During the crisis, philanthropy that brings lasting change matters even more

Original text was written by Anna Korzeniewska for Forbes Poland, published on May 17, 2020 on forbes.pl.

When we invest our money, we entrust it to those who show the best results. When we help others, we ought to do the same - it's also a financial decision. This is a universal truth but it is especially important today, in the face of the coming crisis. In assessing the effects of social activities, we measure SOCIAL IMPACT, which reflects the effectiveness of philanthropic undertakings. What exactly does it mean and how to measure it?

Although most donors know how to make money, spending them on social issues turns out to be more difficult than they thought. Many claim that it is easier for them to earn money than to spend it wisely on helping others. Whether their donations are well used is an issue for many private and corporate donors. “Did I make the right choice for the organization I supported?” “Do the solutions for which I have transferred funds really work?” “Does my contribution change anything?” Why is it so difficult to determine? Because we ask about effects in the seemingly immeasurable issue in philanthropy, i.e. social impact.

What is social impact?

It is a measure of affecting the surrounding reality. It shows the actual change in the target group of ongoing activities. Impact is determined primarily in the long term, e.g. reducing the competence gap, reducing homelessness, limiting the number of crimes or changing attitudes towards a given minority. It is also the basis for the selection of social organizations whose mission overlaps with our goals and which are able to maximize the social impact of every penny given to them.

"Now it is time to review and reassess our philanthropic activities and think about transferring funds from reactive support to a systemic one."

How to measure it?

Since the second decade of the 21st century, measuring the social impact has been an irreplaceable opportunity and value. Donors can use individual methods or combine them to assess their social activities. The number of approaches and tools for measuring results is increasing. I decided to focus on three of them: Evaluation, Social Return On Investment (SROI) and Systems Thinking.

Evaluation

The most commonly used and generally the cheapest to implement in the non-profit sector is evaluation. In its simplest approach, we combine goals with results. We can also compare the results of programs with identical goals. Goals must be clearly defined, such as the number of seniors who have performed a specific test. The risk of this approach is the relative ease of presenting impact in a way to demonstrate success regardless of the actual effectiveness of the actions taken – achieving the goals does not guarantee that the expected social impact has been achieved.

Social Return On Investment (SROI)

Coming from the financial markets, SROI measures the value of social benefits in relation to the costs of obtaining them. For example, a 3:1 ratio indicates that a $ 1 investment (investment value) provides $ 3 social value. The risk of this measure is that it does not always assume a sufficiently long time horizon and that, due to the limited amount of data, it is based on a number of assumptions.

Systems Thinking

Systems Thinking considers the problem comprehensively, trying to identify all its causes. Then it identifies which solutions have the greatest potential to change the entire system and develops them. This is the most strategic and long-term approach. However, it requires cross-sectoral cooperation and takes time to see measurable results. A difficulty to assess short-term impact demotivates many donors.

Platforms supporting Impact assessment

A well-conducted analysis helps donors, organizations and other stakeholders understand if the actions brought expected results and how effective they were. Measuring impact, however, involves working on numbers. How to measure social impact on a market where basic data is missing and only some of the organizations report their undertakings?

Pat Dugan, in response to the lack of reliable, transparent and comparable information about the effectiveness of the American non-profit sector, has created a free tool that uses a four-star rating system based on financial data – Charity Navigator. Although at first accused of reducing the work of social organizations to their financial statements, he quickly gained the trust of donors. Today, Charity Navigator is the largest rating system for the non-profit sector in the US.

Charity Navigator belongs to the group of so-called charity evaluators, which focus on screening foundations in financial matters. There are other similar entities, such as GiveWell or Charity Watch. Charity Watch checks, among others, whether at least 75 percent the funds raised are allocated to the organization’s statutory goals, as well as how much it costs the organization to raise $ 100 – according to Charity Watch, the cost of fundraising should not exceed $ 25 (25%). A strictly financial approach has its opponents, which is why over time Charity Navigator has developed its assessment of nonprofit organizations to examine their responsibility and transparency.

In the US, donors can also use capacious non-profit sector databases. GuideStar (after merging with the Foundation Center in February 2019 is now called Candid) offers free access to basic data on organization, such as their mission, management, balance sheet data and annual reports. GuideStar also gives social organizations that meet certain criteria special markings – Gold Seal of Transparency or Platinum Seal of Transparency. Classy publishes so-called Progress. GlobalGiving members have their GG Rewards status and special badges, and Impact Matters provides an organization impact report. In Poland, the largest database of NGOs is maintained by ngo.pl portal. The organizations’ reports can be found on the government website www.niw.gov.pl/opp/sprawozdania-opp. All these databases allow donors to obtain data about organizations that can be useful for impact analysis.

Reporting social impact

Reporting on sustainable development helps corporate donors set their goals, measure results and manage changes, striving for sustainable development. One of the most commonly used is the approach developed by the Global Reporting Initiative (GRI), an independent entity that introduced its first guidelines in the year of 2000. B Lab’s reporting and scoring systems certainly deserve attention as well. B Lab is a non-profit organization that certifies using B Corp standards and applies the Global Impact Investing Rating System (GIIRS). GIIRS assessments are used by investors to assess social impact. IRIS also provides widely used measurement standards. It is a free tool of Global Impact Investor Network (GIIN).

Meeting these standards is a sign of transparency and credibility. It is also a public commitment that must be met. At the end of 2018, the Impact Management Project Structured Network of organizations was established to build consensus on how to measure, compare and report impacts on environmental and social issues. All of the above mentioned organizations joined the network. It is certainly worth observing their efforts to provide complete impact measurement, management and reporting standards.

An opportunity for the non-profit sector

Despite the dizzying career that impact makes in philanthropy, there will certainly be some who will state that most charities have not made any effort to measure their results and assess their effectiveness. Others will say that the results of the non-profit sector are simply not easy to measure.

Certainly, transparent and uncomplicated measures of presenting the effectiveness of social activities favor the development of the entire sector. As well as the funds that go to organizations that can use them most effectively. Organizations that understand this powerful weapon are skillfully using this information, transforming their activities into captivating images and interesting, memorable messages. Showing their influence allows organizations to stand out from the crowd and attract more donors to their fundraising campaigns.

Impact changes the donor paradigm to a strategic one.

Impact changes the donor paradigm to a strategic one. The one that brings real, lasting change. We have to keep in mind that financial resources are limited and with high probability, in the face of the coming economic crisis, we can expect a decrease in donations. In recent months, after the outburst of COVID-19, individual and corporate philanthropists have provided an unprecedented amount of financial resources for life and health protection – which was extremely important in the situation of the pandemic that we are facing today. However, the time has come to verify and re-evaluate our philanthropic activities and think about diverting these funds from reactive support to a systemic one.

Source: Rockefeller Philanthropy Advisors, A guide to Social Return on Investment, Chronicle of Philanthropy