The social earnings ratio, sometimes abbreviated to S/E, is a single-number metric, used to measure the social impact of various organisations. The non-financial metric is similar to the price earnings ratio, but instead focuses on valuation against social impact, rather than projected earnings.
The ratio was founded in 2011 by Olinga Ta'eed and a team of financial experts, in order to find a way of measuring financial investment against real social impact. It began as a university collaboration in the United Kingdom, before becoming an internationally recognized form of measurement, when the CCEG was founded.
In 2013, it was identified in a news article as "the most rapidly adopted metric in the world". [1]
The Social Earnings Ratio (S/E) is a form of measuring sentiment and converting it into financial value. The ratio began as an idea to develop a single number metric to measure social value. In November 2011, a university collaboration was formed to manage this development. [2] Around 18 months later, the Centre for Citizenship, Enterprise and Governance (CCEG) was formed in April 2013, to act as the standards body to curate the ratio globally. The standards body would also be run as a non-profit. The Board for the CCEG was to include Professor Nick Petford, who was also the Vice-Chancellor at the University of Northampton.
Following the establishment of the CCEG, Olinga Ta'eed was the keynote speaker at the Global Citizen Forum. [3] In early 2015, it was announced that Seratio would be launched as a spin-off organization to control the licensing of the Social Earnings Ratio platform. [4] Barbara Mellish would be the CEO of Seratio.
By late 2015, the CCEG had over 37,500 members, including a number of key sustainability leaders. The UK Intellectual Property Office accepted the terms "Social Earnings Ratio", "S/E Ratio" and "Seratio" as having "acquired a distinctive character as a result of the use made of it." [5] Full Registration rights have been granted. This is an important milestone for the Social Earnings Ratio which will allow it to achieve parity to the Price Earnings Ratio.
Serat.io was launched as a subsidiary project by the CCEG, for the measuring of personal value. Pre-launched at the Clipper Round the World Yacht Race in September 2015, PV targets 1 million users. It is a campaign backed by celebrities such as the former First Lady Cherie Blair, broadcaster Jonathan Dimbleby, Italian footballer Gianluigi Buffon, politician Rt Hon Peter Hain, as well as the Desmond Tutu Foundation. Personal Value was formally launched in December 2015.
S/E Ratio is a financial metric that converts sentiment into financial value, and purports to be the currency of intangible values. [6]
The S/E utilises financial value data, claimed outcomes and independent verification within a Citizenship Framework. [7] S/E provides digital articulation of value across micro, meso and macro levels. Regardless of the organisation or market that is measured, the same algorithm is used. In a similar way to comparative currency flow, it means that both simple and sophisticated correlations can easily be compared.
The ratio was developed using a university collaboration, involving over 90 universities globally. The framework examines the influences between the value formed at citizen, family, community, team, organisation, regional, national, and global levels. A principle rule is that S/E is never applied to negative actions. An example of this would be that slavery would never be measured directly, but it would be treated as a lack of freedom. Similarly, violence and safety levels wouldn't be measured, but the level of peace and its absence could be used in the framework.
Some have compared its application similar to that of a digital non-financial currency. The framework utilises deep academic analysis tools, which are commonly used for calculating the financial value. Since the initial collaboration between the United Kingdom universities, a number of interdependencies have been discovered.
