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Contents lists available at ScienceDirect

Evaluation and Program Planning

journal homepage: www.elsevier.com/locate/evalprogplan

Social return on investment—Development and convergence

Jeremy Nicholls
Social Value International, United Kingdom

A R T I C L E I N F O A B S T R A C T

Article history:
Received 3 October 2016 Social return on investment (SROI) is a relatively new approach to assessing the value created by human
Accepted 20 November 2016 activity. This paper explores the development of SROI since its creation in 1996 and concludes by
Available online xxx outlining areas for future development. SROI is compared with mainstream global approaches to
generating standardized information that informs resource allocation decisions, financial accounting in
general, sustainability accounting in the private sector and cost benefit analysis in the public sector.
Crown Copyright © 2016 Published by Elsevier Ltd. All rights reserved.

1. What is SROI? SROI is about value, rather than money. Money is simply a common
unit and as such is a useful and widely accepted way of conveying
SROI has been defined in different ways and there are many value.
approaches to ‘calculating’ a SROI. The definition below is taken In the same way that a business plan contains much more
from the Guide to SROI (Nicholls, Lawlor, Neitzer, & Goodspeed, information than the financial projections, SROI is much more than
2009), written by what was then the SROI Network, and is the just a number. It is a story about change, on which to base
definition still in use by Social Value International. decisions, that includes case studies and qualitative, quantitative
This definition covers the key aspects of SROI (Nicholls et al., and financial information.
2009): An SROI analysis can take many different forms. It can encompass
“Every day our actions and activities create and destroy value; they the social value generated by an entire organization, or focus on
change the world around us. Although the value we create goes far just one specific aspect of the organisation’s work. There are also a
beyond what can be captured in financial terms, this is, for the most number of ways to organise the ‘doing’ of an SROI. It can be carried
part, the only type of value that is measured and accounted for. As a out largely as an in-house exercise or, alternatively, can be led by
result, things that can be bought and sold take on a greater an external researcher.”
significance and many important things get left out. Decisions
It is a framework for a more complete understanding of how
made like this may not be as good as they could be as they are
people are affected by the activities of an organization in order that
based on incomplete information about full impacts.
resource allocation decisions can take these effects into account. It
Social Return on Investment (SROI) is a framework for measuring
puts those affected at the heart of the process and uses a mix of
and accounting for this much broader concept of value; it seeks to
qualitative and quantitative data. SROI is often seen as an approach
reduce inequality and environmental degradation and improve
that monetizes outcomes, which can then be aggregated to create a
wellbeing by incorporating social, environmental and economic
measure of efficiency with which resources are turned in to value.
costs and benefits.
It is less often recognised as an approach that uses these two types
SROI measures change in ways that are relevant to the people or
of information in order to decide which outcomes should be
organizations that experience or contribute to it. It tells the story of
included in the account where understanding the relative value of
how change is being created by measuring social, environmental
those outcomes is intrinsic to making decisions to increase value.
and economic outcomes and uses monetary values to represent
Although social impact is generally about outcomes, in SROI
them. This enables a ratio of benefits to costs to be calculated. For
outcomes are changes in people’s lives, either direct or indirect.
example, a ratio of 3:1 indicates that an investment of £1 delivers
£3 of social value.
1.1. A brief history of the approach

SROI has developed over the last 20 years since its creation in
1996 led by Jed Emerson when at the Roberts Enterprise
E-mail address: Jeremy.nicholls@socialvalueint.org (J. Nicholls). Development Foundation (The Roberts Enterprise Foundation,

http://dx.doi.org/10.1016/j.evalprogplan.2016.11.011
0149-7189/Crown Copyright © 2016 Published by Elsevier Ltd. All rights reserved.

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2 J. Nicholls / Evaluation and Program Planning xxx (2016) xxx–xxx

