What’s So Social About Social Return on Investment? A Critique of Quantitative Social Accounting Approaches Drawing on Experiences of International Microfinance

Abstract

Quantitative approaches figure prominently in social accounting and auditing. This is because of the preference among many investors for simple and ostensibly robust and comparative metrics. Social Return on Investment (SROI), which produces a monetised value for social impact generated per unit of currency invested, has emerged as one of the dominant tools to generate such metrics. This article discusses the merits of this increasing orientation towards quantitative metrics in social accounting using SROI as an exemplar and drawing on an extensive review of social impact evaluations in microfinance. The microfinance sector represents an interesting and relevant case for social accounting because it has been strongly orientated towards quantitative and experimental methods to evaluate its non-financial performance. The article concludes that, despite using sophisticated methods, the microfinance sector struggles to credibly determine its impact on customers. Self-and MFI selection biases cast doubts on the merits of using national benchmark indicators or control groups. Consequently, it is argued that SROI is better viewed as a means of claiming symbolic legitimacy (as per Luke, Barraket, and Eversole 2013) than as a robust method for evidencing social impact or a tool for managers and investors.

Moving on from Scaling Up: Further Progress in Developing Social Impact Measurement in the Third Sector

“…We then categorised the 23 journal articles by broad subject and year of publication, as shown in Table 1: INSERT (Cordery & Sinclair, 2013;Luke et al, 2013;Morgan, 2013). Of the remaining five, three appear in SEAJ (Jardine & Whyte, 2013;Luke, 2015;Vik, 2016) with one each in Sustainability Accounting Management & Policy Journal (Costa & Pesci, 2016) and European Accounting Review (Hall & Millo, 2016).…”

“…The author argues this reporting framework aligns well to existing financial reporting frameworks whilst at the same time providing a relevant, comparable and reliable summary of the performance of TSOs. Vik (2016) examines the use of SROI within the microfinance sector and argues that despite a strong emphasis on sophisticated quantitative methods, the sector is struggling to demonstrate it can credibly measure social impact because of the influence of selection bias within measurement processes. Drawing on the work of Luke et al (2013), the author concludes that the use of SROI may be better understood as a form of symbolic legitimation.…”

Beyond numbers: How investment managers accommodate societal issues in financial decisions

“…The authors show that parents feel entitled to be late because they pay for the service. Vik (2016) argues that quantifying a monetized value for the social impact generated prevents the microfinance sector from credibly determining its impacts on customers, which is detrimental to the beneficiaries themselves. Although criticisms could be levied against financializing ESG criteria, little discussion has addressed the alternative forms of calculative devices in which ESG criteria can be fashioned.…”

Editorial

“…ing Approaches Drawing on Experiences of International Microfinance. ' Vik's (2017) contribution is positioned within the sector of not-for-profit and social enterprise organisations, and the paper takes a critical look at attempts to calculate monetary values for social outcomes. Using microfinance as the basis of his discussion, Vik provides a critical assessment of Social Return on Investment (SROI) and calls for a broader recognition of the inherent limitations of both SROI and other similar quantitative approaches.…”