| Focus | Metric | Application | |
|---|---|---|---|
| 1 | Institution | Organisational | UK Social Value Act 2012, Corporate CSR, NGO efficiency |
| 2 | Citizen | Personal Value | Recruitment, Social Media, Retail, Therapy |
| 3 | Slavery | Freedom | UK Modern Slavery Act 2015 |
| 4 | Health | Wellbeing | Health, Corporate HR |
| 5 | Regional | Hyperlocality | Regional Government, Corporate CSR |
| 6 | Collaboration | Team | Clipper Round the World Yacht Race 2015 |
| 7 | Ethics | Leadership | Mission Performance |
| 8 | Enablement | Independence | NHS integrated social and health care |
| 9 | Inspiration | Art | Arts Council |
| 10 | Impact | Investment | Sustainable investment |
| 11 | Intellectual | Capital | Universities, Corporate UK |
| 12 | Happiness | City | Local Government, Politics |
| 13 | Violence | Peace | Domestic Violence |
| 14 | Animal | Welfare | Pet industry |
| 15 | Tax | Avoidance | Corporate evasion |
| 16 | Pay | Equalities | Gender |
| 17 | Love | Relationship | Online dating |
| 18 | Retail | Consumer | b2c |
It is often difficult or not possible to compare Social Earnings Ratio with other forms of financial measurement. Comparing S/E to other social impact tools is something that is more common. Social Return on Investment (SROI) is one example of this and is quite a popular search on most search engines. When its results are compared to that of S/E's, its clear that SROI has a greater amount of coverage. [10] [11]
It could be argued that the history of SROI and the fact it was released in 2002, nine years prior to S/E, could indicate why it has a greater number of search engine results. Equally, HACT claims to "have created the largest bank of methodologically consistent and robust social values ever produced." [12] By this they are referring to a database of financial proxy data which can be used in conjunction to SROI, although in August 2015 they have criticised SROI comprehensively in the "Seven Principle Problems of SROI." [13] Continuing with the comparison, in 2014 Lord Loomba presented a report to the House of Lords, "Social Impact Analysis", [14] which included metrics from Business in the Community and Benefit Corporation, as well as SROI and S/E. The steep rise in S/E take-up in 2013 represents the automation of the metric and not necessarily any indication of quality. A 'big-data' approach has been provided by CSR-Hub who have harvested 417 metrics; in May 2014 they announced an MoU with CCEG to explore S/E. [15]
S/E has undergone considerable analysis and critique in recent years. Most recent comparing IIRC (International Integrated Reporting Council) to S/E, concluding "Together, the Framework and the S/E Ratio provide a powerful set of metrics and analysis for both founders and funders to evaluate value as well as strategic risk." [16]
Earlier in 2015, The Guardian wrote: "Since 2013, there has certainly been an increase in the number of online measurement tools. But the challenge of calculating social impact goes back to the early 1990s. One measure, called LM3, allows organisations to calculate the local economic impact, while another, called SROI, calculates social return on investment. But both are very complex and are based on lots of assumptions that the people who do the evaluation will have to identify, agree and sign off." Perhaps we need a simpler tool such as the social earnings ratio, which doesn’t require lots of assumptions and is based on a one-size-fits-all approach." [17]
The focus on the broad context of applications of S/E have drawn sometimes heated debate amongst the international academic and social innovation community in Italy, [18] Romania, [19] and Russia. [20] Mohammad Yunus, a Nobel Prize laureate, has also spoken publicly about the framework. [21] These discussions surrounding the concept of a 'universal metric' draw both praise and scepticism.
Criticism of the timeframes to calculate the data has been made, with many wondering how accurate statistics be drawn in such a short period of time. other debates about the usability of the framework are still forming, as S/E begins to become more prominent in the social measuring tools field. Some S/E exponents embrace the disruptive metric tag arguing it as an instrument for change, others debate the moral and potential future implications. There are a number of platforms discussing and organically developing S/E including a forum, [22] a micro-blog, [23] and an international journal in 8 languages, the Social Value & Intangibles Review. [24]
The S/E makes use of Big Data, Social Media and Sentiment Analysis to automate the algorithm on a SaaS platform, with results normally reported within 10 seconds. Organisation's whose financials are available via XBRL, allows the framework to be applied without intervention. For the measurement of individual personal values can take up to 60 seconds to input and start reporting.
