Meet SROI (Social Return on Investment) in 4 Headings

As the steps taken by companies in corporate social responsibility and corporate sustainability, internal transformations and focus on social impact in addition to profit increase, it becomes important to measure the impact. The most effective method for this is SROI (Social Return on Investment) analysis, mentioned as Social Return on Investment.

Why is measuring the social impact of an organisation or company’s activities important? This question has been seriously addressed by organisations and companies for several years. In our article, we provide a detailed SROI guide.


What is SROI?

SROI is the world’s most widely used impact analysis framework for understanding social value, managing and maximising social impact. (1)

Why Is SROI (Social Return on Investment) Analysis Important?

Social Return on Investment (SROI) measures the social, environmental and economic value created by a business or project. SROI considers the financial returns generated by an investment and the social and ecological consequences it produces. This involves identifying the social and environmental impacts of an investment and then comparing these impacts with the cost of the investment. 

A ratio obtained as a result of SROI analysis is an indicator of the benefits created against the costs. For example, a 2:1 ratio indicates that $2 of social value is created from a $1 investment. Calculating SROI can help to discover the financial value of impact, as well as communicate impact and influence strategy.

SROI analysis;

  • It is based on results: For example, a company invests in renewable energy to reduce its carbon footprint. It installs solar panels around its office and uses this energy in its facility. The output of this project is the number of solar panels installed, but the outcome is how much carbon emissions these panels prevent. SROI emphasises that social value should focus on outcomes rather than outputs.
  • Stakeholder-specific: This methodology calculates the social return for each stakeholder separately. In this way, it is possible to easily involve stakeholders in the process of identifying and valuing results.
  • Expressed in financial terms: Results and investment amounts can be measured in non-financial units, but all values in the SROI must be expressed in a common unit. Money is the most widely recognised way of measuring value.
  • It can be calculated for past and future activities: You can analyse the SROI of an activity retrospectively. However, it may be easier to estimate SROI at the planning stage than to calculate past activities’ impact. This can help an organisation establish results-based objectives and enable it to collect accurate data to measure results.

In our example above, how would you value the total carbon emissions of solar panels in TL/Dollars? The SROI analysis suggests identifying the indicators of the outcome (e.g. reduction in electricity payments due to the energy provided by the solar panels and reduction in taxes due to the reduction of the carbon footprint) and then finding the relevant people to measure the value of the indicators in USD/TL.

You can also ask yourself: How can you separate other factors that might influence the desired outcome? For example, a national increase in literacy should be subtracted from the calculation of the impact of reading lessons on literacy.

The SROI process generally includes the following steps:

  • Identify stakeholders: Identifying all stakeholders affected by the investment includes investors, the business or project and the wider community.
  • Mapping results: Mapping all results produced by the investment, including both positive and negative results.
  • Assigning value to results: Assigning a financial value to each outcome using methods such as market valuations or pay-for surveys.
  • SROI calculation: Calculating the SROI by dividing the social and environmental value generated by the investment by the cost of the investment.
  • Communicating results: Communicating SROI results to stakeholders such as investors, business or project leaders and the wider community.

Overall, SROI is a valuable tool for impact investors seeking to assess their investments’ social and environmental impact. Investors can help make informed investment decisions and promote positive societal and environmental change by considering financial returns and broader societal implications.

Social Value Principles

The Social Value Principles are a code of ethics that organisations and individuals can follow to create a positive social impact. The principles are based on the idea that businesses are responsible for contributing to society beyond making profits or pursuing self-interest. 

