Social enterprises play a significant role in achieving the Sustainable Development Goals (SDGs). Measuring the social impact of social enterprises presents several challenges, including the complexity of social issues, the need for standardized metrics, and the limited resources available. Obtaining funding is crucial for social enterprises to fulfill their mission. When applying for funding, they often have to report on the social impact they generate, as it is an essential part of the value they create. Another difficulty is that social impact is experienced differently by various actors. The research, therefore, adopts an exploratory approach to understand how funders and social enterprises perceive the impact assessment, particularly for those contributing to SDG 3. Thus, the central question of this research is 'How are funders and social enterprises aligned in measuring social impact on SDG3?'.
This research was conducted in partnership with Unifix Care. Unifix Care is a social enterprise whose mission is to improve access to safe surgical care in Sub-Saharan Africa. The findings presented were derived from a review of the literature, interview rounds, and a survey. The first round of interviews were exploratory interviews with general impact funders. The second round consisted of interviews with social enterprises contributing to SDG and funders funding these social enterprises. The survey aimed to validate statements based on literature and interviews and to give an idea of the data funders and social enterprises use some impact indicators.
A finding of this research is that the change in how the Theory of Change is used, from an internal tool to an external accountability mechanism, indicates a misalignment between funders and social enterprises. While funders may demand accountability, social enterprises initially used it for internal improvement. This shift suggests a divergence in how both parties perceive and utilize this tool for measuring social impact. Social enterprises' power imbalance and dependency on funders can lead to a misalignment in measuring social impact. Contributing to this is the fact that aligning the mission of social enterprises with the strategic goals of funders is considered very important.
A subsequent finding is that there could be a reporting difference between easier-to-measure KPIs from the Theory of Change (input, activity, output) and harder-to-measure KPIs more aligned with the overall goal (outcome and impact). The survey results indicated a mild divergence in opinions between funders and social enterprises on the priority of measuring input, activity, and output indicators versus outcome and impact indicators. Social enterprises were somewhat in favor, whereas funders were somewhat opposed. In terms of quantifying outcome and impact indicators, a simple, state-of-the-art calculation was generally adequate for most social enterprises, in contrast to the preferences of funders. These findings could result in the miscalculation of social impact generated by social enterprises. For this, it is necessary to bring back the Theory of Change as an integrated framework.
Another finding is that both social enterprises and funders focus more on a social enterprise's positive rather than negative impacts. Given that every social enterprise likely has some adverse effects, these should be acknowledged to ensure a comprehensive assessment of the overall positive social impact. Additionally, it is found that the inconsistency in defining 'impact investors' and the varied interpretation of 'impact first' approaches reflect a lack of uniformity in how social impact is perceived and measured. This variability can lead to challenges in aligning the measurement approaches of funders and social enterprises.
The main limitations of this study are related to the small survey sample size, which only provides an indication. More research is needed to draw definitive conclusions. Another limitation is the selection and categorization of indicators in the survey; an attempt was made to do this as generically as possible. However, future research would benefit from validating this selection and categorization by multiple experts.
The following recommendations aim to foster effective collaborations between funders and social enterprises, enhancing transparency and accountability in social impact measurement. A publicly accessible database should be created to share the social impact results of social enterprises. This will allow for establishing normal distributions and facilitate the assessment of the likelihood of success of similar interventions. Therefore, a portion of funding should be dedicated to monitoring the long-term impact of social enterprises. This enhances transparency and allows for a deeper understanding of the effectiveness of various investments in achieving social impact. Funders should also publicize the Theories of Change of the social enterprises in their portfolio. This transparency helps understand how the impact is achieved and mitigates the risk of 'impact washing.' The initiative for these recommendations, particularly the database and publication of Theories of Change, should come from the government or the actors funding the funders. They have the influence to drive more impact-focused decisions and support impact-driven social enterprises. Future studies should incorporate comparative cognitive mapping and game theory to understand better the preferences and incentives of funders and social enterprises. Additionally, using Agent-Based Modelling or System Dynamics with the EMA workbench could yield insights into the effectiveness of specific policies in a complex, uncertain environment.