Impact measurement and social value accounting are part of a movement to change the information we’re using to look at the value in a more holistic way and just change the way we make decisions.
As the CEO of Social Value International (SVI), could you explain why you believe measuring social value plays an important role in today’s global society?
If we think about today’s global society, we have a lot of big challenges that we face. The most obvious one is climate change, but also rising inequality and also overall well-being for people. That’s the global society we live in. However, we believe that the way decisions are being made, generally focuses on financial value. We look at cost, we look at price, and those are the things that drive our decisions. These decisions are often contributing to climate change and increase in inequality. We find ourselves in a situation where it’s crucial to change the way that we account for value. If we expand our accounting beyond just financial value to include social and environmental value, then we will redefine what success looks like and decisions made by investors and business leaders will start to improve the well-being of people.
Impact measurement and social value accounting are part of a movement to change the information we’re using to look at the value in a more holistic way and change the way we make decisions.
Can you share some of the major initiatives SVI has undertaken to maximize value for stakeholders since you took over as CEO?
Developing a professional pathway. When the organization began in 2007, we started a network of practitioners to develop and evolve the methodology for social return on investment (SROI) and social value accounting. For the last 15 to 20 years, we have been growing a community of people who are highly skilled and are sharing best practices for accounting for value. We’ve developed training courses and introduced a professional pathway (which was expanded in 2018 to have three levels that an individual can progress through to demonstrate their capacities and capabilities as a social value practitioner). This professionalization is an initiative that we’re particularly pleased with because we believe it’s important that we develop the capacity of individuals to do this. We recognize people that have got good skills in social value accounting and IMM (impact measurement and management).
From reporting to managing. In 2022, SVI introduced a new principle to the SVI framework which was called Be Responsive. This initiative took a few years to develop, but I’m particularly pleased because Be Responsive takes our methodology into more of a decision-making framework, a management approach, not just a reporting tool or framework. Previously, we were considered as a reporting framework, SROI reports. But now with principle eight, our methodology is all about decision-making. So Be Responsive is about setting targets and making decisions to achieve as much value as possible for all stakeholders.
Convergence with other standard setters. SVI has been a founding member of the IMP structured network, now called the Impact Management Platform. This is an initiative that brings together all of the standard setters in sustainability and impact management, GRI (Global Reporting Initiative), SASB (Sustainability Accounting Standards Board), GINN (Global Impact Investing Network), OECD (Organization for Economic Co-operation and Development), and World Benchmarking Alliance. All of these standard setters are brought together. Social Value International has been part of this collaboration and we’re trying to develop convergence and collaborations between the standard setters.
Partnership with the UNDP. Through the IMP, Social Value International forged a partnership with the UNDP (United Nations Development Programme), as they’ve developed the SDG Impact Standards. The SDG Impact Standards are a relatively new set of standards for enterprises, private equity funds, and bonds, looking at best practices for impact management. Social Value International is working very closely with the UNDP to develop these standards and to accredit trainers, and also help develop an assurance framework so that organizations can apply to have assurance against these new SDG Impact Standards.
How does SVI align with the SDG Impact Standards in its work, and what role do these standards play in SVI’s strategy?
It’s quite easy to explain because you need to do both is the simple answer. It’s not a question of these standards or those standards. The SDG Impact Standards has four areas: strategy, management approach, transparency, and governance. The management approach and transparency can only be achieved if you follow the principles of social value. If you want to be developing a management approach that is consistent with the SDG Impact Standards, you will need to be applying the principles of social value and the SVI standards. It’s very much a connection. There are references to the Social Value International standards. It’s building on SVI’s work. I think the SDG Impact Standards, more broadly, do that very well. They try and create a roadmap for an organization to put impact management in place. They encourage organizations to look at the existing standards that have been developed by SVI or other standards as well.
How does SVI promote the adoption of SDG Impact Standards among its stakeholders and members?
