Text by: Alyona Lis
Today’s article is about the social impact, which is something social entrepreneurs put before profits, and about ways it can be measured. However, first we will try to understand who these social entrepreneurs are and what makes them different from other businessmen?
First of all, social entrepreneurs create their companies and other types of startups in order to resolve some social or environmental problem they are concerned about. It is important that making a profit for them is just the means to make their solution sustainable,, but it is NOT the goal. The profits are NOT redistributed among the social enterprise founders (note: it is not the same as paying a salary:)!), they are either reinvested to solve the problem better or are given to charity.
Case: One of Belarusian social enterprises is called “Selskaya Stolinschina” (“Rustic Stolin Area”).
|Viktar Velesnitsky, co-founder of “Selskaya Stolinschina”|
It was created in 2011 in order to resolve the problem of disposing the used greenhouse film in Stolin district, the largest district in the country. There are more than 10,000 private and commercial farms here, with locals discarding or burning about 400 tons of plastic greenhouse film. Improper disposal of the film causes a lot of damage to the environment and human health, because when polyethylene is burned, it emits carcinogens. Collecting and processing unusable polypropylene film helps protect the environment and improves public health. This approach helps reduce the volume of non-recycled plastic waste at disposal sites. It also helps to reduce the toxic load on the environment, because in this case the film does not release small particles in forests or water, where it can say decomposing for centuries, forming dangerous microplastics. Finally, it is better for public health. Locals often burn unwanted film residue right outside their houses, which can release very toxic substances — dioxins, which can cause the development of malignant tumors. The company reinvests its profits into the non-profit foundation “Center for Rural Development and Entrepreneurship Support of the Stolin District”, thereby contributing to sustainable rural development of the region, improving and developing new and more environmentally friendly ways of growing crops — one of the areas where the foundation works. Read about the enterprise in more detail here.
Social enterprises also aim to create productions which are ethical towards humans and nature. For example, one cannot consider themselves to be a social entrepreneur if they sell arms or cigarettes and send all profits to children’s orphanages. Neither can they use production technologies that have an aggressive impact on the environment. The difference in salaries of ordinary employees of a social enterprise and a manager will not be as great as it is in big commercial companies, but it is going to be fair. Entrepreneurs will seek to increase their social capital and increase the positive social impact over the community where they live and work, and the society as a whole.
Here is when the question arises: how to understand if the social impact is great (or small). What solution is going to be most effective, how to separate the effect of the enterprise from other factors, and how do social investors determine which solutions are worth investing in.
There is no globally accepted methodology to measure the social impact, so each country, organization, enterprise or foundation use their own. Qualitative assessment requires careful collection and verification of data, which entails a lot of time and human resources. The social return on investment — SROI — is a very demanding but a very accurate method, so let’s start with it.
The methodology is based on the assumption that every day we create or destroy some values by our actions. And although this can often go beyond something that can be measured in financial indicators, e.g., improving relations in a family where both parents got the opportunity to work thanks to the fact that their grown-up child with disabilities got a part-time job, money is the easiest and clearest way to evaluate the result of our actions and investments. SROI takes into account all the social and environmental results of an activity, but translates them into a monetary equivalent in order to compare the money invested against the results obtained and measure the impact. If SROI is 2:1, for example, it means that there are 2 dollars (euro, ruble) in social impact per every dollar, euro or ruble invested into the project. An important part of the method is the fact that results are analyzed from the point of view of stakeholders who benefit from the entrepreneurial activity and take an active part in the process, and not just the investors.
This comprehensive method began to develop in late 1990s in a number of foundations in the US, Canada, the UK and the Netherlands, then it improved by incorporating practices of many entrepreneurs, appraisers and project managers, until it was finally systematized in 2009, and described in detail in 2012 in the Social Return on Investment guide (110 pages) by the SROI Network specialists. The guide is also available in Russian.
SROI assessment includes six stages:
Stage I. Determining the scope of work and key stakeholders. It is important to determine what exactly to measure, who of the stakeholders will be involved and how??
Stage II. Mapping of results.