1996) in the United States. A summary of the main developments standardization was critical to increasing and improving practice.
since then can provide some background to the above definition One consequence was that despite increasing global standardiza-
and set the scene for how SROI is now being developed, drawing on tion, SROI continues to be interpreted in different ways.
lessons learned from the development of financial accounting. Membership expanded around the world and SROI networks
REDF’s (Gair, 1996, p. 2) reason for starting work on SROI was: were established in a number of other countries. Members also
“Because we couldn’t tell whether our work – and the work of our come from public, private and civil society organizations and from
portfolio agencies – was improving the lives of the people we all investors, advisors and policy makers, as well as organization and
intended to help. It seemed to be having good effects but we had no businesses delivering goods and services.
way of assessing our resources’ impact. We wanted to answer a The Network issued a Guide to SROI in 2009 (Nicholls et al.,
series of questions, including 2009). This was the result of extensive consultation with members
How can we measure the success of our efforts? of the network and with cross-sectoral advisory group. The Guide
How do we – practitioners and philanthropist/investors – know had been supported by the UK Government and initially had a
whether we’re accomplishing what we set out to do? focus on UK non-profit organizations.
How can we – practitioners and philanthropist/investors – make An updated version was released in 2012 (Nicholls, Lawlor,
informed decisions about the on-going use of our resources? Neitzer, & Goodspeed, 2012) in order to take account the
How can we test and convince others of what we believe to be true: international growth of the Network and increasing interest from
that for each dollar invested in our portfolio agencies’ efforts, there public and private sectors. Since then the Guide has been also been
are impressive, quantifiable resulting benefits to individuals and to translated into several languages.
society?” At the same time as these developments, there was a more
general growth in interest in social impact analysis and in 2011, the
REDF had originally started work with Cost Benefit Analysis
Social Impact Analysts Association (SIAA) was established in the
(CBA) but argued that they needed a new approach to address
UK. The role of the SIAA was to support practitioners working in
these questions, one that broadened who received returns and
charities and social enterprises, with the support of Bertelsmann
what those returns were.
Foundation and NPC. Social Impact groups started to develop in
In 2004 the Hewlett Foundation supported a small working
other countries too.
group of SROI practitioners from the United States and Europe. This
In 2015 the SROI Network merged with SIAA, reflecting ongoing
group updated guidance and further broadened the scope,
movement from fragmentation to collaboration and standardiza-
incorporating work by AccountAbility which had developed a
tion. The new organization was called Social Value International
number of standards for accountability including Principles
(SVI); the governing body for the national networks. There are
Standard (AccountAbility, 2003a, 2008b), Stakeholder Engagement
currently seven full national networks and a number of affiliate
Standard (AccountAbility, 2005, 2011), AccountAbility (2008a) and
networks.
work on materiality, for example Redefining Materiality (Account-
SVI’s vision is:
Ability, 2003b). These principles emphasized two new develop-
“A world where decision making, ways of working and resource
ments. The first was the importance of including stakeholders, the
allocation are based on the principles of accounting for value
people who experience the effects of our activities, in determining
leading to increased equality and well-being and reduced
relevant and significant issues. The second was the importance of
environmental degradation” (SVI, nd).”
assurance of reports, which inevitably included judgements made
in applying the principles. Reviews of SROI often focus on its roots SVI works to develop principles, practice, people and power in
in CBA, and the influence of the work of AccountAbility in order to achieve this vision. It supports a principle-based approach.
sustainability accounting and reporting may not be sufficiently The Seven Principles of Social Value (Social Value International,
recognised. 2015) are important as a basis for standardizing practise and for
This resulted in new guidance where SROI (Scholten, Nicholls, systemic change because they provide confidence that there is
Olsen, & Galimidi, 2006, p. 12) was defined as: some consistency with flexibility for on-going development of
“A process of understanding, measuring and reporting on the standards over time and mirrors the importance in financial
social, environmental and economic value created by an accounting.
organisation.” The Seven Principles of Social Value are:

From 2004, the new economics foundation (nef) led the

1. Involve stakeholders
development of practise and method and produced a number of
2. Understand change
new guides including the ‘DIY Guide to SROI’ (New Economics
3. Do not over claim
Foundation, 2007) and reports such as ‘A Bit Rich’ (New Economics
4. Only include what is material
Foundation, 2009), on the real value of different professions. At the
5. Value what matters
same time a European SROI Network was formed to allow
6. Be transparent
practitioners across Europe to share their experience. In 2008
7. Verify the result
the SROI Network was established in the UK.
The influence of AccountAbility can be seen in Stakeholder
1.2. The SROI network, SIAA and social value international
involvement, Materiality and Verification. The influence of CBA is
in Understanding change, Value what matters and Do not over
SROI Network was formed to create an organization that would
claim. The influence of financial accounting can be seen in the
be owned by members to better support the continued standardi-
principle-based approach supported by assurance. A more exten-
zation of the SROI methodology and to increase use of the
sive comparison of SVI principles with CBA, sustainability
approach. The Network recognised from the start that SROI was not
accounting and financial accounting is set out below.
an approach that could be ‘owned’ any more than financial
SROI is a special case of the implementation of those principles
accounting. This placed the onus on the network to provide
where valuation of the outcomes uses financial proxies to
benefits that encouraged those interested in SROI to become
monetize outcomes. There are other approaches to understanding
involved and to win the argument that international
the relative importance of different outcomes, for example

