social return on investment

the roberts enterprise development fund


and Guide






























What is SROI?
The term SROI, or social return on investment, has been popularly used in various contexts to mean that nonprofits create social value. However, there have been limited efforts to date to quantify and monetize this social value creation. We at REDF believe SROI can be calculated in a set of metrics that quantify and monetize social return, and that this social return should be viewed in a broader context. Returns realized on a social investment will always include social impacts that are impossible to monetize, or difficult to even quantify. Over the years, REDF has invested significant time and resources to create the SROI Framework — to identify direct, demonstrable cost savings and revenue contributions that are associated with an individual’s employment in a social purpose enterprise and measure the societal benefit created by a social purpose enterprise. REDF's SROI Framework — as described in REDF’s paper, SROI Methodology1 — focuses on determining a set of six SROI metrics: Enterprise Value, Social Purpose Value, Blended Value, Enterprise Index of Return, Social Purpose Index of Return, and Blended Index of Return. However, these SROI metrics must be interpreted and understood within the larger context of SROI. To this end, REDF has published individual SROI Reports for each of the social purpose enterprises in its investment portfolio. These SROI Reports are similar to for-profit company stock reports. The reports include the SROI analysis results as well as narrative descriptions of the business, highlights of an enterprise employee, and a summary of the impact of the social purpose enterprise on individual social outcomes. These social outcomes include difficult to monetize measures of social value such as increases in an individual’s self-esteem and social support systems, or improvements in housing stability. The SROI Reports are designed to capture elements of the broader meaning of SROI.

1Please see REDF’s publication “SROI Methodology” for a detailed discussion of how we calculated specific SROI metrics.

Why Measure SROI?

REDF believes the social and economic value created by the nonprofit sector has not been appropriately tracked, calculated and attributed. As the nonprofit sector continues to compete for limited charitable dollars, it is increasingly important to go beyond evaluating whether a program is a “good cause” to analyzing if it can be considered a “sound and smart social investment.” But how do we measure the success of our efforts? For each dollar invested, what is the resulting benefit to individuals and to society? How can we calculate our social return on investment? Historically, the Nonprofit Capital Market2 has been hard pressed to develop metrics appropriate to its work. Understanding how to capture and quantify the value created by the nonprofit sector’s work has been and will continue to be a major challenge.













We present our approach to analyzing SROI as a balanced and effective way to understand the connection between the funds provided to investee nonprofit organizations and the results those organizations achieve. REDF’s SROI metrics measure the value created by a social purpose enterprise in terms of financial returns and social returns — defined as public sector cost savings and new tax revenue generated for society. In addition to the SROI metrics, REDF also measures the changes in individual social outcomes through its comprehensive social outcome tracking system called OASIS3. These approaches to SROI are only a start, they are neither definitive nor complete, but they are REDF’s effort to raise the bar of practice to a new level.

2The Nonprofit Capital Market is comprised of entities that invest in nonprofits, as well as the nonprofits themselves. Please see REDF’s publication “The US Nonprofit Capital Market: An Introductory Overview of Developmental Stages, Investors and Funding Instruments” for a discussion of how the market is structured and how it functions. 3Please see REDF’s SROI Methodology paper for a description of OASIS — the Ongoing Assessment of Social ImpactS, a social management information system.

What is the Future of SROI?
REDF’s specific SROI Framework and the metrics it generates are not applicable for all foundations or to all fields of practice. It has been designed for, and its research is based upon, our experience with social purpose enterprises run by nonprofit organizations to provide employment and training to disadvantaged individuals. REDF’s SROI Framework does not attempt to definitively quantify and capture all aspects of the value generated by a successful nonprofit organization or program. Regardless, we believe the implications of REDF’s SROI research are not limited to a single field. Variations on this SROI Framework may also be applied to environmental and educational programs, as well as other areas of interest and activity in the nonprofit sector. Further research and study is needed to explore these other applications. REDF’s approach to SROI is potentially a powerful tool for social sector managers to use in advocating for financial support of their work, and it is our desire that others build on our SROI Framework. REDF’s SROI Methodology paper and SROI Excel model are available through REDF’s website so that others can improve upon our work. As increasing numbers of funders and community stakeholders come to view grants and gifts as forms of investment in the creation of positive social change, discussions will be held regarding whether the community was best served through the application of limited funds in one strategy versus another. As these debates take place, practitioners and those who fund their work will need improved tools for financial analysis of how charitable capital is used to achieve improvements in society. REDF’s SROI Framework will hopefully prove to be an important tool for those involved in this discussion, but it is only one tool. Other measurements of social value creation will also have to be developed and implemented. The SROI metrics generated by the SROI Framework do not represent a definitive statement of value. But they can help us understand what resources have gone into an enterprise, and how effectively those resources have manifested in social costs savings and societal improvements. Our hope is that the SROI Framework and the SROI Reports will be received as part of REDF’s ongoing contributions to build better and more effective theoretical and practical tools for use by the field as a whole — funder, practitioner and observer.

THE ROBERTS ENTERPRISE DEVELOPMENT FUND a philanthropic venture of The Roberts Foundation

P.O. BOX 29266 SAN FRANCISCO, CALIFORNIA 94129-0266 415.561.6677