Determining Social Return on Investment (SROI)

These days companies are under more pressure from all quarters to be more proactive in taking on environmental and social challenges. These challenges affect almost every aspect of business, from ecological impact to employee health and human rights in the supply chain. The most common response has been to develop CSI, community and sustainable development initiatives.

While great progress has been made in measuring the impact of these initiatives in terms of operational metrics or social indicators, there is often some difficulty in associating these with real financial impact. There is a school of thought that the value is too indirect or too deeply embedded to be easily exposed. And there is the additional difficulty of isolating variables – ascribing impact accurately to a specific intervention that is implemented in the context of other influencing factors.

At the same time, real value is being created – increased sales, reduced risks, decreased costs. And there are serious attempts at quantifying the indirect value.

Perhaps the most visible way that CSI programmes create value is through brand reputation enhancement. It is becoming clear that more tangible results – like increased sales and revenue, talent retention and price premiums – can be influenced by a company’s reputation in the areas of social, governance and environmental responsibility and good practice.

However, CSI community development programmes can create other forms of value: enhanced growth, better capital returns and more effective management. It is important for companies to analyse and present this value to its stakeholders and investors.

The idea of a ‘return’ on social and community investment and development has been a fundamental shift in global socio-economic and community development thinking. Next Generation Consultants determines the return on investment through our unique Impact Investment Index aligned with the library of indicators we have developed over the past five years.  This provides reliable assessments to determine the actual value gained by donors through investing in communities.

In particular, in order to measure social return on investment we consider the following aspects:

Return on investment per investment or focus area – we have identified more than 15 such investment portfolios – including health, education, sport, skills, community welfare, etc.

Return on investment per aspect, including and considering the following:

  • Reputation enhancement – which is linked to brand awareness and media exposure.
  • Promoting empowerment – for example, in compliance with the BBBEEE Act.
  • Mitigating operational risk – for example, mitigating negative environmental or health impacts from the operations.
  • Supports and enhances business operational requirements – for instance assisting in the development of future skills that may be required: recruitment, retention, skills development, industry initiatives.
  • Promotes business synergies/alignment/integration – the benefit of the investment also goes to the various other business units and may also support and deliver collective benefit for the group of companies, for instance through the leveraging of resources.
  • Supports corporate values and strategies – like the code of conduct, code of ethics, or other internal policies that guide the values of the organisation.
  • Contributes to enhanced competitiveness – for example, displays innovation, differentiation, competition: new products, new services, new markets.
  • Promotes and enhances public-private partnerships – for government (national, provincial, local), NGOs, companies.
  • Supports Government Priorities – for example, National Development Plans, Millennium Development Goals.
  • Enhances stakeholder relationships – for example, opportunities to engage, promote and enhance policy, advocacy, etc.
  • Global compliance – in terms of international standards, commitments, company policies, e.g. Equator Principles, Responsible Investment Code, Financial Services Charter, Global Compact, etc.
  • Supports future sustainability of organisation and stakeholder expectations – for instance, ensures financial inclusion, customer financial education (financial literacy, increased access to finance).