3 July 2018

Influence of the Anglo-Saxon philanthropic world

Summary: Beginning in the late 1990s, major American foundations proposed measuring the social return on their investments, paving the way for a new “revolutionary” market: impact investing.

Beginning in the 1990s, the philanthropic world began to pay much more attention to methods that would make it possible to rigorously measure the impact of their investments. It was mainly the large American foundations that led this discussion.

In 2003, some 30 institutions met in New York at the invitation of the Rockefeller and Goldman Sachs Foundations to discuss social impact assessment as part of the Double Bottom Line Project (The Rockefeller Foundation and Goldman Sachs Foundation, 2003). Several organizations active in the field of impact measurement were presented, including one that stands out in particular: the Roberts Enterprise Development Fund (REDF).

The REDF had launched in 1999 a project called Ongoing Assessment of Social Impacts (OASIS), a “social impact measurement system with its portfolio of nonprofit organizations and social purpose enterprises” (Twersky, 2002, p. 12). This social management information system, implemented in collaboration with each of the organizations funded by the REDF, could be updated continuously via the internet. At the time, this was a crucial and avant-garde technological innovation, as evidenced by the many information and communication technology (ICT) partners involved in the project. The database consisted at that time of a core data set that included cross-cutting impacts for most organizations: employment, salary, housing, use of social services and self-esteem reported by users. A customized component made it possible to ensure that indicators specific to the organization could also be collected to support its management.

However, beyond OASIS, the California-based REDF made a name for itself, especially, with the Social Return on Investment (SROI) methodology, which it developed together with Harvard Professor Jed Emerson around the same time (Zappalà and Lyons, 2009, p. 14). The two approaches were then designed to complement each other, with OASIS providing information about the organization itself and SROI for society at large (The Rockefeller Foundation and Goldman Sachs Foundation, 2003, p. 7). Subsequently, this method was transferred in the United Kingdom, where it was further developed under the impetus of the New Economic Foundation (NEF) and later the British government.

In its current form, the SROI defines impact as “the difference between the outcome for participants, taking into account what would have happened anyway, the contribution of others and the length of time the outcomes last” (Cabinet Office, 2009, p. 84). Although this method is based on CBA and can complement various approaches such as the theory of change and social reporting (ESSEC IIES, 2011, p. 60), the history of its development and the language it uses (ratio and return on investment) testify to an origin rooted in the world of finance.

In the year following the meeting in New York, as part of the Double Bottom Line Project sponsored by The Rockefeller Foundation, Clark, Rosenzweig, Long and Olsen (2004) published a literature review that marked a very important milestone in the field of what was then called social impact assessment. At the time, it was potentially the most exhaustive publication in terms of reviewing practices related to the definition and evaluation of measurable social outcomes. The publication presents several methods and concludes that although there are no recognized standards, it would be wise to put forward a common language inspired by practices in the field of evaluation: the impact value chain.

Source: Clark et al., 2004, p. 7

As in the case of SROI, by impact the authors mean “the portion of the total outcome that happened as a result of the activity of the venture, above and beyond what would have happened anyway” (Clark et al., 2004, p. 7).

A recurring theme emerges throughout all these discourses: the boundary between profit and nonprofit, between philanthropy and investment, is becoming increasingly permeable. This is the notion of the double bottom line (both social and financial returns):

As the conceptual boundaries that once separated nonprofits from for-profits, investment from philanthropy, and social returns from financial returns have become more permeable, there has been a marked shift in the way people think about the relationship among capital, philanthropy, management, and strategy. (The Rockefeller Foundation and Goldman Sachs Foundation, 2003, p. 2)

In the past few years, as the lines between grantmaking and investing have begun to blur, the idea of measuring a social return concurrent with traditional financial accounting has caught on among a growing group of investors, funders and entrepreneurs. (Clark et al., 2004, p. 3)

At the same time, Emerson (2003) begins to put forward the notion of blended value and adds the environment to the financial and social returns of the double bottom line to fit with the concept of sustainable development, which is also beginning to gain currency at this time.

In sum, whether it is by referring to the notion of venture philanthropy, which emerged in the late 1990s (Letts, Ryan and Grossman, 1997; The Rockefeller Foundation and Goldman Sachs Foundation, 2003, p. 4; Zappalà and Lyons, 2009, p. 5) or rather to impact investing, a notion popularized by The Rockefeller Foundation in 2007 (Harji and Jackson, 2012; Höchstädter and Scheck, 2015), it can be said that the movement for funding that aims for both a social and financial return was underway. This is the topic of another section.