Society is thinking a lot about Corporate Social Responsibility these days because we would like to differentiate those businesses that behave in a way that is beneficial to society overall from those that do not. But what if we step back from this buzzy term “CSR,” and imagine that we have the power to design our world of business from scratch?

We might begin by asking, “what do people value?” If we were to make a list, and simplify our answers, we might come up with things like:

• The well being of our friends and family. Our own health and happiness. In short, Health.
• Our educational opportunities and financial well being: having the financial means to take care of what we and our family need, and to pursue our interests. In other words, Financial value.
• And not only our own financial well being, but that of others. The economic well being of our communities. Economic value.
• Going further, something so fundamentally valuable is it that we hardly think about how crucial it is and how our very lives depend on it, the earth’s natural ecosystem: fresh air, clean water, trees, and other things that we eat or use: rice, fruit, cotton. Environmental value.
• We might even notice that we value our sense of trust in each other, and in our institutions. Trust.

To simplify: Health, Financial value, Economic value, Environmental value, and Trust, are umbrella categories for the things people value. If we re-imagine that business world is designed to produce value in terms of all of these things, how would we account for this value so that we could manage and grow it?

Would we measure only one aspect, the aspect of Financial value?

Unfortunately this is what we have been doing. Conventional accounting, which all businesses, nonprofits, and governments around the world use to guide their operations every day, leaves out the explicit value of Health, Economic value (Financial value for those other than shareholders), Environmental value, and Trust.

On the one hand, conventional accounting does work well. Since 1950 the world’s wealth in financial terms has grown tenfold. And not only financial value has grown: the average lifespan around the world has doubled over the past two hundred years, even as the population has grown sevenfold.

However in recent decades, negative health impacts have been caused by activity even as it generates financial wealth, such as obesity and type II diabetes. Worldwide economic inequality has grown constantly since the early 19th century with the only exception being the first few years of the 2000s, with the rapid growth in the emerging economies and in particular Brazil, Russia, India and China. Environmental devastation threatens our planet’s ability to maintain the conditions that support human life. And the accounting profession – the tens of thousands of professionals whose job it is to present a fair and accurate picture of what is going on – has never ranked so low among trusted institutions.

Our global economy has grown huge in large part because we figured out how to systematize the ways we measure, manage and communicate information about our market transactions through financial accounting.  But because we’ve been ignoring other aspects of value, we have been missing out on tremendous value that would make us all better off not only financially but in extra-financial ways as we and our communities have plenty of health, wealth and “natural capital.”

We can do not only just as well but much better economically than we have – if we develop ways to account for the rest of what human beings value. I call this “impact accounting.” By measuring these other aspects of value using impact accounting as a matter of regular business operations, we make it both more tangible and we enable enterprises to better identify and create this value. In so doing, businesses can create new wealth in a real financial sense.

Impact accounting is both possible and inevitable.

It is possible because the core principles and standards for social and environmental accounting are coming into existence. Thousands of business and nonprofit managers, public servants, scientific researchers, and other professionals around the world have made significant progress in the past decade on the development of practical and credible ways of accounting for social and environmental value. Developments such as the SROI Network with its principles for how to measure social value, the Impact Reporting and Investment Standards (IRIS) taxonomy of metrics of social and environmental performance, and the Social Performance Management (SPM) Network with its guidance for how to manage the social impact of the enterprise have taken firm root in dozens of countries around the world and are examples of the progress made.

Impact accounting is also inevitable. Here is why.

For most of human history, we humans lived and died within a few miles of where we were born. We knew everybody in our village, we knew whether they were trustworthy and treated people fairly, we knew whether they took more of the water or grass for their cows than their fair share, and we knew whether their products were reliable.

But then we learned how to make businesses big with industrialization, the population and cities grew, and as sourcing, production, customers and waste sites spread across the globe, we stopped knowing each other and whether folks did a good job or were a good neighbor. Not only was it easy to be unaware of environmental and human exploitation, it was increasingly difficult even for big businesses to know what their overall social and environmental impact was, even if they wanted to know. Suddenly, all that has changed.

You may have heard that this past month the one-billionth user signed up for a Facebook account. That means one in every seven people on the planet is connected to each other, and can capture, publish and receive at zero cost information about the activities of any enterprise, anywhere in the world.

This extraordinary human milestone marks a return to a very old-fashioned way of living. Now, the people next to the mine or the field or the dump can broadcast to the consumers and shareholders what they see, feel, hear, taste and smell going on.

Albert Einstein said, “We cannot solve our problems with the same thinking we used when we created them.” Both the methodology and technology exist to enable impact accounting to become standard practice, but the final key to unlocking the global economy’s potential to increase human well-being is one of mindset. For decades we have accepted that the private sector flies largely blind to its impact on the planet and people. At last we are on the cusp of a sweeping transformation in thinking.

Any moment we will look around and realize that it is now inconceivable that businesses and charities ever operated without impact accounting as a standard practice. The idea that they did will seem as old-fashioned as traveling by horse and buggy, and as debased as slavery– since truly without it we have been selling short not only our ability to pursue happiness but our very survival. Instead, with the universal adoption of impact accounting, we will become just as good at generating health and environmental sustainability on a massive scale as we are at generating wealth.