S/E Ratio can be applied across all organisational, institutional, and personal levels, as well as projects, processes, products in private, public, third (NGO, voluntary, civil society), and community sectors. This widespread approach is a key factor in its adoption in certain high profile applications which have gained it traction. S/E Ratio is the leading provider of metrics for delivery of public sector procurement under the UK Social Value Act 2012 legislation. [25] Currently some UK£3.15 billion of public sector procurement is measured through the Social Earnings Ratio. The Lord Young Review (February 2015) of the Social Value Act described S/E as "The Centre for Citizenship, Enterprise and [26] Governance (CCEG) has developed the social earnings ratio as a quick, low cost, high volume way to assess social impact. It is calculated by dividing the social value by the money spent on it. This can be calculated using very simple information (e.g. the CSR budget, the carbon reduction, and the number of people helped), and is meant to provide a single metric that can be used as a quick benchmark" [27]
Seratio, the SaaS licensing arm of CCEG, announced that in Q1 2016 it will launch a Freedom metric to support the UK Modern Slavery Act 2015. This promotes Transparency in the Supply Chain for all companies over £36 million turnover - an estimated 12,000 companies need to comply to this new piece of legislation as from October 2015. CCEG chairs the EU Procurement Social Value & Transparency in Supply Chain Forum. [28]
There is a propensity of non-financial value data covered by over 1000 different metrics and measures. [29] There is remarkable[ clarification needed ] lack of consistency between them. Due to the speed of S/E and its ability to translate empirical data from other metrics to an S/E score, it has harvested a significant[ clarification needed ] database of organisational values reported. The EU SEiSMiC Social Value Group [30] have charted growth and their 2015–16 forecasts for measured asset value (Euro € trillion) by S/E. Figures for 2015 and 2016 include other value measurements outside organisational value; the key differentiator presumably is personal value.
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold in a specific time period by countries. Due to its complex and subjective nature this measure is often revised before being considered a reliable indicator. GDP (nominal) per capita does not, however, reflect differences in the cost of living and the inflation rates of the countries; therefore, using a basis of GDP per capita at purchasing power parity (PPP) may be more useful when comparing living standards between nations, while nominal GDP is more useful comparing national economies on the international market. Total GDP can also be broken down into the contribution of each industry or sector of the economy. The ratio of GDP to the total population of the region is the per capita GDP.
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort.
The triple bottom line is an accounting framework with three parts: social, environmental and economic. Some organizations have adopted the TBL framework to evaluate their performance in a broader perspective to create greater business value. Business writer John Elkington claims to have coined the phrase in 1994.
In finance, valuation is the process of determining the present value (PV) of an asset. In a business context, it is often the hypothetical price that a third party would pay for a given asset. Valuations can be done on assets or on liabilities. Valuations are needed for many reasons such as investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability.
Corporate social responsibility (CSR) is a form of international private business self-regulation which aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethically oriented practices. While once it was possible to describe CSR as an internal organizational policy or a corporate ethic strategy, that time has passed as various national and international laws have been developed. Various organizations have used their authority to push it beyond individual or even industry-wide initiatives. In contrast, it has been considered a form of corporate self-regulation for some time, over the last decade or so it has moved considerably from voluntary decisions at the level of individual organizations to mandatory schemes at regional, national, and international levels. Moreover, scholars and firms are using the term creating shared value- an extension of corporate social responsibility to explain ways of doing business in a socially responsible way while making profits.
Earnings per share (EPS) is the monetary value of earnings per outstanding share of common stock for a company. It is a key measure of corporate profitability and is commonly used to price stocks.
A social enterprise is an organization that applies commercial strategies to maximize improvements in financial, social and environmental well-being. This may include maximizing social impact alongside profits for co-owners.
Social return on investment (SROI) is a principles-based method for measuring extra-financial value. It can be used by any entity to evaluate impact on stakeholders, identify ways to improve performance, and enhance the performance of investments.
Sustainability reporting refers to the disclosure, whether voluntary, solicited, or required, of non-financial performance information to outsiders of the organization. Generally speaking, sustainability reporting deals with information concerning environmental, social, economic and governance issues in the broadest sense. These are the criteria gathered under the acronym ESG.
Value measuring methodology (VMM) is a tool that helps financial planners balance both tangible and intangible values when making investment decisions, and monitor benefits.
Sustainable procurement is a process whereby organizations meet their needs for goods, services, works and utilities in a way that achieves value for money on a life-cycle basis while addressing equity principles for sustainable development, therefore benefiting societies and the environment across time and geographies. Procurement is often conducted via a tendering or competitive bidding process. The process is used to ensure the buyer receives goods, services or works for the best possible price, when aspects such as quality, quantity, time, and location are compared. Procurement is considered sustainable when organizations broadens this framework by meeting their needs for goods, services, works, and utilities in a way that achieves value for money and promotes positive outcomes not only for the organization itself but for the economy, environment, and society. This framework is also known as the triple bottom line, which is a business accounting framework. The concept of TBL is narrowly prescribed, and even John Elkington, who coined the term in the 1990s, now advocates its recall. Indeed, procurement practitioners have drawn attention to the fact that buying from smaller firms, locally, is an important aspect of sustainable procurement in the public sector. Ethics, culture, safety, diversity, inclusion, justice, human rights and the environment are additionally listed as important aspects of SPP.
