SROI and the opportunity for wider convergence
JEREMY NICHOLLS, 12 MARCH 2013
SROI is based on a set of principles. Those involved in SROI will probably have noticed that discussions with different sectors and approaches to accounting for value focus on different principles.
With accountants, the discussion is about the question of materiality and purpose, with evaluators the debate tends to be about theories of change and logic models; with economists and cost benefit analysts it tends to be about approaches to economic appraisal and valuation of benefits; and finally, with sustainability practitioners the discussion focuses on stakeholder involvement and which issues are included.
When it comes to disagreements, the impact analysts and social accountants are often uncomfortable about valuation whereas financial accountants and cost benefit analysts agree that valuation is fundamental to reporting and decision making. It is a principle of financial accounting that the unit of currency is used to value those issues that should be included and a misunderstanding of non-accountants that accountancy is only about accounting for the money.
The extent to which all issues arising from an organisations work, as opposed to only those that relate to the objectives of an organisation, also varies; sustainability reporting including all material issues as a principle whilst evaluations and cost benefit analysis often permit a more restricted level of accountability. In some cases an impact analysis will be prepared with no discussion of materiality.
On the other hand accountants focus on the one stakeholder group, the investor, as the user and therefore the key influence on decisions about what is material and therefore should be included and debates between accountants and sustainability practitioners have explored how materiality decisions change when reports are designed for different stakeholders.
Finally financial reporting and recognises the critical importance of audit which is less common in other approaches.
But although the language varies, the issues are the same. What should be included in an account of the value being created and how can this be valued?
SROI provides an opportunity to close the gap between these different approaches, encouraging financial accounting and economic evaluation to consider stakeholder involvement in determining what issues to include and consider approaches to attribution in assessing materiality. It can help evaluation and impact analysis recognise that valuation is an important part of reporting and decision making and that benchmarking is fundamental.
SROI has looked around at what others have been doing in different traditions and brought them together as a set of seven principles. The first development was to align SROI more closely with Accountability’s work bringing in multiple stakeholders and a higher demand on accountability. The approach to materiality then developed, with a supplement, exploring how SROI can help identify significant outcomes. More recently approaches to valuation both econometric for example wellbeing valuation, focusing on stakeholder value like the value game and starting to crowd source value through initiatives like wikiVOIS have led to more discussions with accountants. Better valuations and evaluation in the sense of testing for causality would mean that in reporting there could be less dependence on building theories of change, logic models or chains of events. Once outcomes are determined attributed to an activity by reference to control groups and valued, we have the basic building block for reporting on value which would sit alongside a financial account. Puma’s environmental profit and loss account shows what this would look like.
SROI has the potential to show how financial accounting, cost benefit analysis, evaluation and sustainability reporting can converge.