The post The New Old-Fashioned Global Economy appeared first on SVT Group.

http://unreasonableinstitute.org/

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Each of the past two summers, 25 promising, early-stage entrepreneurs are selected to attend the Unreasonable Institute in Boulder, Colorado. Through access to valuable mentorship, capital, and deep relationships with their peer Fellows, participants are provided a wealth of tools to boost the success of their startups. As a 2010 mentor, I was extremely impressed with the culture they’d created, and of course I’ve been particularly interested in what the Institute is doing to ensure Fellows are prepared and devoted to accurately measure their ventures’ impact. I’ve wondered whether the Unreasonable Institute might be underemphasizing impact management skills, and as such Teju Ravilochan (Unreasonable Co-Founder and VP Partnerships and Communication) and I have had a series of interesting conversations on this topic.

The Unreasonable Institute has always emphasized the importance of fellows successfully pitching their vision for impact to investors and other audiences. Indeed the Unreasonables are in a class by themselves in the social enterprise incubator world in terms of outstanding use of media to engage audiences in the work of their entrepreneurs, and I think this is one of their great strengths and a model for others to emulate.

However, key to a good pitch is being able to communicate not only one’s potential impact at an inspiring scale, but also how the entrepreneurial team plans to deliver genuine results despite challenges. I’ve seen many savvy investors look for entrepreneurs who can speak from firsthand experience to those real challenges, and whose projections are tempered by operational reality. So I know that building real impact goes hand in glove with a capacity to measure that impact. Does the curriculum convey that adequately?

Teju has persuaded me that the Institute believes proven results drive the story, not the other way around. He says, “the better they make their businesses in terms of delivering real impact, the better story they’ll be able to tell investors and the world.” The Institute has integrated, and continues to evolve, training sessions that help fellows understand and articulate their impact. One such session last summer, run by Kevin Starr of The Mulago Foundation, emphasized the importance of determining a single metric to measure one’s impact against. During the session, Kevin actually had the fellows apply this concept to their ventures. While many more comprehensive (and complicated) methodologies exist, Teju said fellows found Kevin’s session to be the most valuable exercise because of its simplicity. “It helped them focus on what is truly important to them and their ventures,” he said.

I agree that at the earliest stage it is helpful to focus on one or just a couple of metrics- this has definitely been true for entrants of the GSVC. However I believe it is also imperative for the field that entrepreneurs even at the earliest stage understand the fundamental necessity of having a way to identify any important impact on people or planet that arises, whether or not they are the single most important ones. If we are to shift business and philanthropy so that they better serve humanity, we must equip these institutions with the ability to recognize the major externalities they are having, even if those impacts are not intentional, such as by following principles of impact management discussed here using SROI analysis or stakeholder accounting (see Keystone Accountability) to identify what’s going on that matters. This “design principle” for social ventures should be taught to every social entrepreneur from day one. Otherwise we will keep designing solutions to current problems… while unintentionally creating new problems: in other words, more business as usual.

The Unreasonables are listening to their stakeholders, and that’s a very good thing. Their stakeholders- ventures and impact investors, most of whom are relatively new to the issues of measuring impact- are mainly telling them simpler is better. That is clearly a top design priority. But it would be an amazing thing for the field’s advancement if the Unreasonables grappled head-on with the conundrum that faces all of us in the impact management business: how to measure what matters, including the significant unintended consequences of what we do, without getting bogged down in complexity. I know the Unreasonables could make a powerful contribution to the answer if they tackled it head on!

Unreasonable Fellows 2010

The post Unreasonable Impact? How the Unreasonable Institute Prepares Entrepreneurs to Measure What Matters appeared first on SVT Group.

I would like to extend a formal invitation to you to join the fledgling USA SROI Network that Cynthia Gair of REDF and I organized starting at the tail end of 2010. We have a Google group to exchange ideas, an SROI intern to help capture the discussion and create a web presence, and we’ve been holding monthly discussion calls. The Network is for those using the principles of SROI analysis to measure, manage and communicate the extra-financial value of businesses, nonprofits, and other entities.

The SROI methodology is analogous to accounting- it is both a process and a skillset. While universal principles for how to conduct impact analysis are important, there are also context-specific choices about the best way to approach this task that will vary based on sector, audience, and cultural and political realities. As such we decided it would be worth coalescing a conversation about the unique challenges and opportunities for measuring impact that are conditioned by the United States environment.

Opportunities here include the cultural embrace of innovation, the abundance of technological resources and expertise, particularly social media-related, and the emergence of investors at all points in the capital markets who are seeking to understand the relationship between environmental, social and financial performance. Challenges include skepticism about the credibility of non-social science attempts to quantify impact, the general absence of a government incentive to measure social value unlike in many social democracies elsewhere, and concerns about the potential for perverse incentives to kick in if intrinsic or subjective value is quantified.

With all the incredibly smart, creative people here who are coming up with practical solutions to address these opportunities and challenges, we believe it is worth surfacing and sharing their work to the wider SROI community, that SROI methodology would be enriched by doing so, and that as SROI methodology evolves, so too will the capital market’s embrace of generally accepted principles for the assessment of social and environmental value alongside financial value.

If you are interested in getting involved, please contact usa@sroi.net. We will add you to the group’s list and hope you can join our next call, which takes place the last Wednesday of each month.

If you know others who would be interested, please forward this invitation to them as well!

We look forward to hearing from you.

