Social Impact: what’s all the fuss about?

Credit: Thukral and Tagra Studio.

Credit: Thukral and Tagra Studio.

Since I joined MAZE, I have learned quite a bit on the meaning of impact. The most important thing is that impact, whether social or environmental, is the greatest social economic opportunity of our time. Once you get it, you cannot forget it. Here’s how I see it:

What is social impact?

Social impact is per definition “the measure of an action’s benefit or harm to society and the planet” (Cohen, 2018, p. 3). That means it is a neutral term and impact can be positive and negative. However, in the impact ecosystem, we shift our attention towards decreasing negative impact and increasing positive impact. In the following, I will therefore relate to social impact as addressing a pressing societal or environmental issue by actions of an individual, a company or any other institution such as the government.

How did social impact come to be?

Social impact is in fact nothing new. Already in the late 1960s, social sciences dedicated efforts to assessing impacts of large industrial, land-use, and environmental changes. In 1992, the Union of Concerned Scientists and more than 1,700 independent scientists, including the majority of living Nobel laureates in the sciences, signed and sealed the first “World Scientists’ Warning to Humanity”. These concerned professionals called for action. Humankind must prevent environmental destruction, they warned. In the 2000s, this warning has been reinforced by 15,364 scientists from 184 countries: 

“We are fast approaching some limits of what the biosphere can tolerate without substantial and irreversible harm.” – Ripple, et al., (2017, p. 1026).

Further events in the 2000s accelerated the topic of sustainability and social impact:

  1. Michael Porter and Mark R. Kramer’s ‘Shared Value’ approach published in 2006.
  2. The financial crisis of 2008 and steadily growing interest by society in businesses that do not only produce shareholder returns but also positive social and environmental impact to all stakeholders.
  3. The finalization of the 17 United Nation’s Sustainable Development Goals (SDGs) and the Paris Agreement in 2015 as an answer to planetary boundaries such as climate change.

What is social impact theory and how to approach it?

There are several theories and approaches to social impact and more are expected to emerge. I will focus on Social-ecological Systems Theory since it is aligned with MAZE’s understanding of social and environmental impact. This theory holds that there is an ever-closing cycle between nature and society. Therefore, everything we humans do affects the environment and translates back to society in some way or the other – and vice-versa. Hence, all environmental problems are also social problems. The adapted illustration by Sardá & Pogutz (2019) illustrates this relationship:

Adapted Social-ecologial Systems Approach (original by Sardá & Pogutz (2019))
Adapted Social-ecological Systems Approach (original by Sardá & Pogutz (2019))

If you are interested in system analysis and want to learn more on the relationship between society and nature and why it makes sense to pay for what the natural ecosystem does for us humans, I recommend you read this article on Payments for Ecosystem Services by my colleague Afonso Fontoura.

Just like social impact theories, there are various ways to approach social impact. I will focus on one of the most popular to date.

Theory of change is a framework that helps social entrepreneurs clarify the social impact they want to achieve and how to get there. The table below from Rank & File gives you a good overview:

social impact theory of change
Theory of Change Framework by Rank & File
Theory of Change Framework by Rank & File

What is social impact in practice?

In the impact community, we believe that impact is not binary but it exists in a spectrum that goes from pure philanthropy to market-based solutions. Both sides of the spectrum are valid and relevant depending on the social and environmental challenge being addressed. To get a better sense of the spectrum visually, you’ll find an overview by the European Venture Philanthropy below:

Social Impact EVPA
The EVPA Spectrum © european venture philanthropy association

On the right side of the spectrum, we have Impact-Only solutions where the primary drive is to create societal value. Our founder and guiding light, the Calouste Gulbenkian Foundation, encapsulates this category as a relevant part of its endowment is allocated to grantmaking to support culture, science and arts.

The middle of the spectrum – Impact First – is where MAZE focuses its efforts. It is focused on businesses where the solution for an environmental or social problem is at the core of the value proposition. Consequently, they are a vehicle for positive change while generating a profit to ensure its financial sustainability. MAZE work is centred around three verticals:

  1. Startup Acceleration: we accelerate the businesses of the future through with Maze X, a 4-month programme targeting impact tech-enabled solutions.
  2. Startup Investment: we invest in talented teams that are using technology to solve for social and environmental challenges through our venture capital fund.
  3. Government Performance: we collaborate with the public sector to drive innovation in social services through outcomes-based commissioning and service design.

