Social ROI

Investors around the world are familiar with the term “return on investment”, or ROI. As the name suggests, a return on investment describes the benefit an investor receives from investing in a stock or commodity. The ROI is expressed in numeric, monetary terms and is relatively easy to calculate. The goal of most investors is to receive a high return on their investments. A lesser-known variant of the return on investment is the social ROI. This monetary value expresses the social benefits (or lack thereof) of an investment. Social benefits hereby do not only include benefits to society, but also to related factors such as the environment. Investments with a low societal benefit, such as fossil fuels, therefore have a low social ROI. Meanwhile, investments that are deemed to have positive effects on society are ascribed a high social return. The problem herein lies in identifying and defining social benefits. After all, what is or is not beneficial to society is a highly subjective matter. However, calculations of social ROI try to use only the most objective criteria, focusing primarily on seven principles developed over years of research and analysis. Among these principles are transparency and involvement of any and all stakeholders, including those who may be affected by the environmental impact of the investment. Furthermore, all effects felt by these stakeholders must be accounted for, including effects that are unintended or indirect. Although this system helps assure that social returns are expressed as monetary values in an objective fashion, it is not always successful. For example, some factors included in the calculation may be difficult to express in monetary values. Furthermore, calculating such values is a lengthy and complex process, making it infeasible for smaller companies.