GECES SUB-GROUP ON SOCIAL IMPACT MEASUREMENT Minutes of the third meeting, Brussels, 19/04/2013

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1 GECES SUB-GROUP ON SOCIAL IMPACT MEASUREMENT Minutes of the third meeting, Brussels, 19/04/2013 Attendees and venue of meeting The meeting took place in the J27 7/59 meeting room, on the premises of DG EMPL, from 10h30 to 16h30. The following members of the sub-group were present: Erika Augustinsson, Patrizia Bussi, Jim Clifford, Evelien de Ras, Hélene Duclos, Uli Grabenwarter, Lisa Hehenberger, Cecile Lapenu, Tris Lumley, Reinhard Millner, Ioannis Nasioulas, Marco Ratti, Barbara Scheck and Mercedes Valcarcel. The Commission was represented by Jean-Claude Mizzi, Esther Wandel, Tim Shakesby, Helene Tijskens (DG MARKT), Marco Fantini, Ciprian Alionescu (DG EMPL), Apostolos Ioakimidis and Laura Catana (DG ENTR). Summary of key points Introduction and start of the proceedings (Marco Fantini, DHoU EMPL.C2) "Social Utility Assessment" (presentation by Helene Duclos) Social utility close to social impact. It is using similar steps as in the process in EVPA IM guide. Social utility is broader not focusing just on the activities of the social enterprise (presentation covering different types of enterprises; perhaps this could provide the basis for further use for funding purposes of the government). Examples from national governments: - The Flanders region is doing a similar exercise to measure social impact from social enterprises that receive government funding - This approach is similar to the stakeholder analysis which takes place in social enterprises. The social mission should be the starting point of defining social impact and indicators. Importance of going through the process not just applying the indicators. The definition of social utility needs to go through a wide consultation and participation process of all stakeholders they are the ones who create the instruments and measure the results. Under this approach, the results measured are defined by the indicators of social utility and not by those of the project. Social utility and the results of a specific project need to be measured independently. The framework is not to be used as an evaluation form, but as a tool for reflection. In addition, the framework can easily incorporate the specificities of different sectors. This tool was recognized in France as the social mediation framework. Process is important Social enterprise is involved as a stakeholder Indicators defined bottom-up When measuring social impact we need to start from the social mission of the enterprise rather than from the business model. Social impact measurement the experience of the microfinance sector" (presentation by Cecile Lapenu)

2 No longer talking only about impact measurement, but rather social performance (impact is very difficult to assess). In the micro-finance sector: - Social performance is the translation of institution mission into practice, in line with accepted social values. - Social performance assessment tools are crucial; for example social rating, client profiling, impact assessment, etc. - The universal standard in this presentation is based on leading industry initiatives, all led by voluntary resources. - The use of standards is encouraged to clarify practices and set consistent objectives. Lessons to be drawn are that management and assessment go hand in hand, and that the limits of impact measurement are hard but necessary to define. Demand came from MFIs wanted to be valued in terms of the benefit of their work for their clients. Social Rating (M-CRIL, MicroFinanza, Planet Rating, etc.) /Audit tools available. Due diligence scorecards for investors. MFIs compare to their peers (through rating systems with standardised indicators) Universal Standards have been defined (Define and Monitor Social Goals, Ensure Board, Management and Employee Commitment to Social Goals, Treat clients responsibly, Design products, services, etc. that meet clients needs and preferences, Treat employees responsibly, Balance financial and social performance) The social performance dimensions used by this model are: capacity to reach targets, delivery of highquality services, response to real needs, responsibility towards stakeholders and environment. MFIs asked for social impact measurement because they wanted to improve their techniques and verify the implementation of their social mission. For this, despite the competition on the market, they gathered in the Task Force in order to boost their impact. Social performance builds reputation it is important to avoid reputation crisis in this moment (mostly due to mission drifts). - From the perspective of fund managers (EuSEF) and investors, can any lessons be drawn from the micro-finance sector to better know how to develop this kind of perspective? o The key points for the fund manager need to be verified at a governance level. o The entry point should be commitment to the objectives of the operation and these should be clear enough to be verified. All systems in place (monitoring, reporting, etc.) should also be in line with the social objectives. EUSEFs adopt a top-down approach. The most important thing is to have monitoring systems, rather than indicators, since creating indicators for each specific category could be too complicated (eg. the social score card is not measuring impact necessarily, but whether there is a monitoring system in place) Theme 2.1. "Common threads and boundary conditions, differences and reasons at the investee level" (for content s. Working Paper Group 2.1) Impact used in general terms to describe entire process. Measurement alone not sufficient, whole process (planning, reviewing, etc.) also important. Important to ask the social enterprise how it is using the social performance data to improve its practice to check if really using it. Often social organizations only measure

