For the few of us still bothering to take an interest in the impact measurement industry’s geostationary orbit of planet earth, there’s been a couple of divertingly divergent interventions from top academics at London School of Economics recently.
First up, my friend Julia Morley, from the Department of Accounting, incurred the wrath of impact consultants’ umbrella body, Social Value UK, with her research blaming “an elite group of social investors” for providing “the main impetus for the adoption of social impact reporting” which “may create dysfunctional incentives for social enterprises” as a result.
Perhaps unsurprisingly, Social Value UK offered a storming social media media rebuttal:
Julia’s full paper, Elite networks and the rise of impact reporting in the UK social sector, merits further reading but I’m respectfully sceptical about parts of her abridged argument, albeit for different reasons to Social Value UK.
For me, the idea that social investors are forcing charities and social enterprises to adopt impact measurement over-estimates both the extent to which most social investors are interested in impact measurement and the extent to which most charities and social enterprises care what social investors think.
Maybe we’re seeing more organisations using the word ‘social impact’ on their website and/or calling their annual report ‘Impact Report’ but, as last year’s Oranges & Lemons report illustrated, there’s not much actual impact measurement being demanded by social investors. And, for most charities and social enterprises, social investment remains an obscure siding in the wider market for finance where nothing of practical relevance is on offer.
Impact measurement is a fundamentally important component of social impact bonds (SIBs – see previous) because it’s baked into the business model. Irrespective of our view on whether SIBs provide good value for money, the value proposition makes sense. The organisation (and investors) need to measure impact so that they get paid, the government needs to measure impact so that it knows whether the contract has succeeded on its own terms.
In terms of conventional social investment into organisations, it’s not clear how impact measurement creates value for anyone other impact measurement consultants. Organisations don’t get a cheaper loan for measuring their impact – and that’s understandable because (in general) social investors don’t get a better deal from wholesale investors for proving impact. It’s often claimed that public sector commissioners are more likely to buy from organisations who can demonstrate their impact but, SIBs aside, I’m not aware of any published evidence that this is true.
What’s the point?
I should make clear that I’m not putting this forward as an argument against the social value of impact measurement. I don’t believe it’s acceptable for charities and social enterprises to have no way of determining whether what they do is/remains socially useful – and the reporting systems advocated by impact measurers are one way of doing that. So there be may good reasons why government, grant-funders or others should (continue to) pay for measurement – but (SIBs aside) the commercial drivers for most organisations and investors to fund measurement themselves are (still) not obvious.
Fortunately, as Dan Gregory noted yesterday, some of Julia Morley’s LSE colleagues have some ideas:
There’s a shorter version here.
As Dan suggests, it’s genuinely wonderful to encounter people so optimistic that their response to the fact: “there has been a rise in the tools available for measuring the social impact of business – to the tune of more than 150 impact assessment methods” is: “In an effort to move impact assessment forward, we propose a holistic, transparent platform – called the External Rate of Return (ERR).”
The full situation seems to be that with people primarily on social change failing to do much social impact measurement but creating loads of complicated, highly contested measurement systems that no one uses – so the answer is to create an impact measurement system based on a complicated, highly contested financial measure Internal Rate of Return (IRR) and attempt to get businesses who are not primarily motivated by social change to use it.
As if that wasn’t fantastical enough, the added twist is that the model requires interested members of the general public to turn up a website and vote on the impact data that companies are providing.
On what possible basis would this actually happen?
If you are not an impact measurer yourself, you probably don’t need to be told that there’s no logical reason why a statistically significant number of members of the general public would turn up to a website and express an opinion on a company’s impact data.
As with many of the specifically social-focused impact measurement approaches, the creators of ERR are apparently focused on creating a theoretical model that would work really well in the event that large numbers of stakeholders on all sides of the equation were interested in it, while seemingly ignoring the question of why those stakeholders might be interested (or not).
While the impact measurement industry is unremitting in its demands, not just for funding but also for changes in the law, there’s ongoing confusion about what problems it’s solving and who it’s solving them for.