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ranking, weighting and Multi Criteria Analysis (an approach to the paper will refer to SROI and for ease to SROI principles. It is
support decision making where there are several possibly though important to remember that SVI’s principles for accounting
conflicting criteria), that would be recognised by SVI. As this for social value are the same principles but allow different
article contributes to a series of articles focusing on SROI much of approaches to the principle of value what matters.

Table 1
Comparison of SROI to other approaches.

Social Value Cost Benefit Analysis Sustainability accounting (e.g. GRI) Financial Accounting
Principle
Involve CBA doesn’t implicitly require involvement of Similar to SROI, stakeholder involvement is key to Financial accounting does not require direct
Stakeholders those effected in deciding what the outcomes are, understanding sustainability issues. involvement of stakeholders in order to
though they may be consulted. determine what transactions should be
included although an auditor may seek
information from specific stakeholders if there
is a risk that the accounts are not complete.
Understand Both CBA and SROI focus specifically on change, Sustainability reporting has generally focused on Financial transactions capture both change and
what changes predominantly changes in situation, capacity or issues raised by stakeholders rather than the the value of that change at the same time.
behavior with related changes in wellbeing. quantity of outcomes experienced by them. There However, it is the restricted view of the
is an overlap for example an organizations changes that are included that led to the
contribution to greenhouse gases can be development of new approaches to accounting
measured and will result in changes that effect for value that capture social and environmental
people. impacts.
Do not over Both CBA and SROI consider benchmarks, There are examples of reports that measure trend The theory of creative destruction that
claim counterfactual, attribution and displacement. and baseline and also compare with industry underpins market economies means that the
averages. question of what would have happened
anyway is not relevant. If a business is
succeeding and sustainable then the value
created is additional or at least the costs of
duplication are offset by the benefits of
competition.
Only include CBA is based on welfare economics, so often Like SROI, materiality is a fundamental question Materiality is also fundamental to accounting
what is begins with perspective that all welfare effects for sustainability reporting and the information and the information included should be
material will be included. In practice, However, it often included is a balance between stakeholder and material to investors. The issues of who those
focuses on a particular policy and desired business views of what is material. investors and what motivates them is explored
outcomes with some recognition of unintended below. SROI has a more difficult challenge as it
consequences. Whilst it is not possible to seeks to include what is material to all
consider all welfare effects, focusing on a policy stakeholders that are affected whilst
objective without stakeholder involvement risks recognizing that an organization cannot and
omission of material outcomes. cannot usefully include every outcome where
one individual argues that their unique
experience is material.
Value what Both CBA and SROI use money as a proxy for the Issues included in sustainability reports are Financial accounting is generally based on
matters (using relative value of outcomes. generally not valued although this is starting to market transactions. However, there are
monetary change. various costs that are based on valuations.
equivalents in Approaches to fair value, have allowed
SROI) management to assess the value of, for
example investments in other companies.
Mining companies are expected to assess the
future closure costs of mines. Accountant have
to assess both the probability and financial
consequences of contingent liabilities and if in
discussion with their auditors necessary
include that estimate on the balance sheet.
There are many other examples where values,
and therefore profits, dividends and
investments are not driven by solely prices that
have arisen in market transactions.
Be transparent Requires transparency. Requires transparency. Requires transparency.
Verify the result SROI follows accounting and some sustainability Assurance of sustainability reports is good Both financial accounting and SROI require
reporting by requiring appropriate verification of practice and included in some standards e.g. GRI. appropriate assurance. Public accounts must
the result. This may well take the form of an be audited for all but small companies. Large
external assurance process, but could include a companies may have internal management
range of other methods of verification (such as accounts externally audited or internally
going back to the stakeholders and asking their audited.
opinion on the results of the report).
An SROI analysis will inevitably include
judgements about what is included or excluded,
and these judgements need to be reviewed as
reasonable.
CBA does not require an independent assurance
process of the judgements made relying on the
knowledge and professionalism of the person
carrying out the analysis to ensure that it is
complete.