Warmly,

Sara

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From OPIC’s press release March 8: “The Overseas Private Investment Corporation (OPIC), the U.S. Government’s development finance institution, has engaged investment advisor Cambridge Associates to invite input from investors, advisors, entrepreneurs and other interested parties about how best to design a call for proposals to catalyze ‘impact investments’ – projects which deliver significant social and environmental impacts to emerging markets while at the same time generating profits. The call, to be issued by OPIC later this month, will be open to equity, debt and hybrid strategies in any sector that relates to social and environmental impact investing in developing countries.”

Here is SVT Group’s letter to OPIC and Cambridge Associates in response.

1. “Impact” – What we are talking about?
2. How to tell whether something is an impact investment
3. On OPIC’s potential role
4. About impact guidelines and principles

1. “Impact” – What we are talking about?

As OPIC knows as well as any investor, “impact” means change in social, economic and/or environmental systems that would not otherwise have happened. This can be positive or negative change. What is considered to be an important or significant impact also varies based on who is judging it, and when and where they are doing so.

All businesses by definition strive to generate value for which they will be paid by its recipient. Accordingly, profit is (or is presumed to be) the result of the provision of something of value to someone who values it enough to pay more for it than it cost to provide. Beyond profit, however, all businesses also generate social (i.e. health), economic and environmental impacts for stakeholders beyond merely the owners. But not all businesses create positive social or environmental benefits above and beyond the status quo, nor are all business leaders aware of the impacts their companies create.

The result is that our economic system is extremely good at creating what it measures: financial wealth for owners. And to date it has been rather bad at creating environmental sustainability, and so-so at eradicating poverty and promoting health, particularly across the board. If these outcomes were measured, arguably the global economic system would become very good at solving these problems too.

Those businesses that consciously create or strive to create impact above and beyond the status quo could be referred to by many terms: beneficial businesses, social ventures, blended value businesses, double or triple bottom line businesses, etc. Investors that deliberately invest private equity or debt into these types of businesses are referred to as “impact investors.”

2. How to tell whether something is an impact investment

Assessing the impact of an investment is easy to say and hard to do. There are essentially two ways to gauge impact. One way is to compare the impact (social, environmental, economic) a given business or investment fund creates to an industry standard benchmark- for example, the health impacts of a given product, or the economic development impacts of a company located in a certain place. If the impacts of a company are better than the industry standard, the investment is an impact investment, and if they are worse it is not. The other way to tell is to compare the impact created to the ultimate outcome that is desired- for example, no net depletion of natural resources, or zero poverty in a given region.

Generally speaking, in the corporate social responsibility (CSR) and socially responsible investing (SRI) worlds of the past two decades, the actual assessment of net impact has been deemed too costly and too difficult to achieve at a sufficient level of confidence. So proxies for actual impact have been used, such as policies or outputs that imply certain outcomes. And funders have settled for information about whether an investment has accomplished something it set out to do, without consideration of other potentially significant impacts. Further, in the development world to date, budgets have existed to enable “measurement and evaluation” of impact by third parties, but these costs have not been internalized by the businesses and/or funds in a manner the private sector could or would adopt en masse.

However, more recently in the private equity and philanthropic worlds, and particularly the realm of relatively early stage ventures which are smaller and less complex, different possibilities to measure actual impact do exist, particularly in light of mobile and internet technologies. In the private equity context, the question is framed in terms of what value is being created with an eye to how this can be optimized going forward. Impact investors want to understand the environmental, economic or social returns on investment in addition to the financial returns- and ideally they want to know how these things interrelate.

Today, in these ventures, it is possible to assess impact with reasonable confidence at a price point the market can internalize. This is due to greater agreement about method, lower cost of data collection, more human resources willing and able to assist at all levels of the value chain, and more visibility of the information to the markets and the public—audiences who ultimately do want to know that businesses are having a positive impact and not a negative one.

But the market has not yet embraced this new reality. The bulk of investors simply haven’t asked to know what the impact is. The reasons are a combination of insufficient historic evidence that doing it will pay off (since it hasn’t been done before), ignorance of how to do it, cultural inertia, tall poppy syndrome, and the tragedy of the commons. Nobody wants to go first.

Fortunately, a handful of leaders such as CalPERS with both its California Initiative and Environmental Technology Initiative have proved over the past five years that it is possible to assess net environmental and jobs benefits at significant scale. Players such as B Lab, the GIIN, Hope Consulting and JP Morgan have established that many investors are interested in impact information, and many companies are voluntarily willing to account for their quality and potential. And the SROI method and corresponding international SROI Network of practitioners have demonstrated that there is a global appetite for the skills by which judgments can be made about what is and is not important to measure in order to understand impact.

There is proof of concept. The players are ready. It is time to scale.

OPIC has a literally historic opportunity. The time has never been so ripe for a catalytic initiative to establish the expectation that impact will be a part of accountability for performance in investments.

3. On OPIC’s potential role

OPIC has the opportunity to change the capital markets subtly but permanently, by providing an incentive for the collection and reporting of impact information in investment opportunities that bring mainstream capital together with impact-oriented capital.

Whereas international governments have created mandates that have spurred the standardization of principles for the accounting of social impact, such as the UK Office of the Third Sector, and more recently Korean, Indian and Thai policies to encourage social entrepreneurship; foundations such as the Rockefeller and Hewlett Foundations and individual instigators such as those behind SOCAP and the Take Action! Conference, have underwritten convenings and the creation of industry associations to encourage action on the part of investors and taxonomies to assist the communication of impact; still too few mainstream investors have yet done more than what amount to marketing campaigns in the impact investing space.

