.
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.
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 organization (NGO), Nonprofit organization, Not for profit organization.
Donor Advised Funds
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.
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.
A process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors. The term was coined by Clayton Christensen in 1995.
Financial institutions dedicated to fund 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.
An evaluation approach that can assist social innovators develop social change initiatives in complex or uncertain environments. Developmental evaluation (DE) originators liken their approach to the role of 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.
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.
An investigation or audit of a potential investment to confirm 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, as well as other elements that would affect the acquired entity or the seller after the sale has been completed.
Learn More: Impact Due Diligence
The degree to which findings, conclusions, and recommendations produced by an evaluation are applicable 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 and 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 an investment for long-term risk assessment.
Entrepreneur Support Network. An organization that operates within an entrepreneurial ecosystem who promotes entrepreneurship via networks/communities to foster growth and learning.
The systematic and objective assessment of an ongoing or completed project, program or policy, its design, implementation, and results. The aim is to determine the relevance and fulfillment of objectives, efficiency, effectiveness, Impact, and Sustainability. An evaluation should provide information that is credible and useful, enabling the incorporation of 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. An assessment, as systematic and objective as possible, of a planned, ongoing, or completed intervention. Evaluation in some instances 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.
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 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.
A permanent fund established and maintained by contributions for charitable purposes.
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 process of adding games or game like elements in a non-game context to increase user engagement.
The Global Impact Investing Network. A nonprofit organization dedicated to increasing the scale and effectiveness of impact investing around the world.
Global Impact Investing Rating System. A project of B Lab that assesses the social and environmental impact (but not the financial performance) of companies and funds, using ratings approach analogous to Morningstar investment rankings or rating agency credit risk ratings.
Global Reporting Initiative. 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, not only of economic output, but also of net environmental impacts, the spiritual and cultural growth of citizens, mental and physical health and the strength of the corporate and political systems.
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.
Philosophy. A theory that whole entities, as fundamental components of reality, have an existence other than as the mere sum of their parts.
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 a 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 the collection of baseline data for both an intervention group and a comparison or control group, as well as a second round of data collection after the intervention, sometimes even years later.
A fund with goals to generate measurable and beneficial social and/or environmental impact in addition to financial return.
Investing that aims to generate specific beneficial social or environmental effects in addition to financial gain. Made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.
Learn More: Social Impact Investing
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 but we also continue to learn about the experience of people and the planet 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: that is, how it uses its resources to provide activities that then lead to particular outcomes for different stakeholders.
Measuring and managing the process of creating social and environmental impact in order to maximize and optimize it. Learn more: Impact Measurement
Impact Reporting and Investment Standards. Library of common indicators which are used to describe the social, environmental and financial performance of an organization. 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 on a sustainable basis.
The International Integrated Reporting Council. 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.
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.
Any person or organization who commits capital with the expectation of financial returns. Investors utilize investments in order to grow their money and/or provide an income during retirement (for individuals), such as with an annuity. Generally prefer to minimize risk while maximizing returns.
A characteristic of our mental states and experiences which is a representation of 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, with the intention of increasing 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 both material and social resources) and activities required for a means of 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.
A program logic model is defined as a picture of how your organization does its work – the theory and assumptions underlying the program. A program logic model links outcomes (both short- and long-term) with program activities/processes and the theoretical assumptions/principles of the program. A visual representation which provides a road map showing the sequence of related events connecting the need for a planned program with the programs' desired outcomes and results.
Metrics and Standards
Used by investors to invest in revenue-generating social enterprises in order to generate social and/or environmental impact.
Defining what matters.
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.
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 account.
The products, capital goods, and services which 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.
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.
Collection of all numbers around impact.
Communication of numbers to give context to quantitative impact.
An investment strategy which 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 the investment’s cost.
Software as a Service. A software licensing model where access to the software is provided on a subscription basis.
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, impact grows.
The effect of an activity on the social fabric of the community and 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 who 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 Capital Markets. 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.
Social Venture Capital
Differs from traditional venture capital - investors look beyond financial return and risk-reward models when deciding where to place their money.
To be able 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 are seeking for both 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 consist of a set of 17 Global Goals and 169 Targets to combat sustainable development issues by 2030.
United Nations Millennium Development Goals. Established in 2000 and consist of 8 international goals for the year of 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 the world will be a better place in the future.
The condition of well-being, whether personal, professional, environmental, social or financial.
Form of inventory financing in which loans are made to manufacturers and processors on the basis of goods or commodities held in trust as collateral for the loans.