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Over the last seven years, as well as international growth, there counterfactual. At the top end of this scale are Randomized
has been an increase in diversity of membership which now Control Trials (RCTs). A much lower level of rigour would be an
includes public sector bodies, international development orga- assessment of the counterfactual simply by asking beneficiaries
nizations, charities, corporate, business representative networks, what would have happened otherwise when they enter a program.
social enterprises, universities, social and impact investors, This level of rigour would be unlikely to influence policy, but can
housing associations and many others. still be useful for designing services.
Whilst CBA and SROI do have areas of overlap, their differences
1.3. Governance structure originate from the fact that SROI is additionally informed by
financial accounting and sustainability reporting: particularly with
The board of SVI is made up of full national network members respect to materiality, verification of a result, and use of different
and other experts. SVI is responsible for the maintenance and levels of rigour according to use and audience.
development of the methodology for applying the principles and to Some of the future requirements for developing Social Value
that end has established a methodology subcommittee and an Principles covered in Section 6 relate to the welfare basis for CBA in
assurance technical committee. comparison to SROI.
Following consultation with members, the SROI Network (and
subsequently, the re-named Social Value UK (SVUK)) produced 2.2. Comparison with sustainability accounting
supplements to the Guide to SROI on Materiality (Social Value UK,
2012), Stakeholder Involvement (Social Value UK, 2013a) and The main differences are that sustainability accounting has
Using SROI (Social Value UK, 2013b). SVI has recently released tended to focus on issues that stakeholders have raised rather than
guidance on Creating well defined outcomes (Social Value UK, outcomes, has generally not taken a counterfactual into account
2016). The aim is to produce supplements for each of the and has not used financial proxies. There is though a view that SROI
principles. Although work on supplements is currently focusing should in fact report the absolute rather than the net results for
on the principles and on the requirements of the assurance reporting corporate impact to avoid the argument that negative
standard it has been recognised that work is also required on outcomes would have happened anyway (since it is likely that the
guidance for good practice for different audiences and purposes, products or services would be delivered by another company)
for different scales of activity and for different sectors. Perhaps the (Henriques, 2015). With the development of approaches like
most significant of these is to develop more guidance on what is a TIMMS (see for example PWC, 2013) and True Value (see for
good enough application of principles for internal decision making example KPMG, 2014), and an increase in businesses reporting on
as opposed to external reporting. social and environmental profit and loss, this is starting to change.
SVI provides a range of assurance and accreditation services to
develop consistency in practise which includes assurance of SROI 2.3. Comparison with financial accounting
reports and follows a set of criteria developed by the Assurance
Technical Subcommittee (Social Value International, 2016b). SVI Although SROI started out as a development of CBA, and then
also accredits training courses that are consistent with its evolved to include aspects of sustainability accounting, it has
principles including a core 2-day practitioner course provided increasingly drawn on the approach taken by financial accounting
by SVUK. A combination of training, methodology and assurance as a way of developing standards of good practice.
are the basis for developing standards and improving practise, The main similarities are:
critically at different levels of rigour as appropriate. The assurance
standard is often used as a proxy for external reporting although it  financial accounting is designed to provide good enough
is designed to assure that the report shows a good understanding information to investors to make decisions that they recognize
and application of SROI principles and practice and this may not be come with risk. It is not designed to prove the financial value
the assurance that readers of public reports or external audiences being created; and
require.  accounting standards have developed over time based on a set of
principles, sharing the application of those and an assurance
2. Comparison with other approaches process to encourage and ensure standardization.
 SROI draws on all three techniques but can be compared with
As principles are central to accounting for social value and SROI, financial accounting in that the purpose of the principles and
the easiest way to compare with other approaches is by reference their application is:
to principles as set out in Table 1.  to provide good enough information for those receiving the
social returns to make decisions. In practise this is not possible
2.1. Comparison with CBA since those receiving the social (or environmental returns) do
not get the information and are not able to make resource
CBA tends to be used by the public sector or quasi-public sector, allocation decisions based on it. The organization creating social
so is often applied with a level of rigour commensurate with the or environmental value is generally not accountable to those
decisions to spend tax payer’s resources. In contrast, SROI who get it and there is a breakdown in the principle agent
principles can be used at any level of rigour subject to a minimum relationship. However, the assumption is that the information
approach to accountability, as long as it is ‘good enough’ for the should be produced as if it were used for this purpose; and
decision it is being used to inform. At one end of the spectrum SROI  to develop standardization over time.
can use similar levels of rigour as CBA, with additional require-
ments for consideration of materiality and assurance/verification.
At the other end of the spectrum a much lower level of rigour could 3. Materiality—what should be included?
still be good enough for board-level strategic decisions within
relatively small organizations. One of the central questions in any account of the value created
An illustration of this would be the Maryland Scientific Methods by human activities is what should be included (and what should
Scale (Sherman et al., 1998), which ranges from 1 to 5 and indicates be excluded). In CBA, financial accounting and SROI the second
the level of rigour of different approaches to assessing a