At this stage, all desired changes are systematized, meaning that the evaluator puts forward a theory of change, reflecting the relationship between the intermediate and final results — the actual social impact, which is measurable in concrete numbers and with a qualitative effect.
In order to better understand what it all means, let us consider the example of the Belarusian social enterprise “Nashy Maistry” (Our Craftsmen) (Minsk), which provides employment to people with alcohol and drug addiction by producing and selling plaster decorative elements and furnishings. The ultimate goal of the enterprise is to help such people go into remission and return to normal life. An obligatory part of their employment is attending psychological support groups, which contributes to their rehabilitation, and, consequently, makes the enterprise more stable. “Nashy Maistry” offers internship to people with addictions. The number of people who completed an internship is considered to be first-order results. Such results are often called “products” in scientific literature. “Products” are not taken into account when calculating SROI but are used as additional data to help make other calculations and improve effectiveness in future. Results of the second order in this case are the number of people with addiction who consistently work for the company (for longer than 6 months). Typically, about 30% stay after the internship, and about 20% more become craftsmen. These numbers are also results of the second order. Finally, social impact (of the third order) includes the number of addicts who stay sober after leaving the specialized enterprise for more than two years.
Stage III. Collecting data that confirms the results and translating it into money.
It may seem difficult to find financial equivalents for social impact, but it is important to do so. In the case of “Nashy Maistry” is the amount of taxes paid by employees, as well as whether they repay their debts. People with long-term addiction are commonly have outstanding utility bills, telephone bills, or payments to support their children living in orphanages (after they were taken by social services). On average, payments for one child in the orphanage for one month costs 1375 BYN per person (603 euros). Everything that remains after the bills are paid is an addition to the economy. Monetized social impact also includes the decreased number of injuries and visits to medical facilities due to the sober and more conscientious way of life. Of course, some impact is very difficult to monetize, for example, increased self-esteem, the fact that people return to hobbies, begin to study, develop new social ties. These things also need to have indicators. As an example of such impact, here is a quote from Nadya, 36, who is an employee of the enterprise.
— You could say that “Nashy Maistry” is my first job. I'm an addict and an alcoholic. I spent half my life in prison. I started using when I was 14, I had 15 overdoses, 4 times in a coma.
— What about now?
— I'm beginning to set goals for myself. I want to get my child back. I am grateful to my husband that he is raising him. At the moment, my son calls me Aunt Nadya. I started to notice that I was changing after I joined the workshop. The world is also changing around me. I cannot say that it is easy to recover. We are learning. We have many books on how to stay sober. Before I started using, I loved dancing, I dreamed of becoming a master of sports in dancing. Now I’m dancing again and working here”.
Workers of "Nashy Maistry". Photo: maistry.by
Stage IV. Determining the impact: defining the impact of a particular enterprise / product / service by eliminating external factors that could also positively affect the situation, or effects that would occur by themselves.
Using our example, evaluators of the social impact of “Nashy Maistry” will need to take into account whether addicted people took part in other programmes during their internship and employment, what changes occurred in their personal lives that could have an impact on them outside the framework of social and labor rehabilitation.
Stage V. In order to calculate the return on investment one needs to take into account all additional and unplanned effects that were created by the work of the social entrepreneur and take away the negative impact. SROI = Cost of social impact / Cost of resources.
The unplanned positive impact of “Nashy Maistry”, for example, includes bringing 44 children back to their families over the three years of work. In order to strengthen and validate this effect, the founders organize activities to improve family relations: more than 30 workshops, charity races, theater, circus and concerts visits. The cost of resources included paying for the services of the craftsmen, mentors, teachers, the time spent by the founders, as well as the costs of organizing additional events.
Stage VI. The last but not the least stage is reporting. This is when the results are presented to stakeholders and the stakeholders give feedback, which helps to validate best practices and make their use routine.
It is very important to receive feedback from stakeholders in order to validate the results, be more efficient and gain more positive momentum. Even though the SROI method is not the simplest and the feedback can nullify some results, it helps to understand where it is better to invest effort and money.
Alyona Lis is an expert in social entrepreneurship, manager of international projects and programmes, head of ODB Brussels, and a coach.