Success as defined in a traditional business can be easily gauged using established and readily understood financial measures. In comparison, impact performance is more difficult to identify, quantify and measure.
Nevertheless, metrics are necessary for a social venture to provide evidence of the social impact it generates. Social entrepreneurs measure impact in order to:
- Ensure their enterprise is making a difference and meeting its objectives for generating positive social impact
- Set a benchmark for continual improvement of the services or products they deliver and their organizational processes
- Appropriately market to customers and stakeholders
- Secure and maintain funding and/or investment
Impact investors expect their efforts to generate both social and/or environmental good along with a range of financial returns. Just as a variety of financial indicators help investors assess opportunities, make decisions and monitor investments, those seeking to generate non-financial returns use non-financial indicators to inform the investment process.
This page contains the following sections:
I. Impact Measurement Tools
A variety of tools can be used to measure impact. Certain tools are useful for consumers and investors to recognize or compare companies and investment opportunities. A number of global initiatives such as the Impact Reporting and Investment Standards (IRIS) and the Global Impact Investing Rating System (GIIRS) have recently gained prominence; however, there is no universally adopted standard. Many entrepreneurs as well as some investors choose to create their own metrics and processes. The right impact measurement tool depends on the objectives of the enterprise and the expectations of funders or investors.
B Corp (B Impact Assessment): Certified B Corps are for-profit companies that meet comprehensive and transparent social and environmental performance standards. To become certified, a company must score 80 out of 200 on the B Impact Assessment, which can be taken online for free, and make a formal commitment to consider stakeholders beyond shareholders. The assessment evaluates a company’s operational impact with regards to the environment, workers, community and governance.
Demonstrating Value: Demonstrating Value provides expertise and a set of tools to help social ventures use data and information to improve operations and planning and better communicate their value. The Demonstrating Value toolkit has some functions that are similar to the Balanced Scorecard system, including measures related to financial and social impact.
Global Impact Investing Rating System (GIIRS): GIIRS provides both company and fundimpact ratings derived from the B Impact Assessment. The report provides a rating of the social and environmental impact (not financial performance) of an individual company or fund, analogous to Morningstar investment rankings or Standard & Poor’s credit risk ratings.
Read more about how GIIRS works in its publication, Sample Fund and Company Rating 2010 (PDF).
Global Reporting Initiative (GRI) – Sustainability Reporting Framework: The GRI framework provides guidelines to measure and report on an organization’s economic, environmental, social, and governance performance. These guidelines are designed for use in producing sustainability and corporate social responsibility (CSR) reports, which promote an organization’s transparency and disclosure in a consistent manner. The framework can be used by organizations of any size, and in any sector or location. GRI provides a rating on the level of disclosure only.
Impact Reporting & Investment Standards (IRIS): IRIS is a library of common indicators used to describe an organization’s social, environmental and financial performance. IRIS provides a wide range of metrics for organizations in different industries to choose from and seeks to standardize the definition of commonly used indicators. IRIS does not evaluate performance or provide a rating or grade; organizations select the indicators that are best suited to them.
Social Return on Investment (SROI): SROI is an approach to understanding and managing the value of the social, economic and environmental outcomes created by an activity or an organization. SROI measures the significant intended and unintended outcomes, and applies a financial value to each. It is based on social generally accepted accounting principles (seven principles); it does not provide specific instructions on how or what to measure.
Sustainable Livelihoods (SL): This tool helps users understand poverty from the perspective of the stakeholder. The SL framework looks at how a stakeholder’s range of assets (not just physical) currently impacts their livelihood, and it delivers insight on what additional assets would be required to achieve positive and sustainable livelihood outcomes. Originally focused on poverty in low-income countries, this approach has been adapted to other settings.
II. Additional Resources
Guidebook for Impact Investors: Impact Measurement (Purpose Capital, 2013) (PDF): In collaboration with Human Resources and Skills Development Canada, Purpose Capital published this guidebook. Aimed at impact investors, it offers entrepreneurs an understanding of how investors use social metrics.
Skoll World Forum 2013: The Skoll World Forum is an annual event. In 2013, the forum produced key articles and thought-leadership content on the topic of impact measurement.
Social Entrepreneurship: Social Impact Metrics (2010): This MaRS white paper details the development and emergence of standards of social impact metrics, and how businesses can use these metrics to evaluate their performance.