Can the social effect of your business be measured?
Businesses are no longer focused solely on their economic and financial performance. Today, companies are increasingly concerned about the social and environmental changes brought about by their activities.
In the past ten years or so, measuring the social impact of businesses has become more and more important, and for many entrepreneurs practically a necessity.
“We’re at the start of a new era in which a company is no longer simply an independent entity. Measuring its social impact will become standard,” predicts Alain-Olivier Desbois, co-founder of the business incubator and accelerator Espace-inc and a specialist in impact investing. “Investors have already starting integrating this kind of information into their evaluations of business risk.”
Consumers and employees are increasingly trying to understand the social impact of the products they buy or help develop. “Organizations who adopt this positioning today therefore have a competitive advantage,” states Pascal Grenier, co-founder and president of Esplanade, a Montreal accelerator dedicated to social entrepreneurship. In its two years of existence, Esplanade has supported 38 companies in their development, particularly with regard to analyzing and measuring their social impact.
A holistic approach
Measuring the social impact of your business enables accountability to stakeholders such as shareholders and financial backers. It can also help entrepreneurs develop a strategy and activities that are more internally consistent. For example, a clothing line promoting progressive values needs to be made aware of the externalities created by doing business with sweatshops in Bangladesh.
However, Desbois counsels against using social impact in purely marketing terms as a communication tool, which is reminiscent of certain companies’ focus on sustainable development as a form of greenwashing.
“You have to fully embody the position and adopt a way of doing business that constantly places the question of social impact at the heart of the company’s DNA.”
Asking yourself what your intentions are behind wanting to measure your company’s social impact is essential in order to determine your next step. Many tools are available to assess social impact. “Eventually we’ll have standards, like the ISO in the industrial sector, but we’re not quite there yet,” explains Desbois, who also does not consider the multiplicity of tools available to be a problem. “Measuring social impact is not an exact science. It can take a number of different methodologies in order to reflect on the issues at stake.”
A variety of options
The first possibility for profit-based companies who want to measure their social effect is obtaining B Corp certification. This international certification, provided to Canadian businesses by B Lab Canada, is awarded to those companies committed to achieving success in business while considering their social and environmental impact. Obtaining B Corp certification is not particularly costly, but it is considered difficult to obtain by companies that have completed the process. However, it is possible to perform a self-evaluation online on the B Lab Canada website and arrive at an initial list of effects generated by your business.
Some companies choose to go with the Global Reporting Initiative (GRI), guidelines which aim to evaluate the progress of companies in terms of sustainable development. In particular, the GRI considers businesses’ social and societal effects. “However, this framework is fairly restrictive and rigid,” explains Grenier.
Another possible indicator is Social Return on Investment (SROI). As opposed to the previous two methods, which focus on actions performed by businesses to improve their social impact, the SROI aims to quantify this impact. As a tool the SROI is especially useful for calculating intangible costs or effects. “For example, knowing how much a homeless person costs the City of Montreal can facilitate the understanding of homelessness and affect decision making,” Grenier explains. But although very complete, the SROI’s methodology is also complicated.
Finally there is the Theory of Change, which is particularly suited to businesses involved in developing long-term strategies. This flexible tool helps define the ultimate effect an organization intends to have, then maps the route necessary to achieve that effect.
Small, helpful steps in the right direction
To find the right process from amongst this range of methodologies, entrepreneurs would greatly benefit from guidance. The choice of tool will especially depend on the human resource and financial means the company is able to allocate to social impact measurement. “Indicators like the GRI are renewed every year, so this takes resources,” emphasizes Grenier.
Our two experts suggest that organizations not ready to take on a complicated certification process should start by examining the social impact of other businesses in their sector. But what is the best way of determining those social effects that will serve as points of comparison? Desbois advises using the 17 sustainable development objectives adopted by the United Nations in 2015. “This is an initial step that can lead to further evaluation,” he suggests. “But it’s important not to be dogmatic about it or to try and be perfect!”