Social impact is a multi-faceted concept that makes it difficult to scale and quantify. How do investors gauge a company’s social impact, and how do these companies showcase their impact? Read my guide for details.
Imagine it is lunchtime, and you’re scrolling through a list of restaurants to order food. Would you choose a restaurant with only one or two reviews compared to another option with 100 or even 1000 views? Most likely not.
That’s because these reviews are tangible data that provide a clear testimonial of the restaurant’s performance regarding food taste and customer service. Getting to the point is precisely how measuring social impact works.
With the rise of millennials willing to invest in social impact, more and more companies are trying to adhere to socially responsible criteria.
But that’s where it gets complicated. While different organizations propose multiple criteria, there is no official canon regarding how to measure a company’s social impact.
However, that doesn’t mean companies don’t need to measure their social impact. In this article, I will provide a step-by-step guide for measuring social impact, along with a brief discourse on its importance to give you some insight into the subject.
Table of Contents
- What is Social Impact?
- Why is Measuring Social Impact Important?
- Social Impact Measurement Tools
- Accounting and Audit
- The Logic Approach Evaluation Program
- Social Return on Investment
- How to Measure Social Impact?
- Step 1 – Start With a Realistic Reformation Model
- Step 2 – Listing The Salient Performance Indicators
- Step 3 – Effectively Collect and Analyze Data
- Step 4 – Putting The Results To Use
- Step 5 – Communicating the Social Impact Measurements
- Step 6 – Claim Your Social Impact
- Related Resources:
What is Social Impact?
For those who are new to the concept, social impact is the effect that companies and organizations have on people and communities through their business activities.
To provide an exact definition, the Center for Social Impact (CSI) describes the social impact as the net effect of an activity on individuals’ or families well-being.
Similarly, the Michigan Ross Center for Social Impact argues that social impact is a positive change that addresses an existing social challenge.
However, it is essential to establish the exact definition to cater to the plethora of investors willing to contribute to the market. Moreover, more than 51% of all consumers are speculated to pay for products and services that promote social impact.
Furthermore, research from 2017 shows that there are currently 2251 corporations claiming to focus on social impact and financial gains.
But, how do we know that the companies we’re investing in or paying for their products make a social impact? That’s where impact measurements and social impact metrics come in.
Why is Measuring Social Impact Important?
Impact investing is the positive change an organization brings to society. It is mainly divided into three parts: social, environmental, and governance.
However, if you’re an investor trying to combat social issues and societal inequalities, you’re an investor striving for social impact above all other ESG components. Measuring impacts is vital for all three parties: the organization, investors, and consumers.
Social impact approaches can become baseless and ambiguous without proper data and information. On the other hand, by using social impact metrics and presented data, organizations will validate their methods and attract new investors and customers.
Here’s a list of reasons why quantitative representation of social impact measures is vital before starting with the guidelines for measuring social impact.
- The effective measurement and communication of social impact are important for organizations to market their ideas and business strategies to prospective investors.
- It helps companies create a consistent and relevant brand image for themselves.
Detailed data and information help companies devise realistic social goals and plan scaleable initiatives. - Clear and precise measurements retain consumers’ and investors’ confidence in the brand, especially those working towards achieving specific societal changes.
- If companies are running the extra mile to keep their business relevant, it’ll cost them a part of their revenue. Assigning funds to this cause will bring financial gains if appropriate measurements are not used for advertising their business in a way that’s understandable to consumers.
See Related: What is Social Equality?
Social Impact Measurement Tools
Now, as you would use a simple ruler to measure the length of a tangible object, there are many tools for companies looking at how to measure impact. If you’re wondering what social impact metrics are suitable for your organization, you should consider a few aspects.
First, list the most important things you want your investors and consumers to know about your company’s nature.
Secondly, to choose the right social impact metrics, you must know how you want to depict your measurements. This depends on your target audience and the complexity of your measurements.
Once you identify these aspects correctly, you can choose the social impact investing tools you want to use for your organization.
See Related: Best Social Impact Jobs: Careers That Drive Change
Accounting and Audit
Accounting and audit are perhaps the oldest techniques used to document the social impact of organizations.
Introduced in the 1970s, the process consists of a detailed analysis of the effects of the company’s activities through three main steps: planning, accounting, reporting, and auditing.
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The Logic Approach Evaluation Program
If you’re wondering how to measure the social impact of a project rather than a company, the logic approach based on output assessment is the ideal option.
This approach evaluates the outputs rather than the outcomes companies consider while designing projects. Consequently, it enables companies to include performance assessment in the project design’s basic framework to measure its social impact beforehand.
Social Return on Investment
Social return on investment (SROI) is a value-based concept for measuring social impact. These metrics concentrate on displaying the value created by the organization’s social impact activities.
An SROI evaluation can either be conducted retrospectively to showcase completed projects’ outcomes or beforehand to predict planned activities’ social value and results.
See Related: How to Do a Stakeholder Impact Analysis?
How to Measure Social Impact?
Now that you know the basics about social impact and the importance of measuring it correctly, the information leaves you with a question. How can social impact in a company be measured and used to benefit the organization?
Here’s my step-by-step guide for measuring social impact effectively.
Step 1 – Start With a Realistic Reformation Model
The logic model or reformation model is the first thing an organization needs to work on to clearly define its social impact. This model should include the company’s goals and objectives regarding one or multiple social issues it intends to tackle.
The reformation model should define the organization’s mechanism to achieve the intended impact. Most organizations fail to devise a defined plan during their initial theory of change, which leads to inconsistent measurements in the journey ahead.
For example, let’s say an organization focuses on designing effective after-school programs to improve students’ grades. The loophole arises when it fails to specify how its programs will improve grades.
