SROI
Monetize social value and calculate “how much social value per yen invested.”
Overview
SROI (Social Return on Investment) is a framework that monetizes the social, environmental, and economic value created by a business or program and expresses it as a ratio to the amount invested—e.g., “one yen of investment created three yen of social value (SROI ratio 3:1).” Applying the concept of financial ROI to social value, it is used to compare different programs and to inform social-investment decisions.
When to use it
- When you want to explain social/environmental value in financial figures
- When comparing the impact of multiple social programs or businesses
- When building evidence for accountability to government, foundations, and investors
- When quantitatively evaluating the social costs and benefits of a business
How to use it
Clarify the business, period, and stakeholders to be analyzed.
Identify the outcomes for each stakeholder and organize the direction and nature of the change.
Select and set proxy indicators to monetize social value (e.g., one year of healthy life extension = ¥X).
Adjust outcome value for deadweight, displacement, attribution, and drop-off.
Compute “total social value ÷ total investment” and verify the result with sensitivity analysis.
◎ Pros
- ·Expresses social value in money, giving it persuasive power in management meetings and investor briefings
- ·Integrates different kinds of social value (environment, health, education) into a single number
- ·The SROI ratio makes the “cost-effectiveness” of social programs intuitive
△ Cautions
- ·Setting financial proxies is prone to subjectivity, raising questions about the reliability of the numbers
- ·The calculation process is complex and requires expertise and considerable effort
- ·There is criticism and ethical debate about monetizing social value itself
