SOCIAL ACCOUNTING: A METHOD FOR ASSESSING THE IMPACT OF ENTERPRISE DEVELOPMENT ACTIVITIES?

Chris Pay, Traidcraft Exchange Opening Summary / Extract The concept of social accounting is growing in recognition and sophistication. As it becomes one of the foundations of good practice in Corporate Social Responsibility (CSR), interest is growing within large corporations, consultancies and voluntary organisations alike. If larger companies are using a social accounting methodology to assess their social impact, the question sensibly arises as to whether this is something that can be usefully adopted by those seeking to assess the impact of enterprise development activities. Indeed, one of the organisations instrumental in the development of the concept, Traidcraft, is itself concerned with poverty reduction and enterprise development. This article looks at what social accounting is - where it has come from and it's present level of development. Alongside this, the relationship of social accounting to other CSR initiatives is considered. Examples of the social accounting methodology being applied in enterprise development contexts are reviewed, before some analysis of the link between social accounting and impact assessment is made. The conclusion drawn is that social accounting is not a means of, nor an alternative to, impact assessment, but rather a framework methodology into which impact assessment can fit. However, the benefits of the methodology are numerous, including not just an increase in transparency and accountability, but also the development of a focus on organisational learning, the embedding of organisational information systems and the systematic improvement of stakeholder dialogue. Social Accounting - What is it? Social accounting as an approach began developing in the UK in the early 1970s, when the Public Interest Research Group established Social Audit Ltd. This organisation carried out, and publicised, investigations into the operations of large public companies, without necessarily gaining their permission or cooperation. Whilst lending support to consumer pressure, there is an argument that this had a negative effect on accountability, as organisations sought to ensure that sensitive information was hidden from such investigations. Globalisation has brought with it a wide realisation that companies do not operate in isolation, but can have marked impacts on the environment and people at local, national and global levels. This has led to an increasing awareness of CSR, and the triple bottom-line of business success measuring the business

not only in its financial performance, but by its social and environmental impact as well. Traidcraft and the New Economics Foundation (NEF) pioneered a form of social accounting in the early 1990s that is voluntary in nature and rooted in engagement with stakeholders. This can assist organisations, both commercial and NGO, in understanding and improving their social impact. Social accounting is a way of demonstrating the extent to which an organisation is meeting its stated social or ethical goals. Whilst independently verified, the organisation itself owns the process of data collection and analysis and the process is driven by indicators the organisation sets in consultation with stakeholders, as opposed to being based on standards or criteria determined externally. This is balanced by the principle of benchmarking, which whilst still developing, should enable organisational comparisons where possible. Technically, the terms social accounting or social audit refer to specific parts of a process now bestowed with the much more unwieldy title of Social and Ethical Accounting, Auditing and Reporting (SEAAR). In practice, the shorter titles tend to be used interchangeably to refer to the entire process. Whichever title is used, the process should involve all three steps: internal data collection and analysis procedures (accounting) an independent audit of the results (auditing) a mechanism for disseminating the outcome more widely (reporting)

A process that stops short of auditing and dissemination is termed a Social Review. One of the leading voices in the world of social accounting is ISEA - the Institute of Social and Ethical Accountability. Founded in the UK in 1996, ISEA is an international professional body committed to strengthening social responsibility and ethical behaviour of the business community and non-profit organisations. ISEA promotes best practice in SEAAR and develops standards and accreditation procedures for professionals in the field. It was ISEA that further developed the social accounting methodology first employed by Traidcraft in 1993 and launched the Accountability 1000 (AA1000) standard in 1999. AA1000 is described as a foundation standard, which comprises principles and a set of process standards. In recognition of the still early stage of development that SEAAR is at, AA1000 has not been positioned as a certifiable compliance based standard, but rather as a set of key principles which should stimulate innovation above an agreed quality floor, rather than encouraging the development of a more rigid compliance oriented culture. Focused around engagement with stakeholders, AA1000 seeks to link the defining and embedding of an organisation's values to the development of performance targets, thus tying social and ethical issues into the organisation's strategic management. Organisational learning and improvement is seen as central to the