By mandating the reporting of net environmental, social and economic benefits of its Impact Investment Initiative, OPIC can make transparent the aggregate impact of investments that will garner dollars from name brand investment funds such as: JP Morgan, Goldman Sachs, Deutsche Bank, Bank of America. OPIC can substantially end the “tall poppy“ problem.

If hypothetically OPIC’s funds represent 10% of the total capital leveraged into a set of investments, then with $100 Million OPIC can potentially cause $1Bn in assets to have their environmental, social, and economic impacts measured. If this information is made transparent to the capital markets, we will see once and for all that the market recognizes real financial value in it—investors en masse, consumers, employees, and the public will prefer to know the impact than to fly blind. As a result, pressure will increase on mainstream asset managers to track and make transparent this information.

It is worth repeating that this has been done at large scale before. But nobody did any PR about it so that is not well known outside the churchiest of the church choir. Here therefore is a very brief summary of what has happened.

In 2000 CalPERS created the California Initiative to invest private equity into communities that rarely see PE dollars, with the goal of spurring quality job creation in those communities. In 2005 they recognized the good work of one of the investees, Pacific Community Ventures, on tracking its own jobs impact, and PERS hired PCV to capture the jobs impact of the entire portfolio on an annual basis. More than $1Bn of CalPERS money has been put into this initiative to date. When viewed in combination with coinvestors in the same set of portfolio companies, the total assets being measured probably total over $5Bn. Additionally, in 2004 PERS created the Environmental Technology Investment Initiative and included in the original side letter agreements the requirement that GPs participate in accounting for the net environmental benefits of their investments. This did not mean simply greenhouse gas emissions or any other single impact, but rather it required analysis of any and all significant and important environmental impacts, good or bad. Environmental Capital Group became the subadvisor to perform this analysis and reporting function (and SVT Group helped design the original due diligence and performance reporting system). The total dollars PERS has invested in this initiative are $600M and cumulatively the total assets being measured amount to some $9Bn. A handful of other players such as a handful of GIIN members have made some investments in which they have accounted for their impacts as well.

All told the total assets associated with these two initiatives are around $15Bn – assets for which annual net impacts have been tracked annually for several years.

This proves that impact measurement can be done at scale by mainstream investors.

4. About impact guidelines and principles

Some simple requirements established by these players allow individual companies and funds to address any particular impacts that are relevant, while meeting reporting requirements. For example, in its Environmental Technology Investment Initiative, CalPERS screened general partner groups up front for their capacity and willingness to participate in reporting net impact, and demonstrated evidence of the ability to deliver environmental benefits through their investments. Once this due diligence was done, PERS simply wrote in the side letter agreements that net economic benefits or net environmental benefits would be tracked, and they commissioned a sub-advisor to work with the fund manager to manage this process, including aggregating and analyzing the portfolio-level data and reporting it to PERS. PERS did not dictate what types of specific items needed to be tracked, but left it up to the experts within the companies, general partner groups, and the sub-advisor to exercise judgment on a company by company basis. Environmental Capital Group also had relevant experts from academic institutions peer review the selection of indicators for any given company.

A few key principles are de rigeur.

1. Impact means impact. The goal should be to understand what changes compared to what would have happened otherwise in the issue areas that matter to people- both those the investor intends to address, as well as any important, significant others that may arise intentionally or unintentionally. No matter what approach is used, whether GIIRS, a randomized control trial experiment, or something in between, this must remain the goal or the approach could lose its purpose. If actual impact is not explicitly assessed, then the way in which the rating is a leading indicator of impact should be made explicity. If the net impact— meaning any significant externalities—are not tracked and verified by a third party, the analysis will lend itself to greenwashing.

2. Stakeholders must be involved. If key stakeholders – including employees, customers, suppliers, and the community– haven’t been consulted about what is important about a given investment’s impact, it is all too easy to settle for the view on the part of an investor that everything is good as long as profit is made. We can see that this is insufficient.

3. Analysis must be comprehensive. Instead of picking something that’s working and leaving out what is not, the analysis should include the whole shebang.

4. Results must be transparent. With appropriate confidentiality safeguards, companies should report to their investors, and investors should aggregate and report results. What is left out should be stated. Assumptions and sources should be stated. It should be possible for a third party to replicate the analysis based on the documentation of it and get the same result. Ideally the analysis has been performed or verified by a knowledgable third party.

5. Context matters. It is harder to create a stable job in rural Ghana than in San Francisco. The qualitative and quantitative context should be provided to inform consideration of the “difficulty of the dive,” as well as understanding of how much of the problem may exist or remain globally.

6. Invite innovation. While this has been done, it is still early days, and many issues have yet to be resolved, among them: what should be within the scope of analysis, what constitutes an impact significant enough to track (materiality), what is a reasonable degree of credibility to meet in the measurement of impact and its proxies, etc. Furthermore, how to measure in a manner that is both accurate and cheap enough that it does more good than harm deserves a lot more innovation. As such, a sixth guideline could be to invite parties to suggest the best ways of measuring something credibly and at low cost, and to explain why that way is better than some other way.

OPIC can make a big impact by simply asking the funds in the impact investment initiative to account for their impact, in whatever way they deem best, as long as it adheres to a few key principles. We believe the principles above would be a good start.