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question is then how should what has been included be valued: the be included was influenced by classical economic theory as
first is the question of what is material. exemplified by Adam Smith’s (1904) famous quote:
SVUK’s (2012, p. 1) principle states that: “By pursuing his own interest he frequently promotes that of the
“Determine what information and evidence must be included in society more effectually than when he really intends to promote it”.
the accounts to give a true and fair picture, such that stakeholders
The assumption is that the ‘best’ allocation of resources for
can draw reasonable conclusions about impact.”
society follows individual self-interest. As a result, the idea
One of the most important decisions to make is which emerged that the information in financial accounts should be the
outcomes to include and exclude from an account. This decision information that a wealth-maximizing individual would need to
should recognize that there will be many outcomes, and a make investment decisions. It is important to remember that this
reporting organization cannot manage and account for all of individual is an assumed average person that has emerged through
them. The basic judgement to make is whether a stakeholder practise rather than being stated within legislation relating to the
would make a different decision about the activity if a particular production of company accounts. It is also therefore worth noting
piece of information were excluded. An assurance process is that in The Theory of Moral Sentiments, Smith (1761) subsequently
important in order to give those using the account comfort that went on to write:
material issues have been included. “How selfish man may be supposed, there are evidently some
Materiality is not therefore the same as proportionality. principles in his nature, which interest him in the fortune of others,
Materiality requires a decision to ensure that the outcomes and render their happiness necessary to him, though he derives
included, both positive and negative, are those that, if omitted, nothing from it except the pleasure of seeing it.”
would affect the decisions of the stakeholders. This process
requires a judgement on the extent to which stakeholder groups
3.2. Materiality in non-financial reporting
are split into smaller groups which experience different material
outcomes—a balance is required between considering every
Sustainability reporting starts from the view that financial
stakeholder as an individual case with a personal outcome profile,
accounting information is not good enough and that decisions made
and aggregating stakeholders together and so risking a loss of
by investors will be suboptimal, not only for the investor who is not
understanding how different smaller groups experience different
factoring in, for example, longer-term costs that businesses will have
outcomes.
to incur in the future or the higher risks to business survival from
Proportionality means that the extent or depth of the analysis
social and environmental factors. There is an on-going debate as a
should be tailored to the relative size, impacts, and risks of the
result onwhether the additional information that should be included
activity under analysis.
still relates to the same theoretical investor, whether organizations
One of the basic principles of financial accounting is materiality.
should account for effects of the business on others even where they
The limitations on what is considered material in financial
would not have an effect on investor decisions, or whether these are
accounting have contributed to the demand for other information,
the same thing where the long term investor would want to know
especially on social and environmental effects. Whilst this shift has
these other effects.
increased the issues that are material, a consistent approach to
Social Value Internationals perspective is that organizations
determining materiality is still required.
should be accountable for the effects that their activities have, for
the material outcomes caused by the organization that can be
3.1. Materiality in financial accounting—the invention of the wealth
attributed to it independent of the debate about investor interests.
maximizing investor
This is a wide view of materiality, considering what is material
from the perspective of stakeholders (those effected). This does not
Materiality was originally a concept in financial accounting. A
mean that an organization would need to account for every effect
financial account should include information that is material. But
that individual stakeholders argue are material. Judgement are
the question is: material to whom?
inescapable in materiality decisions and this leads to the need for
Although the history of accounting goes back several centuries,
independent assurance of those judgements. The assurance
materiality developed as part of standardization following
provider is, in effect, acting on behalf of those who have been
introduction of the limited liability company and the increase in
affected is assessing whether these judgements are reasonable.
global trade and investment from end of 19th Century.
There is a natural human tendency to exclude information that
In the UK at that time, initially any company seeking limited
doesn’t fit with our beliefs or intentions known as cognitive
liability required an Act of Parliament, which tended to be given
dissonance. Positive intended outcomes are accepted whilst
only where there was a clear purpose and that purpose was
reasons are found to exclude unintended negatives, for example
considered a public good. Limited liability was awarded for specific
not being caused by or the responsibility of the organization or
purposes to undertake beneficial activities, often with monopolis-
data being inadequate. The assurance provider’s role is to resist
tic access to a region and product/service, such as building
these tendencies.
railroads or utilities. The accounts that governments mandated for
Nonetheless the starting point is that those without power and
railroads and utilities were primarily for the government to ensure
without a voice will be less likely to find ways to hold organizations to
that rates and prices on consumers were fair. The limited liability
account for the effects of their activities and so the materiality
company, which nowadays are the majority, began with an explicit
decision is designed to ensure that these effects are included. At its
public purpose (Morgan & Thomas, 1969). The motivation of the
simplest this means including both positive intended outcomes as
investor was for financial return but framed by a public good.
well as negative unintended outcomes experienced by stakeholders.
As this requirement changed, first with standard Memorandum
and Articles of Association and then with the ability to make
4. Accountability and maximizing value
amendments, accounting standards emerged to improve compa-
rability across companies and coherence within accounting
The combination of the SVI’s vision and the lessons from
practice, and to establish a way for regulators and courts to know
financial accounting have affirmed the importance of principles
if financial reports were ‘true’. The basis for deciding what should
but also led to a new focus—on maximizing value.