Sustainability accounting was originated about 20 years ago and is considered a subcategory of financial accounting that focuses on the disclosure of non-financial information about a firm's performance to external stakeholders, such as capital holders, creditors, and other authorities. Sustainability accounting represents the activities that have a direct impact on society, environment, and economic performance of an organisation. Sustainability accounting in managerial accounting contrasts with financial accounting in that managerial accounting is used for internal decision making and the creation of new policies that will have an effect on the organisation's performance at economic, ecological, and social level. Sustainability accounting is often used to generate value creation within an organisation.
Creating shared value (CSV) is a business concept first introduced in a 2006 Harvard Business Review article, Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility. The concept was further expanded in the January 2011 follow-up piece entitled Creating Shared Value: Redefining Capitalism and the Role of the Corporation in Society. Written by Michael E. Porter, a leading authority on competitive strategy and head of the Institute for Strategy and Competitiveness at Harvard Business School, and Mark R. Kramer, of the Kennedy School at Harvard University and co-founder of FSG, the article provides insights and relevant examples of companies that have developed deep links between their business strategies and corporate social responsibility (CSR). Porter and Kramer define shared value as "the policies and practices that enhance the competitiveness of a company while simultaneously advancing social and economic conditions in the communities in which it operates", while a review published in 2021 defines the concept as "a strategic process through which corporations can turn social problems into business opportunities".
Return on investment (ROI) or return on costs (ROC) is a ratio between net income and investment. A high ROI means the investment's gains compare favourably to its cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments. In economic terms, it is one way of relating profits to capital invested.
Blended Value refers to an emerging conceptual framework in which non-profit organizations, businesses, and investments are evaluated based on their ability to generate a blend of financial, social, and environmental value. The term is usually attributed to Jed Emerson, and sometimes used interchangeably with triple bottom line. Blended value propositions are founded on the notion that value cannot be bifurcated, and is inherently made up of more than one measurement of performance. For example, under a blended value proposition, a for-profit business would consider their social and environmental impact on society alongside their financial performance measurement. Within the same context, non-profits would consider their financial efficiency and sustainability in tandem with their social and environmental performance. Blended value suggests the true measure of any organization is in its ability to holistically perform in all 3 areas.
ESG is an umbrella term that refers to specific data designed to be used by investors for evaluating the material risk that the organization is taking based on the externalities it is generating.
Basel III is the third Basel Accord, a framework that sets international standards for bank capital adequacy, stress testing, and liquidity requirements. Augmenting and superseding parts of the Basel II standards, it was developed in response to the deficiencies in financial regulation revealed by the financial crisis of 2007–08. It is intended to strengthen bank capital requirements by increasing minimum capital requirements, holdings of high quality liquid assets, and decreasing bank leverage.
A financial ratio or accounting ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Financial analysts use financial ratios to compare the strengths and weaknesses in various companies. If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios.
India's National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business (NVGs) were released by the Ministry of Corporate Affairs (MCA) in July 2011 by Mr. Murli Deora, the former Honourable Minister for Corporate Affairs. The national framework on Business Responsibility is essentially a set of nine principles that offer businesses an Indian understanding and approach to inculcating responsible business conduct.
Triple bottom line cost-benefit analysis (TBL-CBA) is an evidence-based economic method that combines cost–benefit analysis (CBA) and life-cycle cost analysis (LCCA) across the triple bottom line (TBL) to weigh costs and benefits to project stakeholders. The TBL-CBA process quantifies total net present value, return on investment, and project payback. TBL-CBA uses location-specific data to give asset owners and design professionals the flexibility and capability to provide a rigorous analysis of investment alternatives through all stages of planning and design.