The Social Value Principles, which consist of 7 principles that can be followed to create a positive social impact, can be listed as follows:

  1. Fairness: Fairness refers to equal treatment of all individuals and equal opportunity. Companies can implement the principle of fairness by adopting fair recruitment practices, promoting diversity and inclusion in the workplace, and ensuring equal access to resources and benefits. For example, a company may establish a scholarship programme to support disadvantaged students, thus promoting a fair approach to education.
  2. Accountability: Accountability involves taking responsibility for one’s actions and communicating the impact of those actions. Institutions and organisations can apply the principle of accountability by regularly reporting their social and environmental performance, assessing negative impacts and considering stakeholder feedback. A civil society organisation can ensure transparency by disclosing how donations are used and submitting annual reports.
  3. Transparency Transparency involves being open and honest in communication and decision-making processes. Organisations can practice transparency by sharing information about their policies, practices and performance with stakeholders. For example, a non-profit organisation can transparently present its operations by disclosing how donations are used and financial statements.
  4. Community Engagement: Community engagement involves actively engaging with local communities and addressing their needs and goals. Organisations can promote community engagement by supporting local initiatives, collaborating with community organisations and involving community members in decision-making processes. For example, a company can encourage employees to volunteer in community projects or sponsor community events.
  5. Environmental Sustainability: Environmental sustainability involves minimising negative environmental impacts and promoting the responsible use of natural resources. Organisations can implement environmental sustainability by adopting environmentally friendly practices, supporting nature conservation efforts, and reducing waste and pollution. For example, a hotel can reduce its carbon footprint by implementing energy-saving measures, using renewable energy sources and installing energy-efficient appliances.
  6. Ethical Governance: Ethical governance involves establishing and maintaining ethical standards in the business operations of organisations. It is important to promote integrity, prevent corruption and ensure compliance with laws and regulations. For example, a company may have a set of codes of conduct that guide the behaviour of its employees and may include policies against bribery and conflicts of interest.
  7. Stakeholder Engagement: Stakeholder engagement involves actively considering the perspectives and contributions of all individuals and groups affected by an organisation’s activities. Organisations can encourage stakeholder engagement by gathering feedback, conducting surveys and involving stakeholders in decision-making processes. For example, a city government may organise public consultations to gather the views of residents on urban development plans.

Why are Social Value Principles Important?

Social Value Principles are important because they help organisations and individuals positively impact society. Businesses that follow these principles can build trust with their customers, employees and stakeholders, enhance their reputation and increase their brand value. The Social Value Principles can help guide individuals’ personal decisions and actions, thereby contributing to a more just and equitable society.

Companies can integrate these principles into their corporate social responsibility (CSR) programmes or sustainability initiatives to address environmental impact. Individuals can integrate these principles into their lives by supporting local businesses, volunteering in civil society, or participating in community activities.

These seven Social Value Principles help organisations and individuals maximise their social impact. Applying these principles in different contexts, such as corporate social responsibility programmes, personal decisions and community engagement, can contribute to a more just, equitable and sustainable world.

GHG Protocol (Greenhouse Gas Protocol): Why Are Scope 1, Scope 2, and Scope 3 Carbon Emissions Not the Same?

As climate change and environmental sustainability attract more and more attention, organisations and companies are using various tools and protocols to monitor and reduce carbon emissions. In this context, the GHG Protocol, or Greenhouse Gas Protocol, stands out as a specific carbon calculation and reporting standard. 

However, this protocol has three different “scopes”: Scope 1, Scope 2 and Scope 3. In this article, we will examine what each scope represents, why carbon emissions are different, and the environmental impacts of these differences.


GHG Protocol: What is the Protocol on Greenhouse Gas Emissions Reduction and Greenhouse Gas Impact?

The GHG Protocol on Mitigation of Greenhouse Gas Emissions and Greenhouse Gas Impacts is an international agreement and framework document on monitoring, reporting and mitigating greenhouse gas emissions. The GHG (Greenhouse Gas) Protocol was adopted in Kyoto in 1997 and entered force in 2005. The primary purpose of this protocol is to reduce greenhouse gas emissions worldwide and to bring the countries of the world together in the fight against climate change. 

It especially targets industrialised countries committed to reducing greenhouse gas emissions. Carbon emissions are divided into three groups within the framework of this protocol. Greenhouse gas scope 1, scope 2, and scope 3 emissions are calculated separately.