approach as is the link between organisational accountability and developing trust with stakeholders. As a process standard, rather than performance standard, AA1000 specifies the processes that an organisation should follow to account for its performance, not the levels of performance the organisation should achieve. The advantage of the AA1000 process is that it enables stakeholders, if the organisation is willing, to highlight their concerns and informs the questions asked by the organisation. These concerns might otherwise be missed by compliance based approaches where a list of criteria are pre-determined. However in both circumstances the will of the organisation to improve, not just comply, is critical. The standard is supported by an AA1000 Framework, which includes guidelines on key topics within the standard and a professional qualification. Details of AA1000, including a booklet that can be downloaded, can be found at www.AccountAbility.org.uk. A summary outline of the standard is in the box below. Following a consultation process with organisations implementing AA1000 and other stakeholders, ISEA is currently in the process of developing the AA1000 Series (AA1000S), to be launched in June 2002. This will place organisational learning and change at the heart of the process, and will add a further four detailed guidance modules to the core AA1000 process: Collaboration & communication / Stakeholder engagement Integrating with existing systems Quality assurance & External verification Governance & Risk management

A report from the consultation exercise to date can also be found at www.AccountAbility.org.uk

Outline Summary of AccountAbility 1000 (AA1000) The principles of AA1000 are summed-up in figure 1, below. These identify the characteristics of a quality process. The governing principle of accountability is addressed by inclusivity within the process, reflecting all organisational stakeholder groups. The principles that support accountability and inclusivity within the process are divided into the three groups of: the scope and nature of the process; the meaningfulness of information; and the management of the process on an ongoing basis.
Accountability Inclusivity

Scope and nature of process

Meaningfulness of information

Management of on-going process

Complete-ness

Materiality

Regularity/ timeliness

Quality assurance

Accessibility

Information quality

Embeddedness

Continuous improvement

Figure 1 The AA1000 principles The process model of AA1000 aims at continuous improvement through iterations over time. It can be summarised as figure 2, below. The planning phase involves defining and reviewing organisational values, objectives and targets as well as recognising the different stakeholder groups of the organisation. Having then defined the scope of the process, the accounting phase involves the collection and analysis of information against performance targets. This is accompanied by the development of plans for improvement and the revision of relevant targets. A report of the information gathered is prepared and externally audited, before being disseminated to stakeholders. Central to all phases is an ongoing engagement with stakeholders around what is to be measured and the capturing of stakeholder voices to be included in the report. Over time, support structures and systems are developed in order to embed the process into the organisation's activities. Within this model, a set of twelve steps are identified that should be taken in order to satisfy the AA1000 quality principles and a set of guidance notes assist in their interpretation.

Figure 2 The AA1000 Process Model

Since the development of AA1000, there has been an often bewildering proliferation of standards and guidelines relating to differing approaches to CSR. The most relevant of these include SA8000, The Global Reporting Initiative (GRI), SIGMA, and the Ethical Trading Initiative (ETI). The relation of social accounting to these CSR approaches and standards is outlined in the box below. SA8000 was developed by the US based Council on Economic Priorities Accreditation Agency (CEPAA), now known as Social Accountability International (SAI). It aims to be a universal standard based on International Labour Organisation (ILO) conventions, the United Nations Convention on the Rights of the Child, and the Universal Declaration on Human Rights. SA8000 is a performance standard, covering the specified areas of: Child labour; Forced labour; Health & safety; Freedom of association; Discrimination; Discipline; Working hours; Compensation; and management systems. Like AA1000, SA8000 is management-led and company wide in scope. Unlike AA1000, SA8000 is a performance standard and covers the specific areas listed above, giving guidance notes on how the organisation should be audited against set performance criteria. A guidance document that explains SA8000 and its implementation is available from www.sa-intl.org/publications.htm GRI is the Global Reporting Initiative. This aims to provide reporting guidelines for the content of sustainability reports, which cover the Economic, Social and Environmental factors of an organisation. GRI provides substantive performance standards and as such could be helpfully used within an AA1000 process to guide the reporting phase of the process and to encourage reports to be benchmarked against each other. ISEA describe AA1000 and GRI as "fundamentally and practically consistent". The GRI guidelines can be downloaded in various languages from www.globalreporting.org SIGMA is a project that aims to help organisations, irrespective of their size or sector, to address sustainability issues in a strategic and integrated fashion. The project has three lead partners - ISEA, the British Standards Institution and Forum for the Future, as well as a wider steering group. A set of guidelines has been developed which include guiding principles, a management framework and supporting tools (which include the AA1000 approach). The project aims to test these guidelines with a wide range of organisations and to share the learning from this process. More details can be found at www.projectsigma.com ETI - The Ethical Trading Initiative is a tripartite initiative between UK development NGOs, UK high street retailers and international trades unions. It was set up to provide a learning space where different approaches to monitoring codes of corporate conduct could be reviewed. It is more narrowly focused than the name suggests and concentrates on the key elements of labour rights enshrined in various ILO conventions. There is a base code that describes the key principles that must be adhered to. The ETI is part funded by DFID and member subscriptions. More details can be found at www.ethicaltrade.org.