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Financial accounting is designed to create good enough relative importance of changes in people’s lives caused by different
information for investors to make investment decisions on options for delivering products or services and selecting the one
assumption their motivation is to maximize financial returns. that on balance will create more value. It also means organizations
Investors can hold organizations to account and are protected by a need to be as relentless in pursuit of social value as business is for
mix of legislation, standards, analysis and journalism. The financial value and there is an urgent need for generally accepted
accounting ecosystem is designed to ensure that the information principles as a basis for building practice, standards and assurance.
provided is good enough or true and fair for an investor to make The Principles of Social Value (Social Value International, 2015)
decisions where the objective is to maximize financial returns. The are designed to help organizations maximize value by providing
key parts of the system are: information that on balance allows organizations to allocate
resources to activities that on balance are expected to create more
 Legislation—driving transparency and practice; value than other possible activities. This means setting budgets or
 Principles and standards in how they are applied—developing to forecasting value as well accounting for actual value created,
reflect changes in the environment, ensuring completeness and where budgets achievable but aspirational. The Principles of Social
relevance of the information; Value (ibid.) are derived from a series of questions, detailed below,
 Audit—where auditors are employed by those expecting a that need to be considered if seeking to maximize value.
financial return, to ensure that accounts are good application
of principles and standards; 4.1. Framing questions to set the scene
 Accountability—investors (and consumers) can hold businesses
to account through their investment and purchasing decisions.  What is the activity that is being considered?
 Who is going to use the information that is produced, and what
For social returns this ecosystem is far from fully developed: decision will be informed (this means the ultimate purpose of
these questions wont be to measure your impact)?
 There is little legislation requiring organizations to account for  How accurate and how detailed do the answers need to be? If this
the social returns they are making. This is changing for example isnt clear at the start, either too much will be done or not enough.
recent EC legislation on company non-financial reporting Either way time and resources will be wasted. For accountability
requires information on social and environmental impact; the answers need to provide a complete understanding of
 Principles and standards are converging and there is now material changes.
considerable overlap and commonality between the main  Given that the answers cant be objective, and given our natural
approaches to accounting for (non-financial) value. The main cognitive dissonance, how does whoever is using the informa-
differences relate to completeness and relevance of the tion to make decisions have the assurance that the answers are
information and the extent to which it supports decision- detailed, accurate and complete and the information supporting
making; the answers is transparent?
 There is no requirement for assurance of social impact  Who is going to answer these questions?
information and where it does occur the assurance provider is
not legally expected to act on behalf of those receiving the social
returns. The stakeholders do not reappoint the social auditor at 4.2. Accounting questions
the AGM. Existing legislation makes assurance voluntary or
limited to inconsistencies revealed in the course of financial  Who has changed (or, when forecasting or budgeting your social
audit; value, ‘who will change’)? Which groups (and subgroups) of
 The mechanisms by which those receiving social returns can people or organizations?
hold those delivering those returns to account are very limited.  How have they changed, including positive and negative, and
Ironically, this lack of accountability means that it has been expected and unexpected changes?
possible for the on-going arguments about the many ways of  How long will the organization be accountable for the change?
measuring social impact to persist far longer than would  How will the change be measured?
otherwise have been the case and to sometimes focus on levels  Based on that, how much change happened?
of accuracy for scientific proof rather than making choices  How much change was caused by our activities?
between different options for creating impact. Whenever data is  What was the relative importance of the different changes, from
deemed not good enough to make a decision it seems to be the perspective of those experiencing them?
forgotten that it doesn’t follow that the data is good enough to If this isn’t quantified and made commensurate, people
just keep doing the same thing. As a consequence, the ecosystem making choices between different options will start with a
is not currently designed to maximize social returns. personal view of what changes they personally think are
important to stakeholders, and this is unlikely to be shared or
The ecosystem that generates financial returns leads to common. If the process of quantifying importance is explicit,
resources to be allocated without taking into account all the the discussion that will end in a choice starts from a common
material effects that business has on people, effects that are then understanding.
described as social and environmental effects, which cumulatively  Do all the changes need to be managed or are some not
contributes to increasing inequality and environmental degrada- important enough on basis of the answers? There will generally
tion. be many changes as a result of any activity.
Investors’ pursuit of financial returns is relentless and global,
and better accounting of social and environmental outcomes (or
even organizations improving their performance year on year) will 4.3. Implications
not be enough to offset the non-accounted social and environ-
mental costs of this relentless pursuit of financial value. Informa- With this information it should be possible to consider whether
tion on social impact needs to allow organizations to maximize an organization has met its objectives but also whether they are
value, understood on the working assumption that they could be the right objectives, and whether activities should stop, scale or be
held to account by those effected. This means comparing the amended in order to create more value.

