Over the last year or so there has been big increase in interest in measuring social impact. Must be a good thing? But with the last few reports released Jeremy Nicholls has begun to wonder who all this measurement is for.

If the titles of recent guides are anything to go by, then measurement is primarily for managers of organisations and their investors. A recent report from NPC highlighted the top two perceived benefits as being ‘Improved services’ and ‘Better able to communicate our results’.
It seems that most of the discussion is around how organisations can measure impact, in order to tell investors or commissioners what that impact is and hopefully to become more effective in future.

I think this misses the fundamental purpose of accounting and reporting on social impact.

The point of impact measurement is to provide stakeholders with the information they need in order to hold organisations and their financial investors to account. In civil society organisations, social ventures or social purpose organisations, the stakeholders are the people whose lives the organisations is seeking to change and therefore social impact accounting and reporting should hold organisations accountable for the effect they have had on their stakeholders.

In financial reporting the primary audience for a set of accounts is the investor, the group expecting a financial return for their investment. The organisation produces a set of accounts but these are tested using a set of principles designed to hold managers to account, and which are importantly, independently reviewed by auditors employed not by managers but by those investors.

This critical relationship doesn’t work like this for social purpose organisations for a number of reasons. Firstly the social return is not received by either the organisations or investors but by other groups of people, groups of people who do not (and do not have resources to) employ anyone to audit statements of social impact, using a set of principles that are designed to ensure that there is a return. Whilst organisations that try and create a positive social impact have all the right motivations this does not mean that this critical process of accountability can be ignored.

It’s a chilling thought that when we think we are doing good, we may actually be doing harm, but it is one we must always be alive to.
Dr Ben Goldacre, Bad Science

Secondly, in financial reporting there are millions of investors, one of the main reasons that there is consistency in how financial accounts are prepared and reported. Although there are billions of people who might be receiving social returns generated by social purpose organisations they do not receive the reports. These reports are prepared for managers or the comparatively small number of investors and commissioners who want to generate social returns for others. This means there is much less urgency for consistency.

Thirdly, in a relatively new field, those charged with developing approaches to accounting for social impact or employed to produce reports are not employed by the stakeholders who might be receiving the social return. This makes it inevitably harder to be critical of organisations on which you might depend for future sources of income.

This means that some of the current approaches to social impact accounting and reporting may be useful for reporting between organisations and investors and may generate information that could be useful for management effectiveness, but they are often not the best approaches to ensure accountability. Perhaps this is one of the reasons that there are still relatively few examples for changes in type, design or delivery of services arising from social impact analysis.

The aim of the SROI Network is to increase equality by giving people a voice in the way in which organisations account for the value they create and destroy. This approach depends on a set of principles some of which are becoming much more common in social impact reporting.

Others, principally the need to understand change as positive and negative, for that understanding to lead to the recognition of different classifications of stakeholders and a process for materiality, the need to consider value created from the perspective of those receiving the value, and the need to only account for changes that can be reasonably attributed to the organisation are less common but the most important. These are principles there to ensure social impact accounting and reporting can act on behalf of those people for whom services are being designed, but who often lack an independent voice.

There are social enterprises that recognise this, and are having their reports audited, for example, with the support of the Social Audit Network. Some like FRC and NOW, consider the issues of materiality, over claiming and valuation. Many of the SROI network’s members are social enterprises and organisations that support social enterprise. The RBS 100 index has profiled many more and shown that what was rare two years ago has become common practice now.

So there is good practice wherever there is a willingness to accept the sometimes difficult implications of being accountable. But we need to careful that in the current enthusiasm for social impact and more standardisation of social impact we don’t forget who it is all for.

This article was written by Jeremy Nicholls, first published on PioneersPost.com, the online newspaper for social entrepreneurs.