Applying social accounting in practice in enterprise development To date the greatest interest in putting social accounting techniques into practice has come from large corporations (well known implementers include Shell; BP Amoco; BT; Body Shop; Co-operative Bank). For these organisations, the increase in trust that it may be possible to generate through improved accountability and transparency is more likely to outweigh the considerable cost of carrying out the exercise. John Pearce, of Community Enterprise Consultancy and Research in Scotland, has pioneered work on social accounting in the community enterprise sector, producing a workbook, together with Peter Raynard and Simon Zadek at NEF, for small organisations undertaking a social audit. Details of this, together with useful information on the history and current state of social accounting, can be found at www.cbs-network.org.uk/SocAuditing.html A recent pilot study into "Social audit with voluntary organisations" (SAVO project) in the UK, found that small voluntary organisations can benefit from social accounting, though clearly cost and time commitment become significant issues. (Full report available at a cost of 17.50 from www.acevo.org.uk/publications) The resonance between SEAAR and participatory methods of impact assessment in enterprise development suggests that the approach may have much to offer to this field. As more organisations involved in enterprise development attempt to use the AA1000 methodology in evaluating their impact, so case material is beginning to emerge. The short case studies below consider how a social accounting methodology has been employed in practice by a range of organisations in the enterprise development context: Traidcraft, UK In 1993, Traidcraft plc was the first public limited company in the UK to produce audited social accounts. Working together with the New Economics Foundation (NEF) a methodology was developed primarily to enable an account of performance to be reported which extended beyond the information it was possible to present within the structures of the financial statements. In 1996, sister charity Traidcraft Exchange began producing social accounts and since that time Traidcraft has been considering the relationship of social accounting to Small Enterprise Development. Since 2000, the social accounts of the two organisations have been combined and also published on the internet. These can be viewed at www.traidcraft.co.uk One of the key issues faced by Traidcraft has been how to develop an efficient and effective stakeholder engagement process. Methods of engagement with stakeholders have included questionnaires, focus groups, detailed interviews by third parties and annual meetings with partner organisations or shareholders. One of the difficulties in engaging with the most important stakeholders, overseas producers and partners, has been the cost involved in anything more sophisticated than a questionnaire. Thus Traidcraft has tried to balance the use of questionnaires (which provide broad coverage to a limited depth), by a