The main components of the GHG Protocol are:  

1. Targets and Commitments: The Protocol requires participating countries to set specific targets and commitments. These targets specify how much greenhouse gas emissions will be reduced in a given period.
2. National Monitoring and Reporting: Participating countries are obliged to monitor and report their greenhouse gas emissions. This requires them to report and monitor their emissions regularly.
3. Trading and Mechanisms: The Protocol promotes economic requirements such as emissions trading and clean development mechanisms. This offers financial incentives to support emission reduction efforts.
4. Implementation of the Protocol and Compliance: Countries that violate the Protocol may face a specific penal mechanism.

GHG Protocolprovides a basis for adopting more inclusive and up-to-date agreements on combating climate change from 2020. Within the framework of the Protocol, carbon emissions are assessed under three scopes. 

This enables companies to understand their entire value chain emissions, make the most accurate greenhouse gas emission calculations and focus on reducing carbon emissions in the most efficient way.

Now let’s take a closer look at what Scope 1, Scope 2 and Scope 3 emissions are and understand them more clearly with examples:

Direct Emissions: What are Scope 1 Emissions?

Scope 1 carbon emissions are emissions under the direct control of an organisation. Greenhouse gas emissions from sources owned or controlled by a company. 

For example, emissions from company buildings and vehicles, equipment or chemical processes directly related to the organisation’s activities are categorised as Scope 1 emissions. 

As these emissions are directly linked to the organisation’s activities, they are considered to be under the organisation’s direct control. Renewable energy use and energy efficiency are important to reduce such emissions.

Indirect Emissions: What are Scope 2 Emissions?

Scope 2 carbon emissions are not under organisations’ direct control but depend on their activities. They are the emissions a company causes indirectly when producing the energy it purchases and uses.

These emissions result from energy purchased from external sources for electricity, heating or cooling. For example, the electricity that a company purchases from a local energy supplier to meet its electricity needs can lead to Scope 2 emissions. 

Scope 2 emissions can be reduced by energy efficiency efforts or by purchasing electricity from renewable energy sources instead of fossil fuels.

What are Scope 3 Emissions?

Scope 3 carbon emissions represent indirect impacts of organisations and emissions at the end of the value chain. 

All other indirect emissions occurring in the value chain that are not produced by a company itself in all processes from the production, transport and use of its products, and are not the result of activities arising from assets owned or controlled by it, fall within the scope of Scope 3 emissions.

For example, waste and emissions generated by a company’s consumers when using its products, business travel, employees’ journeys between home and work, and carbon emissions emitted in distribution and transport processes connected to suppliers and customers are assessed under Scope 3. 

To reduce such emissions, the supply chain needs to be made sustainable, products need to be suitable for longer use and recycling strategies such as refilling need to be implemented.

Why is it Important to Understand Scope 1, 2 and 3 Emissions?

Understanding and reducing carbon emissions individually and corporately plays an important role in combating the global climate crisis. Companies that consider Scope 1, 2 and 3 emissions have the opportunity to realise their sustainability goals more effectively. 

Strategies to reduce carbon emissions can provide long-term financial benefits for businesses as well as reduce environmental impacts. This is an essential step towards building a cleaner environment and a more sustainable future for future generations.

There is a large and complex problem of greenhouse gases, also known as carbon emissions. It urgently needs to be reduced in the fight against the global climate crisis. It is necessary to categorise it as Scopes 1, 2, and 3 within the scope of the GHG Protocol to calculate carbon emissions accurately and find the most effective solution by dividing the problem into parts. 

In this way, a holistic strategy can be drawn with different action plans. In addition, by reporting on all three emission scopes, companies can see the big picture on carbon emissions and express their commitment to reduce their impact on the environment in a more concrete way. 

The calculation of carbon emissions within the framework of Scope 1, Scope 2 and Scope 3 with the GHG Protocol enables an in-depth understanding of all relevant activities that make up the value chain of a company, such as operations, product life cycle, supply chain, stakeholder relations, as well as finding effective solutions.