In this case, the mechanisms might be that after-school programs reduce exposure to toxic home environments or increase students’ educational hours. The organization should look into each tool to create a robust reformation model and identify how it plans to achieve its desired impact in the first place.
Building an appropriate impact mechanism for the reform program will lead to productive KPIs, realistic goals, and organized data. These elements will help them deliver feedback to their consumers and investors.
See Related: Best BlackRock SRI Funds
Step 2 – Listing The Salient Performance Indicators
Once an organization has devised a proper reformation plan or theory of change to tackle social issues through its activities, it is time for the next step. Now, the company has to choose which social impact metrics they should work with to bring the desired results.
Companies can choose their metrics from social impact program providers or decide to work on the important ones toward their ultimate goal. Usually, these are the ones that have the broadest reach to their target impact and define their success rate correctly in the respective field.
However, if they use official metrics from a social impact organization, data collection can become quite tricky. The ideal way to combat this challenge is to appoint competent data collection and analysis experts for each social impact metric.
These experts will collect the data required for each metric and store it in specific formats for future reference. Similarly, they will work to track the progress of the goal associated with their respective metrics.
This inclusiveness and transparency help the entire workforce understand its salient social impact aspects and work together to achieve the desired results.
See Related: What is Shared Governance?
Step 3 – Effectively Collect and Analyze Data
This is perhaps the most critical part of measuring social impact. After a company succeeds in formulating a comprehensive theory of change and identifying its salient performance indicators, the next crucial step is to collect data accordingly.
The process through which companies collect and analyze their data plays a vital role in improving their social impact programs in the future.
Let’s return to the after-school program example I mentioned in step one. If the data collection and analysis indicate that the after-school program succeeds in promoting good grades in students, the company can choose to continue with it.
However, suppose the results show that the program only benefits a few students while others still lag behind due to fatigue and exhaustion. In that case, the company will need policy reform.
Similarly, the correlation of data will help conclude which groups the policy serves better. This way, the organization can also choose to maintain the policy for certain impact groups and devise new strategies to target other impact groups in the future.
See Related: How to Start Investing in Gender Equality
Step 4 – Putting The Results To Use
The primary purpose of measuring social impact is to use it for future improvements. That’s why if an organization collects quantitative external and internal data regarding its social impact but doesn’t use it effectively, it might be useless.
After a company has collected the data on the specified performance indicators, they should hand-pick all the relevant information and evaluate the results for use. A basic framework to review social impact data includes,
- Listing out the key events and achievements
- Specifying the improvements and new strategies introduced in the reporting period
- The input metrics used
- The outputs delivered during the reporting period
- Screening the data for errors
- Evaluating its objectiveness
- Balancing out the results to conclude if they are clear and practical correlating to the data
Keeping this framework in mind, companies can easily formulate a productive result report to validate the data they collect. Although some organizations tend to whitewash the negative results at this point, these aspects are crucial to helping the organizations grow and learn from experiences.
However, if generated with responsibility and foresight into the future, formulating comprehensive data results can help companies create effective strategies and stay ahead of their game in the long run.
See Related: How to Build a Socially Responsible IRA
Step 5 – Communicating the Social Impact Measurements
Finally, a crucial aspect of measuring social impact is effectively presenting it to the masses. If you collect mounds of data concerning a strategy that costs you a percentage of your revenue, only for it to be incomprehensible to the public would be a total waste.
That’s why, once the measurement, data collection, and result compilation processes are complete, the next step is to create a comprehensive impact report. A company can publish this report with its annual progress report or release it individually.
It should mainly include the company’s mission regarding social impact and the measures the organization took, including quantitative internal and external data about its effects on target communities.
To maintain transparency, including negative and positive outcomes in the impact reports is good. This establishes a company’s identity as an organization that targets steady growth and values the impact it thrives for.
Similarly, a clear representation of all aspects leaves less room for data loopholes and inconsistency in the final report. After that, the report should conclude with its plans to extend the social impact measurements in the current reporting period.
Additionally, including regenerative mechanisms to combat incompetent results and mistakes is an attractive clause to appeal to future investors and consumers.
See Related: Best Impact Investing Jobs
Step 6 – Claim Your Social Impact
The integral benefit lies in the result for companies wondering how to measure social impact. After they have completed an accurate social impact report, they can use their measurements to claim their social impact rightfully.
While some organizations may base their claims on data collection, analyzing the data’s correlation and presenting the results is essential to strengthening their social impact claim.
Unfortunately, most organizations these days thrive for social impact without actually capturing its essence, using it merely to bring in woke investors and hike up their sales.
However, as knowledge about measuring social impact becomes more common among consumers and investors, such malicious companies will have difficulty staying in the game in the future.
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Kyle Kroeger, esteemed Purdue University alum and accomplished finance professional, brings a decade of invaluable experience from diverse finance roles in both small and large firms. An astute investor himself, Kyle adeptly navigates the spheres of corporate and client-side finance, always guiding with a principal investor’s sharp acumen.
Hailing from a lineage of industrious Midwestern entrepreneurs and creatives, his business instincts are deeply ingrained. This background fuels his entrepreneurial spirit and underpins his commitment to responsible investment. As the Founder and Owner of The Impact Investor, Kyle fervently advocates for increased awareness of ethically invested funds, empowering individuals to make judicious investment decisions.
Striving to marry financial prudence with positive societal impact, Kyle imparts practical strategies for saving and investing, underlined by a robust ethos of conscientious capitalism. His ambition transcends personal gain, aiming instead to spark transformative global change through the power of responsible investment.
When not immersed in finance, he’s continually captivated by the cultural richness of new cities, relishing the opportunity to learn from diverse societies. This passion for travel is eloquently documented on his site, ViaTravelers.com, where you can delve into his unique experiences via his author profile. Read more about Kyle’s portfolio of projects.