detailed consultation exercise with one specific group of producers or partners each year. More recently, the focus has turned to how Traidcraft embeds structures and systems within the organisation. Until 1999, there was no specific "home" for the social accounting function within the organisation. This hampered the development of embedded systems and processes, as responsibility for the production of the accounts changed from year to year. Since this time, social accounting has been allocated to a team from across the organisation which meets regularly to review progress and has been placed within the remit of the Financial Director, so that issues of measurement systems are now being tackled. Establishing organisational commitment to the process is a core aspect of making the process useful. The best practice now being developed involves supporting stakeholder engagement where it already happens as part of the dayto-day operations of various departments within the organisation. One of the struggles Traidcraft has had is that its methodology for enterprise development has involved the development of local service providers and facilitators - these have purposefully been independent organisations with their own governance structures and mission. Thus ongoing monitoring and evaluation data has been dependent on the systems of partners, who are at varying stages of organisational development. This has lead to the realisation that clear indicators to be reported against need to be established and agreed with those who will provide the information from the outset. This is in accordance with best practice in project design. The cost of this information gathering and dissemination can easily escalate or provide a distraction from the core objectives of the organisation, thus the procedures developed need to be in proportion to the scale of the operation. ECOTA Fair Trade Forum (EFTF), Bangladesh One of the local Partner organisations that Traidcraft works with, ECOTA Fair Trade Forum is a networking body of handicrafts manufacturing NGOs in Bangladesh. The aim of ECOTA is to provide its partners with a range of business development services including capacity building, marketing & trade facilitation, business counselling, product design & development, export market research and market information. ECOTA also aims to promote fair and ethical trade initiatives at local level. Being a pioneer networking body of fair and ethical trade, ECOTA was looking for a comprehensive way to allow it to regularly monitor the impact of its services on SME businesses and on poverty reduction. With this aim, ECOTA embarked on a process of social accounting and reporting in 2000. With assistance from Traidcraft, ECOTA applied the AA1000 process to their situation in Bangladesh. Below is a description of the process as seen by ECOTA.

The SEAAR Process adopted by ECOTA Fair Trade Forum in Bangladesh Tareque A. Khan, ECOTA 1. Identify the social objectives and the ethical values of the organisation against which its activities are assessed - ECOTA's Vision, Mission Statement and 16 objectives were reviewed and grouped as some of the objectives complement one another. The one area ECOTA should revisit in future is that some of the current objectives of the organisation are actually on-going activities rather than long term objectives. The process helped to clarify this. 2. Define the stakeholder groups - These are the key groups who have an interest in the organisation that can influence or are affected by its activities. ECOTA functions with a wide range of people who were grouped into different categories to make stakeholder groups that can be communicated with for this year's social accounting. Of the six groups identified below, ECOTA has approached four of them as part of the first social accounting process. Individual producers and employees of member-partners of ECOTA The member-partner organisations The staff of ECOTA Fair Trade Forum Development partner including donor & technical support providers The Northern buyers / clients Local BDS providers both in public & private sector 3. Establish social performance indicators - It is a process of assessment and identification from the different stakeholders perspectives, so they define appropriate indicators for measuring performance in their opinion. Some focus group discussions were organised to get feedback on the possible indicators based upon which ECOTA can measure its performance. One issue that came across quite frequently in finalising the most acceptable and measurable list of indicators is that there is conflict of interest between different stakeholders. 4. Begin the accounting process - This is where we began collecting both subjective and objective data. As far as possible, we tried to preserve the original and authentic "voice" of the stakeholder as well as some performance indicators from statistical and quantitative data. This will allow performance to be compared over time and with other organisations or appropriate benchmarks in future social accounts of ECOTA. 5. Audit the accounts - This means that the accounts are independently audited and a Social Auditor's Report is published with the accounts. In Bangladesh, there was no such independent firm or body to do this task, as social accounting is not yet commonly practised in the country. International support could not be secured because of the high cost. As an alternative, we engaged an independent management audit firm to gather responses from our stakeholders and also in the whole process an external consultant was engaged, not only to give us support to do the social accounting but also to safeguard the transparency and authenticity of this particular report. ECOTA will be open to anyone who is interested to review our whole process and the relevant documents. 6. Publish regular accounts - Since this particular report will be the first of its kind for ECOTA, we will need to review the timeframe over which we feel it will be reasonable to compare the account on a regular basis. Over time, we trust the accounts will reflect the impact of all the organisation's activities as they affect its stakeholders.