Social Value International is happy to promote the SDG Impact Standards, particularly in parts of the world where the SDGs are a key driver or influence. I wish every country had a focus on the SDGs, and they should. But in reality, some countries are more orientated towards them than others. If you look at Japan, for example, we know that the corporate sector and the investors are very much driven by the SDGs. That’s not the same in the UK. It’s a useful set of standards for SVI to promote. If people like the SDGs, then they will be attracted to them. It helps them to put a whole decision-making framework in place within the organization. It’s not just about producing a standalone report, it’s about getting the systems and processes in place within their organizations that make better decisions that contribute towards sustainable development. We will encourage organizations to look at those standards, and we know that in doing that, they will then also have to engage with Social Value International’s work, the principles of social value standards, and the training. It’s very useful framing for some of our audiences, particularly in Southeast Asia, Africa, and Latin America. These continents have more focus on the SDGs than Europe and North America, unfortunately. Therefore, it’s a useful way to get people to start thinking about decision-making for optimizing the wellbeing of people and the planet.
When it comes to social impact and social value, you will never have perfect data – but creating meaningful dialogue with your stakeholders is the priority.
What impact do you believe the SDG Impact Standards have had on organizations’ approach to sustainability and social value?
It’s a little bit early to say because I don’t know how many organizations have fully embedded them. But I think the influence that it will have is to get organizations thinking beyond just single reports. A lot of sustainability or impact starts and finishes with a report. We need to change that because anyone can produce a nice report. They can do that once. They can have a nice-looking report that they use with their funders, or put on their website. What we really need to see is organizations changing the whole way that they make decisions. That means putting various systems in place, whether it’s having a strategy for achieving sustainable development, having the right governance in place, having a board to ask the right questions, having the right responsibilities, and then having a management approach that collects the right information—not just for external reporting, but for use internally, using the information internally to make decisions about how they can improve the services or the products that they’re creating in order to create as much value as possible. It’s not just about having a report that proves how good you are and the positives, it’s about looking at all of the positive and negative impacts and understanding where you’re creating the most value for people. That will in turn help you redesign your services. Operational decisions on a day-to-day basis can be made using impact data to create more value for people.
Where there’s value being created, there’s also value being destroyed. It’s about how we manage these trade-offs. Some data is better than no data.
In your view, what are the challenges businesses and investors face when embedding the SDG Impact Standards into their management systems and decision-making practices?
The main challenge is to change the culture within an organization, to get everybody in the organization committed and to change the way they think about impact data being useful to support a decision. Any little decision that’s been made in an organization, big decision, strategic decision, tactical decision, operational decision, getting everybody to think, “If we do option A or option B, which one creates the most value?” Getting some data and getting people to realize that some data is better than no data.
Another challenge that people have is that they think that the data needs to be perfect. But when it comes to social impact and social value, you will never have perfect data. It’s impossible. You need to get data that is good enough to help you make a decision. All organizations are making decisions that have trade-offs. By that, I mean, if they employ these people over there, then that’s good for those people, but maybe it has a negative impact on the environment or another group of people. Or maybe we use this plastic here and it’s cheaper, but it has a negative impact on the environment. Or if we build a new building in this location, in this community, it’s good for our business, but it’s not good for the local community. Where there’s value being created, there’s also value being destroyed. People need to get some data to see that, like the positive value and then the negative value, and they can see the trade-offs. Then they can say, “On balance, this is still the right decision to do” or “Now we have this data, we think that’s not the right thing to do.”
IMM should be about the transparency of those decisions because every business is making these decisions every day and these decisions have positive impacts and negative impacts. Just understanding which is going to create the most value and that should hopefully change the mindset and the culture of an organization.
How do you think we should deal with industries like, for example, tobacco? They are aware that they are creating more negative impacts, and so they don’t want to measure the impact because they are afraid, or maybe they just don’t want to show that the impact they create is more negative than positive. How to deal with those industries?