But OPIC’s impact would be infinitely larger and more lasting- indeed transcendent of government administration or OPIC leadership tenure- if it partnered with some PR resources. Those players from the private sector who are interested in helping to catalyze impact investing could make the results of impact analysis visible to the public. This final step, of making the results visible to the public, will reveal the value of this information. Once that is done, mainstream investors will buy it, literally.

A Caselet: Tesla

Arguably Tesla Motors is an impact investment. It has received investments from funds with an explicit goal of creating jobs in California, and from funds designated for Environmental Technology Investments, among other investors. In both cases, the net jobs and environmental benefits have been measured.

Tesla has some direct and indirect benefits- it reduces fuel consumption and inspires people that electric cars don’t have to be lame. Yet a new model and make of car also implies the creation of a new production line, and this is highly resource intensive when contrasted with the per-vehicle impact of an existing production line. Furthermore, while the all-electric Tesla uses no gasoline, and emits no CO2e when running, it does use batteries to store electricity, and these have significant negative upstream and downstream environmental consequences. Lithium, a key material in batteries, is found in a few places in the world among them the Bolivian Altiplano, which to date has been a pristine natural wonder of the world but with the shift to a more electricity-powered economy it faces growing pressure to submit to mining—and there aren’t many impact-oriented mining companies yet.

When the environmental ramifications upstream and downstream are understood, it becomes possible to do projections and scenario planning to improve the design of the product, hold suppliers to certain environmental and labor requirements, and inform investor-company dialog. This means a truly greener company, fewer problems with the society’s ‘license to operate’ down the road, and potentially better financial returns as a result.

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We’d love your comments! Share them with us at info [at] svtgroup.net and we’ll post.

The post Open Letter to OPIC and Cambridge Associates on the Impact Investing Initiative appeared first on SVT Group.

In the world of impact investing, it is understandable that any one investor may be reluctant to pay for impact information, since so few of their peer investors are yet doing so. The playing field needs to be leveled.

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Many of you will recall that there was a time, not long ago, before Wall Street was interested in microfinance. One of the many reasons was that the only way institutional investors can incorporate a given investment into a portfolio is by understanding how risky it is compared with the financial return it offers.

To make a long story short, some smart folks figured out that until there was an assessment of the credit worthiness of microfinance institutions, Wall Street couldn’t really engage. And the World Bank and other donors funded the Consultative Group to Assist the Poor (www.cgap.org) to seek out a set of credit rating agencies whom it in turn hired to go out and assess the credit worthiness of microfinance institutions.

CGAP’s mandate to subsidize the cost of these credit ratings was seven years long. After that, CGAP made it known that it would no longer bankroll the credit rating effort. The market either would find value in knowing the credit worthiness of MFIs, or it wouldn’t. If it did, it would start to internalize the cost of getting the information. In a nutshell, it worked.

Something similar needs to happen in the world of impact assessment. Now that impact investors exist who are explicitly seeking investments that offer both financial returns and positive impact, it is clear there needs to be a way of determining what the impact is.

Making transparent what the social or environmental impact of a given enterprise is doable, but it takes skill and time. That costs money.

Many investors may choose to use www.giirs.org, www.hipinvestor.com, or another rating system that gauges how socially responsible a given investment is overall, even when it’s a private equity deal. Others will want information about the particular type of social or environmental impact offered by a given enterprise. But no matter what information investors wish to use, getting it takes effort on the part of the enterprise and/or others. With that effort comes a cost. And the information it yields has a value. Somewhere between the cost and the value should be the price.

What is that price today? Currently, in too many instances, zero.

While part of the reason is because it’s new, this situation has also arisen as an ironic consequence of the fact that many of the promoters of the industry are philanthropic organizations. They have the resources to provide software and technical assistance for free, in hopes that the absence of any financial barrier will cause the solutions to be adopted widely. Then, information about impact will be available for everyone to make use of, and all the benefits of this (namely more effective problem solving and more efficient resource allocation) will ensue.

This seems like a fine plan, but it has a potentially tragic flaw.

CGAP didn’t provide credit ratings for MFIs for nothing- they paid credit rating agencies who charged a sustainable price for the service to CGAP. As such, the price for this information became known, a capacity to serve demand was built in the industry, potential buyers of it could determine whether it was worth paying for, and if so they could take over paying for it. But when the information is provided for free, its price (and for many, its value) is anchored at zero.

This may work in the world of millions of eyeballs and online advertising. But there is no advertising model I’ve seen yet capable of financing the cost of information about impact.

In the world of impact investing, it is understandable that any one investor may be reluctant to pay for impact information, since virtually nobody else is paying for it. The playing field needs to be leveled somehow.

One way would be for a leading entity or consortium to pool the funds to purchase the information from entities (selected via a competitive bid process) who can provide it at a price that would sustain the provider entities for the long haul. Then, after a period of time during which the information has been provided to the markets, and its value has been validated by players who have begun making use of the information to design new investment instruments or to better understand risks, the consortiun could exit the role of underwriter and let the market take over. Seven years seems like a reasonable timeline to get investors good and used to knowing what impact on poverty, health or the environment their deals have.

Perhaps they could start with environmental impact, using an approach like CalPERS has employed for the past five years to gauge the net environmental benefits of its $800MM Environmental Technology Investment Initiative. Based on what I’ve seen, five million dollars a year for seven years could potentially cover the assessment of as much as thirty, forty or fifty billion dollars worth of assets. If the impact information in aggregate (not revealing confidential information) were well-publicized, this could achieve a tipping point, as investors recognize that they’re better off with this information than without it.

