Skip to main content icon/video/no-internet
icon backReturn to Entries

Social Return on Investment

Creating a socially and environmentally responsible (or sustainable) marketplace is in part hindered by the fact that social or environmental values do not have a price. Nonprofit or nongovernmental organizations (NGOs) in particular find it difficult to express, and receive recognition for, the value of their contributions, since measuring the true value of living in a more just society, or enjoying an art performance, or planting trees is virtually impossible. Increasingly, businesses and corporations that attempt to provide useful social or environmental services are also faced with the challenge of “valuation.”

Social return on investment (SROI) is a methodology used by organizations to assign a financial value to the social impact of a project, organization, or policy. By assigning a financial value (in the form of a ratio) to a social value that ordinarily does not have a price or market value, organizers are able to demonstrate that the project will generate a positive impact to individuals or to society as a whole. It is typically used by nonprofit or NGOs, but businesses have been known to use it as well. SROI is a useful tool to identify key value drivers, align stakeholder expectations, and demonstrate social impact, which makes it easier to attract funding. The limits of this method are that some benefits cannot be monetized in a consistent manner, that increased monetization can make the organization lose its social focus, and that intensive efforts are required to prepare a first SROI analysis, as well as lack of recognition by most investors.

Primary Principle

SROI is used by organizations to illustrate the value created by a project or to help decide how to allocated internal resources. This value assessment is based on the perception and experience of participating stakeholders, and facilitates decision makers’ understanding of the social, environmental, and economic value they are creating. The objective is to translate into monetary terms actions and initiatives that might not have monetary outcomes. For example, a project that aims to help build self-esteem might not have an economic result, but the benefit for society is indisputable. Therefore, organizations raising funds for these types of projects can use an SROI ratio to showcase the positive economic outcome of their projects, making it easier to convince investment or subsidies.

SROI Value

An SROI analysis is usually illustrated in the form of a ratio, which contrasts the value that has been created with the investment required to attain it. For example, a project presenting an SROI of 4:1 is creating four units of social value for each unit invested. For this reason, SROI can be used by nonprofits to illustrate the positive value created on society by nonmonetized elements (such as a demonstrable cost savings or a positive intervention). However, the application of SROI is highly dependent on stakeholder participation and agreement to appropriately estimate the positive impact created by the project; this means that an SROI value is not fixed, but rather a perception of participating stakeholders; it is possible for two groups evaluating the same activity to arrive at different SROI values.

...

  • Loading...
locked icon

Sign in to access this content

Get a 30 day FREE TRIAL

  • Watch videos from a variety of sources bringing classroom topics to life
  • Read modern, diverse business cases
  • Explore hundreds of books and reference titles

Read next

More like this

Sage Recommends

We found other relevant content for you on other Sage platforms.

close

Have you created a personal profile? Login or create a profile so that you can save clips, playlists and searches

close
close
close Signed In to profile You are signed in as:
close
Logged in Institution Institution