It’s a good question. Because overall, maybe it’s a net negative impact on the world, so it’s unlikely they want to present that. I think we all need to get better at being transparent about negatives and shift to have targets for improving that. A company will have a negative impact on the environment. Let’s measure that and then have targets for reducing that. Your question is asking me about sectors that are inherently harmful to people or the environment, like oil or tobacco. I think where we are right now is difficult because they’re still very profitable. But over time, I hope when we start to look at value more holistically, then maybe they’ll have to shift their business model, and maybe they won’t exist. It’s probably a few decades away from that. But things can change quickly. These industries probably will shrink over time. Whilst the oil and gas industries are still big, we are seeing more of a transition towards cleaner energy. It’s not happening overnight, but maybe gradually, those sectors will reduce, and more positive businesses will emerge. Ten or 20 years ago, you wouldn’t have really recognized the growth in renewable energies, but that is now a huge industry. We are seeing changes in the particular sector. But what we need for this to happen is more legislation about mandatory reporting or accounting for value. At the moment, all of the sustainability information tends to be voluntary and unscrutinized, without assurance or verification. You have tobacco companies producing sustainability reports that show how good they are. But these reports are not being assured or audited like financial reports are. We lack the legislative frameworks to make sure that they account for all of their impacts. Often, companies are choosing what to report on.
What SVI would really like to see is the full integration of social and environmental value onto the balance sheet so that we actually see it all together. The sustainability report is integrated into the financial report. At the moment, as you say, we have sustainability reports that are separate, and they’re unregulated or unscrutinized with assurance and they are acting as a bit of a marketing brochure for a company. Then you have the financials. But really, what SVI would like to see is the social and environmental value monetized, and then they can be put in the balance sheet or the P&L (profit and loss statement) to show the social and environmental performance alongside the financial performance. Then, it’s all integrated and you can see the total value of a company. If you did that for a tobacco company or an oil company, you might see that it’s not as successful or valuable to stakeholders as they currently are when it just focuses on financial value.
You can look at the changes in the way investors are making their investments. I think there is a shift away from investing in harmful sectors like oil and gas, coal, tobacco, and arms manufacturing. I think that’s an important point to investors like you and me, perhaps we have a pension, and we decide, “Well actually, I don’t want my money going into tobacco.” That will also change the way companies operate.
Can AI assist in providing a better understanding of social value and impact? If yes, how so? What are some of the challenges and opportunities you see with integrating AI into social value measurement and management?
It’s hard to answer that because AI is changing so quickly. Even three months ago, I didn’t know what ChatGPT was, and I think in a year’s time, I don’t know what will be possible. But fundamentally, social value is about good relationships with people and having a meaningful dialogue. We call it stakeholder involvement or stakeholder engagement. This means having actual conversations with people who are affected by business decisions. Having that relationship and understanding is at the heart of social value and social value accounting. We need to talk to people, we need to listen to people, we need to be able to have conversations and hear from them what is happening in their life as a result of our activities. I don’t think AI can replace that. We will still need to have strong relationships between people. What I think is possible is that AI or computer technology can analyze larger sets of data and save some of the work, make it quicker. At the moment, we spend a lot of time having interviews with people and focus groups, writing down or capturing their words and interpreting their words into what we analyze as impacts on their life. Maybe with technology, we can have more conversations with people, collect more data, more qualitative data, and analyze the words or the things that they’re saying, or even the behaviors to give us some more rich insight as to how our activities impact on their life. But it has to be done carefully to help stakeholder engagement and to help the analysis of what people are saying or feeling. You can’t just replace that. Otherwise, we’re not really going to be able to truly have relationships with people, and that’s what you can’t replace with AI.
Ben, your thoughtful insights have highlighted the importance of measuring and accounting for social value. Your firm belief in redefining ‘value’ beyond mere financial aspects is both impactful and eye-opening, and your dedication to this cause through Social Value International is truly inspiring. Thank you again, Ben, for your valuable time and for enlightening us on such a complex yet crucial subject
Social value is about good relationships with people and having a dialogue. We call it stakeholder involvement or stakeholder engagement.