NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, November 26, 2012

Laura Fedorciow has made a persuasive case for social impact measurement, and many of her points are well founded.

What is more debatable is the assertion that “demonstrating impact opens new doors to the £1.235tn assets under management in the UK”. The first point would be that not all of that finance is available to social enterprises. The second is that claiming social impact does not always influence social investors. Our research and experience of working with social enterprises in the UK, Europe and India certainly suggests this, and is reinforced by the findings of the recent Big Lottery Investment Readiness in the UK report.

Why is demonstrable social impact sometimes overlooked by social investors? We assume that social investors are looking for profitable businesses with a social impact they can evidence, so those who can demonstrate social impact have an advantage over those who cannot. The reality is that the paramount draw for social investors is the financial sustainability of an organisation. Those which have a tight business model and can generate financial returns will always be favoured, whether or not they claim astounding social impact.

Over and above this primary financial criterion, the credibility of existing social impact measurement tools is a major issue. Our research reveals shockingly low levels of confidence in the social impact claims of social enterprises. On one hand, these claims are treated with scepticism because of suspicions that the impact measurement process is engineered to hit a benchmark figure — a social return on investment of £6, for example.