As you can see, MAZE is an intermediary. This means that we enable the growth and scale of impact-first solutions such as the following two:

imagiLabs coding app and coding device called imagiCharm © imagiLabs

imagiLabs was one of the startups in the 2020 cohort of Maze X. This social impact startup empowers girls (9-15 years old) to code and create with technology. With an app and a wearable programmable device, visualizations such as hearts or flowers can be coded and worn. imagiLabs is tackling the root cause of the gender gap in the field of STEM (Science, technology, engineering, and mathematics) while making a profit. imagiLabs is what we usually refer to as a lock-step model, where the capacity to generate an additional €uro positively reinforces the capacity to solve a social or environmental problem.

Projeto Família, a support programme that exists to reduce the number of children and youth at risk that enters the care system, materialises the left side of the impact-first spectrum presented above. Projeto Família fits into our third vertical, specifically for outcomes-based commissioning through Social Impact Bonds.

Finally, as you can see the right side of EVPA’s spectrum refers to finance first models where the primary driver is to create financial value. Corporate social responsibility (CSR) fits into this category as it is a reactive approach to the impact that entails positive social actions secondary to a company’s main business strategy.

How to measure and report social impact?

The last years have seen a shift in the conversation from impact measurement to impact management. As impact becomes mainstream, and organizations become more accountable for the social and environmental impact of their economic activity, they require tools to manage it in an optimized manner. There are over 150 methodologies and frameworks developed, such as the Global Reporting Initiative (GRI), the Value Balancing Alliance (VBA), the Impact-Weighted Accounts Project (IWAP), each with its limitations and advantages (Florman and Klingler-Vidra, 2016, p. 4). I would like to highlight a few that have helped us gain a shared understanding of how the ecosystem is answering this question. The first two guide our work at MAZE.

  1. Impact Management Project
  2. United Nations Sustainable Development Goals
  3. Impact-Weighted Accounts
  4. Impact Valuation Roundtable

The Impact Management Project (IMP) Framework makes it easy for businesses to measure and assess their impact based on five key questions:

  • WHAT? – What outcomes you are aiming for? Are you mitigating negative impact or contributing to positive impact?
  • WHO? – Who benefits from your solution?
  • HOW MUCH? – How broadly can the solution expand, in solving the problem? To which degree is it solving it? How long does change last?
  • CONTRIBUTION? – How the impact achieved compares with what would have happened anyway
  • RISK? – What are possible negative externalities of the solution? What can go wrong?

If you want to know more about the IMP, dive into this blogpost by my colleague and impact expert Inês Charro for more.

The second framework is the United Nations Sustainable Development Goals (SDGs), an action-based, and solution-oriented approach published in 2015 in the 2030 Agenda for Sustainable Development, that aims to harmonize the terminology and actions organizations and institutions undertake to solve the most pressing social and environmental challenges until 2030. The European Union has agreed to implement the SDGs in its policies. They comprise 17 goals such as to ending poverty and hunger over quality education and gender equality. Read more about it here.

The third – Impact-Weighted Accounts (IWAs) – was developed by Harvard Business School, and was recently analyzed by my colleague Afonso Fontoura. IWAs are items on a financial statement which are added to supplement the statement of financial health and performance by reflecting a company’s positive and negative impacts on employees, customers, the environment, and the broader society.

The fourth methodology is the Impact Valuation Roundtable (IVR). It aims to compensate for the lack of information and transparency of traditional reporting. To do it, IVR enriches traditional reporting, from input-output reporting, and adds the impact valuation of businesses on top. This may include the social costs of externalities in a given currency (e.g. social costs of carbon emissions) as illustrated in their report:

Figure 5: The New Aspects of Impact Valuation by IVR (2017)
Figure 5: The New Aspects of Impact Valuation by IVR (2017)

Last but not least, one major issue with social impact assessment and reporting is greenwashing or impact washing. Impact washing is when a company or organization spends more time and money on marketing themselves as environmentally or socially friendly than on really having a social or environmental impact. Therefore, regular reports have been criticized by Porter & Kramer (2006, p.79f.) as anecdotal and uncoordinated to demonstrate a company’s social impact. The reports often leave out the bigger picture of the company’s social impact initiatives and actions are typically described in terms of money spent instead of impact.

The impact revolution is only getting started. The 17 UN SDGs can be estimated to cost the global economy in excess of $10 trillion. Therefore, the social and environmental challenges to be addressed in the near future require the participation of all economic agents. As we usually say at MAZE, global problems equal global opportunities. We find energy in finding innovative solutions to build a future for the many.

If you found this article helpful and would like to take this discussion further, reach out to me at gereon@maze-impact.com.

Featured art work sourced from BBC Culture.

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