Being one of the stakeholders of ECOTA, it was an interesting perspective for Traidcraft to be sent a questionnaire asking for their views for ECOTAs own social accounting process. Two particular learning points arising from this were that it was often difficult to answer questions regarding impact due to lack of data on which to form an opinion and that it was difficult to present back to ECOTA an "organisational" view from Traidcraft rather the response inevitably ended up being that of one or two individuals. The first ECOTA Fair Trade Forum social accounting report will be published in November 2001. International Resources for Fairer Trade (IRFT), India IRFT is a business support NGO working with community based fair trading enterprises in four states within Western India. Established in 1995, IRFT aims to enhance the participation of these enterprises in national and international trade, thus impacting positively on the livelihood of the people involved with them. The Ethical Business Promotion division within IRFT offers services that aim to promote, encourage and monitor social and ethical aspects of business. Assistance in SEAAR has become one of the services offered, which include: Social Accounts and Audit Value Chain Monitoring Organic Certification

Well known businesses have made use of these services in order to verify their supply chains, with UK clients including B&Q, Marks & Spencer and Traidcraft Plc. IRFT has experience of assisting three local organisations to carry out social accounts: Agrocel Industries Ltd. - A marine chemical business based in Gujarat, providing services to farmers from the Kutch region. Shrujan - An NGO working to preserve the art and heritage of Kutch embroidery. Excel Industries Ltd. The second largest agro and industrial chemicals business in India. Of these, Agrocel is now in the process of writing social accounts for the second time (first accounts were in 1996/97) and Excel plan to extend the process to the entire corporate structure having trailed it within one factory unit. Both organisations reported numerous difficulties, but the repetition of the exercise

would suggest value being felt from its implementation. IRFT now plan to work with Chambers of Commerce within India on the SEAAR concept. IRFT firmly believes that it is important to have clear reasons for introducing social accounting into an organisation. Two benefits, which they suggest apply in all cases, are: 1. The process will confront aspects of accountability positively, innovatively and in a way that will enhance the company's reputation for living its values; 2. It will provide a comprehensive feedback, focusing management's attention on outcomes and particularly the clients' view of the organisation. Other key points noted by IRFT are that this is a voluntary process, that the involvement of stakeholders in determining the appropriate indicators is important and that thought should be given to how the results of the process will be disseminated to all relevant stakeholders. Training for Enterprise and Exports in Malawi (TEEM) The TEEM project in Malawi has embarked on a series of social reviews that it is hoped will result in full social audits with several commercial organisations including two large tea estates. The situation dictated that a new methodology was required for these processes that merged development objectives and commercial reality. This does not follow the AA1000 model, but is rather an experimental hybrid, of relevance for the particular context. A three-phase approach has been adopted: Phase one: A social mapping exercise of the organisation and its surroundings. This uses a Rapid Rural Appraisal methodology linked to stakeholder analysis and consultation. The output is a report stating the social conditions and issues on the estate or in the organisation. Phase two: Following the acceptance of the report, stage two is progressed. This involves setting targets or adopting those stated in SA8000. This gives a baseline against which to make recommendations. A full action plan is then drawn up together with management and other stakeholders to enable the estate or organisation to reach the agreed target. This includes a timed action plan covering between 1 and 3 years. The second report with action plan is then submitted to management, which can again be accepted or rejected.

Phase three: The action plan stage includes assistance with accessing funding where possible and has included successful negotiations for an adult literacy programme and primary health care programme to be

introduced, including a two year VSO posting. A social report will also be produced as part of the action plan, as well as the introduction of a form of social bookkeeping. Future reports from the TEEM project will be able to evaluate the usefulness of this particular model.

Social Accounting and Impact Assessment As more organisations involved in the field of enterprise development experiment with social and ethical accounting, auditing and reporting, the question is raised as to how this relates to our traditional understanding of impact assessment. Social Accounting is not impact assessment Social accounting, through the AA1000 process standards, provides a comprehensive and systematic framework for accounting, auditing and reporting against an organisation's social objectives. The discipline of social accounting encourages any organisation to take impact assessment more seriously. It encourages management information systems to be developed and embedded in the organisation to provide ongoing monitoring and learning from programme activities. It encourages the integration of social objectives into strategic planning. The reporting of the social accounts, especially if done annually, focuses the mind on what level of impact assessment has been carried out during the year. However, Doing a social audit is not the magic bullet for achieving good impact assessment of enterprise development activities. A social audit is the framework into which impact assessment information can be placed. Just as financial accounts are the shop-window for what should be happening regularly and systematically in the organisation (i.e. management accounting, risk management, internal control, basic cash handling systems, etc.), so social accounts are the place where impact studies, stakeholder dialogue, etc. can be reported. Social Accounting uses participatory methods Social accounting provides an ideal way to combine participatory methods of indicator setting with ongoing qualitative data collection. The emphasis on identifying and engaging with key stakeholders lends itself well to the use of impact assessment methodologies such as Participatory Rural Appraisal (PRA) and Participatory Learning and Action (PLA). If a SEAAR methodology is to be employed as a framework for impact assessment, then it becomes incumbent on those designing an intervention to do so in the light of stakeholder dialogue, so that the criteria for assessment are set through stakeholder consultation, rather than being donor-driven. Social Accounting seeks to embed M&E Developing social accounting processes within an organisation involves commitment to on-going stakeholder dialogue, and the development of a management information system based on indicators of social impact. Impact assessments of enterprise development projects often bemoan the lack of a systematic embedded M&E system, which hampers efforts to provide and use meaningful impact assessment information. The AA1000 focus on embedding systems is therefore useful (especially with the addition of a full module on this topic to be added in the new AA1000 Series). The experience of Traidcraft is that iterations of the social audit process have led to a shift in focus from a need