Then they’d pay for it. And foundations and the government wouldn’t have to anymore.

So what do you say? Will you lead the way?

The post The Right Price for Impact appeared first on SVT Group.

Over 200 participants gathered on the 7th at the event precipitated by the Korean government’s Social Enterprise Promotion Act. High unemployment and shrinking real wages for workers drove this 2007 law, which both the government and the opposition party supported, since above all it aimed to create jobs. The contracts it made with (government-certified) social enterprises were for a term of three years. Now that the contracts with that first cohort of over 300 social enterprises are coming due, the questions at the fore are, What is the return on this social investment? What is the best way for the government and its business allies gauge it? And how do the results inform the next stage of investment?

Seung-Kyu Rhee, the director of KAIST’s Center for Corporate Social Responsibility, set the stage, saying, “Social Return on Investment (SROI) is rising as one of the most widely accepted tools for measuring social values created by social enterprises and other entities. As we’re moving into a new exciting phase of the social innovation and social entrepreneurship in Korea, there is a growing interest and need in ways to accurately and practically measure social impact. Scholars, practitioners, and the government are all working diligently to find the ways to meet such needs and to stimulate the sector by providing effective tools. Such an important task can be done only by the closer partnership among all related parties in pioneering the models that are theoretically more comprehensive and practically applicable.”

Afterwards I spoke with some of the attendees, Chanhyun Sim (“call me Sim,” he said), Han Young “Tim” Do, and Young Jin Pyun, three passionate members of the team behind Impact Square, SVT Group’s kindred spirit in Seoul that launched this year to support social innovation in Korea and internationally (their projects already include an animal bank in Burkina Faso and, soon, The Hub-Seoul). Sim said, “2011 is going to be the big bang,” but not the way you might think. He explained: “Many people are really focused on those first companies that are graduating from government support and whether they can really survive or not. Next year will be the big bang. The Ministry of Employment and Labor is really eager to adopt SROI to prove whether their enterprises have generated value,“ he said.

What interests you about SROI?

“We found that SROI is most familiar with or similar with the financial tools – very rigorous tools in use in finance. The framework of SROI is very developed by some institutions or specialists over a long time…. Especially other impact measurement tools are not able to cover the financial issues, or the social impact issues, they do just one side. But SROI tries to cover both sides of impact. That is the most important thing for us to study about SROI.”

The rapprochement between the two Koreas seemed to be gaining steam in the prior administration, but seems now to be receding. How do you see the prospects today?

Sim: “There are ups and downs. But in looking into the modern history of Korea, the older generation experienced the Korean War 50 years ago, and they’ve been through anti-communism in their education. So they really cannot think of the softer way of having a relationship with North Korea. And of course North Korea is not changing either. But we believe the younger generation is freer- I have been mentoring North Korean defectors, and they’ve been having an honest talk about both our systems.

“Officially there are 20,000 defectors now in South Korea. The government assumes there are more in other countries- in China, or Southeast Asia. The people I know put the good and the bad things together. Most of them are kind of satisfied with their state of living [in South Korea] right now, but they have the same challenges that we have right now: jobs, education, and there is some [anti-North Korean] discrimination here.”

Tim: “I have some contact with people who lived in North Korea. We look at Germany– after Germany reunified, East German people felt kind of junior to the West German people. And economically, we can see that the West Germans kind of absorbed East Germany. Some East German people, especially the older generation, are having a hard time adopting those new systems based on efficiency- and that’s where discrimination [by West Germans against former East Germans] began.

“…In North Korea today, there is poverty, no food, no pills– there are very fundamental issues. Education, brainwashing is a very important problem. The North Korean government cannot allow the Western or South Korean side of knowledge or technology. They don’t want to import these- they only have things built by the government.”

How does someone get unbrainwashed?

Tim: “The Internet is doing the job.”

What do you want readers to know about Korea’s social entrepreneurship scene?

Sim: “We strongly believe that Seoul is a really important base for social entrepreneurship in Asia. Japan already has established their own system of operation in their society, and it’s really hard for foreigners to get into that system. And China, because of all the political and cultural limitations it’s hard. But Korea, it’s a free market and there are lots of opportunities. And politically, culturally, historically, southeast Asia, Japan, China and Korea are strongly tied. They have less negative feeling when we try to approach them. So we think Seoul is a great base.

“And we have really great initiatives that other people might be really fascinated with. We are in conflict with North Korea, and there are a lot of issues to solve before we become reunified: cultural, social, economic. Most people only focus on the military conflict. But to the younger generations it’s really more about the lifestyle matter. When the relationships between the two Koreas become more developed, and as we open communication in various aspects like money and people, that will cause a really huge social entrepreneurship issue, here and in North Korea– and a really huge opportunity. And Seoul could be the base camp.”

It sounds like between the Internet and social entrepreneurship, you’re saying peace is in the Korean peninsula’s future?

Sim: “We don’t know when exactly the change will come. But, it will come.”