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If any of these questions are not answered the risk that the about the relative value of different mixes of changes in different
information is not complete, for any level of rigour, increases. This groups of people wellbeing. It means having to put the views,
increases the risk that either no decision or not the ‘best’ decision needs and expectations of those who lives are expected to improve
will be made. The proposition is that these questions should be at the heart of any discussion about what outcomes should be
answered at roughly the same level of accuracy and detail for any delivered to address which underlying issues. It means not
decision rather than some very well and others not at all. thinking about a group of beneficiaries or even a single group of
customers but constantly thinking about whether there are
4.4. Principles of social value and user centered design enough people who want slightly different outcomes to justify
the cost of more focused products with specific attributes. It means
The Principles of Social Value (Social Value International, 2015) having to think about whom to work within if sustainable value is
summarize these questions. In practice, organizations can make a going to be created. It means having more detailed information
start simply by asking people what changes, looking for patterns in about changes that have to be aggregated in order to report to
the answers, considering and then testing changes to services on funders and commissioners who often need data to be summa-
the basis of those patterns, user centered research and design. rized or more generic measures of change across groups.
This thinking process is much less about evaluation to prove
4.5. Value what matters and SROI and much more about constantly trying to create more value for
those we are working for or who are being effected, thinking about
Quantifying the relative importance of different outcomes can the viability of different offers for different sections of people we
be done by rating or weighting outcomes and one way of weighting work with: entrepreneur alongside social scientist. As such it
is to use financial proxies. The purpose is to inform discussions and means replacing a test of good enough data designed to ‘prove’
choices between competing ways of allocating limited resources. A with tests that are designed to ensure information is good enough
consequence of using a commensurate scale is that relative for timely decisions. Boards and management then need to develop
weightings can be aggregated. This is not to reduce everything to a a better understanding of the risks and consequences of getting a
single value; an aggregation has little meaning without the decision wrong, increasing the need for assurance. It means
disaggregated information and the judgements made in deciding accepting that information is not always designed to be objective
what should be collected. as much as designed to bring more transparency of the issues
relating to value to any group of people who are trying to make
4.6. Culture decisions to increase value. It means benchmarking against others
and often means changing what we are doing.
Answering these questions or applying The Principles of Social The Principles of Social Value (Social Value International, 2015)
Value (Social Value International, 2015) should be accompanied by are designed to help maximize value, not just report on how much
a culture of relentless pursuit of value for stakeholders (or value has been created.
customers, clients, beneficiaries) characterized by a high level of
detail in defining stakeholders and different sub groups or 5. Future developments
segments. Even at relatively low levels of rigour, in many situations
this information can be used to change or develop existing services The development of the principles and standardization of their
(which includes stop service, scale service, change service, target application is an on-going process. SVI is developing supplemen-
service on specific customer or beneficiary segments). tary guidance on the principles and most recently issued guidance
The decision to change or adapt a service or product depends on on creating well defined outcomes (Social Value UK, 2016). As well
a mix of: as completing guidance for all the principles there are a number of
other areas where more work is required.
 The cost of implementing the change;
 The cost of reversing the change if the information on which the 5.1. Examples of maximizing behaviour
decision does not increase value;
 The implications and costs to stakeholders in that case; and Although there are more examples of organizations reporting
 The risk that data is incomplete, inaccurate or too general. externally on their social impact there are still relatively few
examples of organizations that have embedded a culture of
However, the culture of the organization is as important. There maximizing value, that set annual aspirational budgets and which
are always options to change the way activities are delivered. The can evidence regular changes to activities based on impact
decision to continue an existing service will also be based on same information.
factors as the decision to change the service. Although there are no
direct immediate financial costs there is still the risk that the data 5.2. Guidance that reflects needs for different audiences and purposes
that support the decision not to change is incomplete, inaccurate or
too general and that there are implications and costs to stake- SROI guidance developed first as general guidance on the
holders as a result of not changing. An organization which is application of principles and then as the assurance process
making use of information, considering new ways of doing things developed became linked to guidance to meet the assurance
and implementing some on a regular basis is more likely to be standard, which aims to test a good understanding of the
creating more value than one that does not use information on principles. Increasingly there is a need for guidance for different
social impact to make changes. audiences and purposes together with related assurance stand-
There is a world of difference between managers looking at the ards. Examples would include:
results of their impact measurement and considering improve-
ments and governance asking whether the organization has  Guidance and an assurance standard for social and impact
created as much value as it can with the resources it has. investors; and
Everything follows from this question. It means the organiza-  Guidance on application of principles for innovation and design
tion has to be actively considering alternative ways of delivering decisions, including co production.
services and alternative services. It means having a discussion

