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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 co-
operation. 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


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 A summary outline of the standard is in the box

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
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.


Scope and nature of process Meaningfulness of information Management of on-going process

Complete- Materiality Regularity/ Quality Accessibility Information Embedded- Continuous

ness timeliness assurance quality ness 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

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

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

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

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
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 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

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

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 day-
to-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 stakeholder’s 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 ECOTA’s 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

IRFT has experience of assisting three local organisations to carry out social

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

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

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

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.

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.

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 on-
going 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.