****

Here’s a bit more on social enterprise and the ISSROI conference:

Worth a read is this detail-rich background summary on how and why the South Korean government is engaging in social entrepreneurship, written by Lee Eun Ae, Board Member of sponsor Seed:S Corporation. During the symposium, Korean speakers Prof. Lee Seung-kyu of KAIST and Prof. La Jun-young of the Catholic University of Korea introduced the SROI model that the Corporate Social Responsibility Research Center of KAIST is in the process of developing with the support of MOEL. Prof. Kim He-won of Korea National University of Education, Na Young-don, a Director-General of MOEL, and Park Chan-min, a General Manager of SK (the fourth largest conglomerate in Korea), discussed the model, and Na Young-don, Director-General of the Employment Service Bureau, MOEL, said, “The attempt to develop the SROI model is the first of its kind in Korea. Active discussions among international and domestic experts will contribute to the further development of Korea’s SROI model.”

This time those experts were Cliff Brown of Environmental Capital Group, who discussed his firm’s landmark work with CalPERS measuring the net environmental benefits of what amounts to $9Bn in environmental technology private equity investment assets; Jeremy Nicholls, CEO of the UK-based SROI Network, which now numbers over 600 members worldwide and is shepherding continuous improvements to the methodology; Ken Ito, a Partner in Social Venture Partners Tokyo; Magnus Young, with Impact Investment Shujog in affiliation with the Asia Impact Investment Exchange out of Singapore, who has worked with both GIIRS, SROI and IRIS methodologies and commented on their complementarities; and I set the stage with a US perspective on where SROI has been and where it’s going.

The post A Big Bang is coming in Korea, but not the kind you might think appeared first on SVT Group.

Hugo Narrillos Roux this week was awarded his PhD in Economics, Universidad Complutense of Madrid, with the work entitled: “SROI: a good method to evaluate the social impact of Social Firms.”

He enclosed an article (in Spanish) about SROI he has just published in the magazine of the Spanish Association of Foundations. The article is on pages 4 & 5.

Congratulations, Hugo!

The post World’s first PhD in SROI appeared first on SVT Group.

Dear Entrepreneur,

This past year, I had the chance to serve as a mentor for a US-based acceleration program for young entrepreneurs tackling social and environmental problems called the Unreasonable Institute. Because it could be a useful opportunity for you, I’d like to invite you to apply!

To give you a little background, the Unreasonable Institute accelerates high-impact entrepreneurs with mentorship from 60 global thought leaders and investors, ranging from the co-founder of Google.org to an entrepreneur who’s lifted over 24 million farmers out of poverty. These entrepreneurs form relationships with 30 impact investment funds like Acumen Fund, obtain guidance from premier consulting organizations like IDEO, and pitch to hundreds of investors and partners in Silicon Valley. They do it all while living under the same roof in Boulder, Colorado for 6 weeks with 24 peers dedicated to defining progress in our time! For more information:

* Watch the 3-minute Unreasonable Institute Trailer http://unreasonableinstitute.org/tv/2010/unreasonable-trailer/

* Check out results and reactions from Unreasonable Alumni
http://unreasonableinstitute.org/2010-fellow-updates/

* See the benefits you receive at the 2011 Unreasonable Institute
http://unreasonableinstitute.org/what-fellows-get/

You can review eligibility criteria here: http://unreasonableinstitute.org/eligibility/. If you believe this would be a valuable experience for you, submit your application at their site by December 15!

You can email Unreasonable VP of Partnerships and Communication, Teju Ravilochan, with any questions. His email address is teju [at] unreasonableinstitute.org. We both hope you’ll seriously consider taking up the opportunity!

Most sincerely and unreasonably yours,

Sara Olsen

The post An Unreasonable Invitation- Please Reply by December 15! appeared first on SVT Group.

[Pattraporny Yamla-Or continues her reflection on the impacts of the recent political upheaval in Thailand and the surprising potential up-side for social entrepreneurship there.]

While many measures of impact have been applied to the street protests, violence and political upheaval, all of these measured only negative economic impact. The Ministry of Finance has evaluated overall damage from the violence at Baht 0.1 trillion (over 3Bn USD) and a decrease of 1% of annual GDP; economic growth is expected to be around 4% compared with the previous expectation for 2010 of 5-6%. The most affected sector will be tourism, which generally contributes a large part of the country’s GDP. Tourism will be in the worst condition in 20 years, with forecasts predicting that 10% of the industry will go out of business, and as many as 250,000 staff will be laid off. In May alone, foreign investors sold shares worth Baht 58 Billion ($2 Billion USD) on the Thai Stock Market. The forecast number of people left unemployed by the recent incidents is 20,000. Other indicators are a decrease of foreign direct investment in businesses; loss of small and medium size businesses due to being forced to close by the protests for more than a month; and many more. Those negative impacts appeared in the newspapers every single day without any positive benefits mentioned.

However there are also many intangible values that have not been gauged. A number of them stand out.

· Damage to peoples’ individual well-being from stress and sorrow have not been mentioned even though the Bangkok Metropolitan Administration sent psychologists to affected resident areas. Middle class people were worried about layoffs, some low income people were nervous about their security when joining the mob, upper class people were unnerved by the sharp drop of investment and stock market performance, entrepreneurs worked hard to protect their businesses when they had to stop running for more than a month in some areas, students were worried that the start of the semester kept being postponed, and everyone was worried about their family members and friends when they went out. Non-Bangkokians were unhappy to see the country in a mess. Every Thai had different uncomfortable moment, and not only was this stressful, it could be a huge cost for our individual and combined productivity. These worries ranged from small scale, to the biggest scale for those people whose lives were at risk and could not leave their houses for a week or had to be evacuated into temporary shelters. The threat experienced by those who feared for their lives definitely should be measured as a negative impact; one that will affect those people’s lives for a long run. Many of us still wonder, “when will this happen again?” Those affected will find ways to protect their lives and houses, and business owners will think about paying more for insurances and making contingency plans.