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Very quickly the accounting profession would develop standards

5.3. Comparisons of value between different groups for how to account and audit this information that, whilst not
perfect, would be a much better (yet still good enough)
Every approach to social impact measurement must deal with representation of investors motives.
the issue of interpersonal comparisons. This is the issue of how Businesses would need to account for and could include
impacts on different individuals in society are aggregated. The provisions for these costs that would lower distributable reserves
topic of interpersonal comparisons is crucial because positive and and shift investments to those businesses that on balance have
negative impacts of an action fall on different people in society and lower social and environmental costs. Within this framework,
the question we must pose is whether impacts on different people investment companies and advisors could continue to make
in society can be compared in a meaningful and robust quantitative investments in order maximize financial returns.
way and if so what the relative weighting across individuals should This would also affect how GDP is calculated. Although by no
be. means a complete solution to the limitations of GDP, it would mean
that the value being measured in GDP took more account of social
5.4. Clarity over the normative position and environmental effects.

SROI needs to develop a clear normative approach to support 7. Conclusion

the general position of reducing inequality and environmental
degradation and a clear definition of what this means (see There is now a body of practise across all sectors in determining
Fujiwara, 2015 and for further discussion). The relationship social and environmental outcomes and approaches to valuing
between the normative positions (the idea of what is good for those outcomes and there is growing convergence around basic
society) of welfare approaches such as CBA which are based on and principles. This provides the basis for opening a wider discussion
agency centered approaches needs to be developed in the context on public policy. Whilst there is a lot more to be done for that
of accountability and decision-making approaches such as practise to become widely accepted, there is an urgent need to
financial accounting. CBA aggregates compensating welfare influence the way in which financial accounting influences global
changes. Agency centered approaches do not. SROI and social resource allocation decisions and an opportunity to achieve that by
value principles are driven by the proposition that accountability recognizing that any the test of new developments is in
to those effected will drive maximizing behavior and be of value to comparison with financial accounting rather than other
individuals and society perhaps in relation to Milanovic (2016) approaches. The Principles of Social Value, approach with an
view that welfarism can be rejected whilst still arguing that assurance process, supported by a member owned organization to
economic outcomes should be more equal since inequality reduces develop best practise offers a chance to do this.
economic growth and slowly influences politics. Given that
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