NEW TOOL IN UK PILOT SHOWS FULL RETURN ON INVESTMENT

A new nef report shows how a new tool can be used to measure the financial value of social and environmental as well as economic returns. "Valuing what matters shows how a fuller picture of the value for money in public expenditure and investments can be assessed.

The tool, being pioneered in the UK by nef, begins to allow the financial value created by positive social and environmental impacts to be factored into assessments of the return on a given investment, and to allow comparisons between firms or providers.

The study, which assessed the social returns in a small pilot sample of four firms, shows how the tool can be used now to help organisations understand their social impact and express this in financial terms.

The SROI tool developed by nef:

• provides a way to help organisations benchmark their own performance and improve their performance

• has been developed to be allow organisations at various stages of development and resources to use it

• can give guidance on what sort of management information system is required and what sort of data should be captured - through the  process itself as much as through the resulting SROI index 

• allows a firm to calculate SROI based on one or more stakeholders or one or more aspects of the activities - and this needs to be considered when making comparisons

The pilot firms showed a Social Return on Investment of between 1.3:1 and 1.8:1. These numbers are relatively low, compared to US pilots which have assessed social returns at 16:1 and above, but the UK pilots were measured over a shorter time and deduct "deadweight" - benefits that would have happened anyway - from the calculation.

Further development of the model could begin to allow the financial value of the full range of "non-economic" returns, which may greatly outstrip the economic, to be captured.

The SROI tool piloted by nef has potential benefits in a wide variety of applications for:

• Social enterprises - to assess and benchmark performance and the economic value of their social activities and impacts and to simplify comparisons between

• Public expenditure and procurement - Government is seeking ways to maximise the 'public value' created by taxpayers' money and public procurement policy. nef's work on local multipliers has demonstrated the role that local procurement spending can play in stimulating local economies, and SROI offers a further way of assessing the full value of spending.

• Grant giving and financial investment  - organisations can assess their performance over time or benchmark against similar organisations, and assist in hard choices for funders between alternative investments or tenders. A broad range of investors, from philanthropic foundations to socially responsible investors are interested in social and environmental outcomes or the extent to which social and environmental impacts change the risk associated with their investments.

• Corporate social responsibility - the growing recognition that organisations need to account for the full range their impacts on groups other than their shareholders or owners is throwing up a need for new standards and new tools.

The Local Government Act has given local authorities new powers to maximise social, environmental and economic well-being in their areas, but using and comparing indicators in these areas can be complex. Whilst the Best Value regime was set up in order to address these issues, it is limited by its inability to capture broader impacts of spending decisions.

SROI is not a 'one number' answer but gives an explanation of an organisation's social impact, including financial measures as part of the picture.  In the field of government spending, the developed SROI tool might allow, for example, a department to assess the full extent of the costs and savings created by introducing an increased crime prevention strategy compared with the costs of dealing with crime, or investment in the public health agenda compared with expenditure on acute hospital care.

Notes:

nef's SROI tool builds on the work of the Jed Emerson and the Roberts Enterprise Development Fund  in the United States. The Social Return on Investment (SROI) is a measure that captures the value of social benefits ('social' is used shorthand for social and environmental). It is a relatively new measure and represents a development of traditional cost-benefit analysis as a way of translating some of the social objectives of organisations into financial measures (generally gains or losses to public expenditure).

The term Social Return on Investment has been taken up by other organisations and used in varying ways. For example, some Socially Responsible Investment (SRI) funds refer to the SROI for their social investments and express it in terms of outputs - for example, the number of units of social housing built per dollar invested. nef has started work on exploring the way in which SROI, as originally developed by REDF, could be tested and developed in the UK context. Our aim was to test the applicability of SROI to the UK and propose practical ways to develop it further. We recognised that there would be some questions that were specific to potential users of SROI and that the nature of organisations delivering social value in the UK might take SROI down a different route

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	Publications Social Return on Investment: Valuing what matters

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	Lisa Sanfilippo