3 impact in order to satisfy investors it hence should be avoided to introduce another system for window dressing. Indicators developed by social organization bottom-up necessary preferable, topdown efforts don t work in the group s view. Dimension of comparability SROI produces comparable numbers, but relevance is not always high. Complete comparability not the objective but rather manageability of approach. As developing indicators bottom-up takes time, in the meantime there could be something like guidelines on what constitutes a good indicator, defining process not final indicator, guidance on the quality of the process (stakeholder analysis, Theory of Change, outcome definition). Perhaps an idea could be to prepare a sort of "shopping list" of userfriendly indicators and rules on good indicators, and provide examples (non-exhaustive) per sector. We should also be conscious of the added work for social enterprises in creating an impact report, there should be some sort of methodology of how to figure this report. There would no doubt be more support if the indicators used are ones that were recommended by the enterprises themselves. Not imposing all indicators will help social enterprises reflect on their own management. Quality of indicators (what are the criteria to define what a good indicator is?) and provide a list of standardised indicators to choose from (but not compulsory). Maybe combination of standards of high-quality process, examples of existing indicators for various sectors (not exhaustive), plus guidelines on what constitutes a good indicator. Maybe ESMA could set-up a repository for indicators? Take into account new and young social enterprises. What we ask of the social enterprise has to be proportional to their resources. Will there be special consideration given to start-ups? There should be a difference in what is asked of enterprises at different stages. How to involve social enterprises in the decision-making process of this regulation proposal (consultation process)? We need to decide what the process commonalities are. - Top down v bottom up: the risk of bottom up approach is that it can be useless if it isn't practical for enterprises to use. Perhaps there is a middle ground where common practice has already defined indicators and practice shows communality to find a process for reporting that is both defined and meaningful. - (MF) The question remains how soon this sort of framework could emerge, and whether it should include guidelines on what may constitute good indicators? We seem to agree that there is a need for guidance on the process, but we must keep in mind that we need to come up with definition of measurement of social impact. This does not need to be one universal number, but it has to be actionable. - (TS) For EuSEF a processed approach makes sense as it has reassurances for investors and it keeps the needs of social enterprises in mind. - Perhaps the Commission could include IRIS and GIIS into the harmonisation process, there should be more coordination between all initiatives of proposed indicators.

4 (PB) It is important not to overcharge social enterprises with extra bureaucracy, but to explain to them the need for such a tool EUSEFs Fund Managers should be required to give an account of their allocation in different sectors (either guidelines, or report). In addition, monitoring systems need to be created for them as well, since they cannot be judged with the same indicators as those for social enterprises. 2.2 ("Common threads and boundary conditions, differences and reasons at the investor level") Common ground process as defined in EVPA manual Impact measurement gets more difficult, the higher up the investment "food chain" it takes place (from enterprise to investor to fund-of-fund), but golden thread of information has to go all the way of the "food chain" (from the beneficiary up to the investor). This "golden thread" needs proportionality, especially in relation to the burden on social enterprises. Differences: all stakeholders have different interests in the impact measurement activities (see p. 3 of working paper). For investors the inclusion into the investment process of impact measurement is important. We should also stress that when we talk about investors the difference between hands-on and hands-off approach is clear (Hands-on investor: invests directly in the social enterprise. Institutional investor/fund of fund/public funder invests in fund manager, needs to assess to what extent the intermediary lives up to the promises made). Investment decision of hands-off investor driven by quality of intermediary. EUSEF Funds have two roles: as investors in social enterprises and as possible recipients of fund-offund investments. Important that social enterprise is not overburdened with measurement tasks, are investors able to provide support? When and how should investors integrate impact measurement into the investment process? Social enterprises afraid of perverse incentives in order report best results. Perhaps there is room for flexibility on the choice of indicator so that there is room for adjustment and development (~the constant reassessment of the loop of four stages in 2.2 group presentation). As long as there is transparency on learning points in the process that should be sufficient. Careful funders that are very focused on specific outcomes may constrain innovation in the social enterprises to support - Two parts of the recommendation to EuSEFs: How EuSEF fund managers deal with impact measurement How they report to investors How to assess fund manager performance lessons from microfinance. Certain questions asked about fund manager own theory of change, type of investees, etc. 2.3 ("Scope of guidance") (for content s. Working Paper Group 2.3)

5 - Alternative GDP-concept by Stieglitz et al.: no single measure of welfare main statement - Social capital initiative by the World bank constitutes the first coherent approach to integrate social attributes into economical assessments - Possibility of opening up a "social investment market" should be looked into - Minimum standards are articulated in Art. 13, ex-post assessment required, consolidation/harmonisation of two kinds of accounting required (economic shortterm vs. social longer-term) - Besides EU, key stakeholders are the investors in the funds. How will economic and social return be balanced as two different types of investments are allowed? -> probably articulated in investment strategy - Mandate for PSCI: objective is to define a methodology providing the basis for decision if social enterprises receive funding (full spectrum financing instruments), eligibility criteria - There could perhaps be a structured cooperation between ESMA and GECES to define the basic "deliverables". This would consist of a linking of economic profit and social methodologies of measurement to business forms etc. Venture capital for social economy is of vital importance. EuSEF: the sub-group needs to build up guidance data and provisions. The added value to EuSEF is that this group can help determine the way that impact is measured, but this does not mean it has to. Regardless of what is decided, there should always be proportionality and room for capacity-building. There should also be a balance between reporting of social and financial outcomes, which should be determined by funds ex ante. This will usually be the case because of the need for market transparency and the requirements imposed by investment strategies. Where possible, the potential negative outcomes should be acknowledged, even in the field of social investment. Unintended consequences possible, must be taken into account. Planning for next meeting - Possible deliverables: minimum requirements ( what do you have to do to qualify as EUSEF ), standards of reporting ( how do you communicate the minimum requirements to your stakeholders ), guidance notes incl. KPIs ( practical guidelines ) according to current best practice - Important is the difference between mandatory and voluntary requirements - Reminder that social enterprises can be active locally, nationally and internationally - Problem of categorization of activities; in future clear sectors as in National Accounts / International Classification of Non-profit Organizations could be advisable; right now, sector is not mature enough Suggestion to set up 3 groups which will centre around: 1. Substance - Minimum standards of impact measurement (process) 2. Best practice - What do you communicate reporting standards 3. Practical guidance (good practice from a variety of fields)