to prove our achievements, towards a desire to improve them, using learning gained from the exercise as a key driver. Scope of engagement It is important to note that social accounting has an organisational, rather than project level scope. Thus stakeholders judge an organisation on their overall perceptions rather than a narrow view of project success or failure. However, one of the issues of social accounting, as with impact assessment, is the level at which stakeholder dialogue can be carried out by the organisation. Enterprise development activities typically involve chains of inter-related interventions. It is unreasonable to expect parties that do not have a direct relationship with the organisation to be involved in making a regular assessment of how it has performed against social indicators. Thus it will not necessarily fall within the scope of a social audit for an organisation to have dialogue with the end beneficiaries of an enterprise development intervention (unless there is a direct relationship). Impact assessment studies need to go deeper than this and assess impact at the beneficiary level and at the household level. The results of such studies should form a key part of management information systems and so when carried out, should be reported on within the social audit. Transparency Fundamental to social accounting is the concept of accountability, aided through increased transparency. Few of the established methods of evaluating project or programme success include transparency of results as a primary concern. Social accounting adds a level of accountability to what are sometimes perceived as unaccountable NGOs. There are those who now suggest that social accounting offers an interesting way of bringing wider accountability to donor funded or NGO-led projects in the enterprise sector and beyond. Compliance or improvement One of the most positive features of social accounting is that it encourages change within the organisation. Earlier concepts of social audit involved an external organisation making an assessment of social performance and providing a report on the company. This method did not tend to change the way businesses operated in the way that self directed assessment does. Unfortunately, in some cases, impact assessments are carried out in the same way - imposed externally leading to limited ownership of the results by the organisation assessed. Social accounting tends to foster an improvement rather than a compliance based mentality to impact assessment and so should lead to ownership and ongoing improvement in the organisation.

Conclusions In the corporate world, genuine social accounting has been one of the first major stepping stones in improvements in corporate social responsibility. For many corporates that embark on the process, it is the first time that serious attempts have been made to go beyond financial measurements and understand the social (& often environmental) impact that the organisation has on its stakeholders. Thus such exercises are viewed as a good step forward towards social impact assessment. However, for many organisations involved in enterprise development, social objectives have often been a driving force rather than a secondary issue. Many of them have struggled since their inception to collect information amounting to a social impact assessment in order to legitimise their existence - to donors, if not themselves. Therefore, whilst the discipline of a methodology for stakeholder engagement and regular reporting will spur the organisation on to improve and embed methods of M&E, the social audit process will not of itself provide beneficiary level impact assessment information, as some expect. Rather, the hard work of developing good quality monitoring and evaluation systems remains crucial and the need for periodic impact assessment studies will remain. Where the SEAAR methodology provides a real step forward for enterprise development organisations is in facilitating the change in organisational mindset from faltering measurement systems predicated on the reluctant need for compliance to externally imposed criteria, to those developed with the aim of ongoing organisational learning and change. The launch of the expanded AA1000 Series by ISEA in 2002 will bring with it an increasing emphasis on using the social accounting process to develop organisational learning - a development that will resonate as important with many in the fields of both enterprise development and impact assessment.