· The conflict between Red v. Yellow* or neutral people has damaged interpersonal relationships. The rupture has created a very long-term feeling of anger and misunderstanding. A huge amount of damage was done and is still ongoing. Many families fought on this topic, colleagues were mad at each other, old friends split, people who do not know each other but have different political preferences built up hatred. In this area, if we could do any measurement, the value would be gigantically negative.

· Significant amounts of natural resources were expended. During the burning and arson, Bangkok was covered for days with black smoke and fumes. Thousands of tires were burned to hide the Red troops from the soldiers. It might be quite scary if we knew about the amount of carbon and toxins that were released into the atmosphere. Three buildings that were heavily damaged from arson will be removed and re-built, and of course lots of resources will be consumed to get everything back in shape. In the big mall that was burned, Central World, even most of the stores that were not burnt were left with ashes covering the products, which now can’t be sold or fixed. Plenty of water was used to extinguish fires and clean streets in the aftermath. With severe draught this year in the country, these environmental impacts should be measured to give people a picture of how politics could affect us in the long run; not just socially but environmentally. (Of course, the disruption of economic activity also suppressed pollution generated by regular business operations, and will continue to do so until confidence is restored).

There are lots and lots of negative impacts and problems to be fixed. On the contrary, we also experienced a number of positive impacts, the value of which could be interesting to assess.

· The rise in a spirit of volunteerism, patriotism, and hunger for solving social problems are definitely positive values that are driving the country forward to solve the problems revealed by the latest turmoil. New approaches and solutions will be brought in, and more movements will be generated without waiting for the government sector. Many people have realized the damage done, and they have learned lessons. Problems once hidden have been discovered and it will be easier to solve them now than in the past. This spirit is a leading indicator of innovation.

· Political participation of people from lower socioeconomic and remote areas has risen as never before. By protesting, expressing their points of view and demands, following the news and movements, calling for their rights to be protected, these previously disenfranchised people are creating the power of negotiation with the government. This generates valuable change for the country, even though it can be a double-edged sword given the huge amount of propaganda feeding it.

There are many areas of intangible value worth considering.

Personally, as a result of what happened, I have started to dream of a social enterprise that could provide an information channel or activity that enables people from different socioeconomic classes to better understand each other’s problems. People with lower incomes, many of whom are outside the cities and off the electrical and internet grid, are the main strength of our agricultural economy, but have the least education and earnings, and as such can be easily manipulated by political bodies, leading to severe negative impacts of which many in this lower economic category are unaware. If they have wider access to information about the whole eco-system between politics, business, and society (such as awareness of the ripple effect of destroying business areas, which causes business to decline both in these areas and for other businesses that depend on the spending and investment of people who may fear instability, and lay-offs, which in turn cause overall quality of life to get worse). At the same time, the middle and upper class needs to be more aware of and to better understand the chronic problems that the poor face, like being taken advantage of by middlemen when selling crops. Those with more money and education could also be made more aware of opportunities they have to support their country mates through their skills, part of their income, or their actions. I see the potential for an education business, an online channel that provides more market access to low-income people, a well-arranged volunteer camp, or a campaign to engage urban people in social enterprises outside urban areas.

My entrepreneurial idea is still in the formative process. What I can do for now is to continue playing the role of Manager of the Social Venture Competition, which helps promote a new generation to start social ventures and makes the public aware of the concept of social enterprise. I also hope to play a vital part in supporting the birth of new social enterprises, facilitating current social enterprises, and creating strong communities of people of like minds in the coming months by also becoming the leader of the Social Enterprise Association Thailand and of the Center of Sustainable Entrepreneurship at Thammasat University.

We might have countless problems in this society, and there are still conflicts, but I am confident that social entrepreneurship will be an essential tool to help the country out of this crisis. I also believe that at the end of the day, no matter which color or side they chose, Thais love this Land of Smiles and would like to see the quality of life get better for everyone, so that we can once again be the happy country we were.

* “Yellow shirts” is the term for those who tried to remove Taksin during political protests in 2006, when a military junta bloodlessly overthrew the Thaksin interim government. Yellow shirts are mostly from middle- and higher socioeconomic classes. They may or may not support the current government.

The post The Government, Entrepreneurship and Impact Management, a Series: PART II Thailand appeared first on SVT Group.

I was just searching for photos from companies we’ve worked with that embody what a sustainable, equitable economy will look like, when I went to our old client, www.mobiustechnologies.com, and discovered that the polyurethane powder they made out of recycled foam can help clean up the oil spill!

They could absorb 25,000 barrels-worth of oil per month at their current capacity and have the sources of powder available today. Other than that they are a real solution and can actually get to work right now, the best part is that their powder is EPA-certified, meaning it’s non-toxic. So while oil is toxic, they wouldn’t add to the problem like some of the solutions being proposed.

If you can help Mobius get this solution raised to BP’s attention, please help! Links to videos and contact info is here: http://www.mobiustechnologies.com/oilsorbent/demos_videos.html

The post Former SVT Client Mobius Tech Recycles Foam into EPA-certified Powder that Can Absorb Oil Spill appeared first on SVT Group.