October 13, 2013

Takara Tsuzaki, PartnerURL ： http://www.arunllc.jp

2nd International Symposium on Social Investment

ARUN’s Social Impact Measurement Framework and Result from the JICA Research Project

ARUN’s Social Impact Measurement Framework

Q: Why social impact measurement is the key component for ARUN’s social investment activities?

Objectives for Social Impact Measurement:

①To share ARUN partners (investors) the up-to-date information and monitoring/ evaluation results of current state of the investment business②To highlight the improvements on both social and business/management aspects and encourage investees further development by giving feedbacks on monitoring and evaluation results.③To provide information to external parties (incl. potential investors) and making ARUN’s social investment activities accountable for the wider public.

2

Step1 ： Setting on the field/area of evaluation (overall scope)

Dialogue with investees

Discussions among ARUN partners (investment committee,

social performance assessment/evaluation team)

・ Acquisition of relevant data・ Monitoring system

Step3 ： Social impact evaluation

Step4 ： Feedback

Report to ARUN partnersImproving business

Data submitted by investees

Social Impact Measurement and Evaluation

Step2 ： Deciding on evaluation criteria

Evaluation of investment (mid-term, progress, result)

Dialogue with investees Survey to ARUN partners

■Evaluation Steps

3

Basic approach to the financial evaluation

• Social Enterprises which ARUN makes investment in have not fully established their financial base in most of the cases. Funding sources are scarce at this very initial stage, and financial institutions do not open their doors to them.

• With respect to business operations, entrepreneurs are conscious of the social mission, and it is generally the period of trial and error for their new business.

• In light of these circumstances, ARUN decided to take the following approach in social impact evaluation and assessment.

Profitability Merkmal - Entrepreneur/social enterprise is generating profit while paying a decent wage to employees, and making repayment of principal and interest on borrowings, and assessment focuses on profits that occur after applying financial expense.

Stability Merkmal – Ability to secure the operating cash flow to perform scheduled repayment of principal and interest of loans and making sure that debt of loss compensation is not built up. Assessment mainly focuses on "operating cash flow" and "debt ratio“.

Growth potential

The most important criteria for business operation is the growth of sales; therefore the social impact assessment focus on the "sales growth". Social enterprises generally extends their impact into social aspects, producers, employees, the community through business activities. Therefore, expansion of business scale is an important factor to determine the scale of social impact.

Reliability Evaluation is made on the basis of how much ability the enterprise/entrepreneur has to create financial statements at the level that ARUN requests, and assess whether they can provide reliable data.

4

ARUN’s Social Impact Evaluation Scheme

■Social Monitoring: Stakeholder analysis

ARUN selects investee enterprises in conformity with both social and business/management criteria. ARUN developed its own social impact evaluation scheme and utilizing it for DD, reviewing and reporting of investment activities.

ARUN, LLC

Leadership

Environment

Contribution to local communities

Employment

Innovativeness

■Evaluation of Social Impact　 (applied to our investees)

EntrepreneursARUN Workers

Customers

Local

Family

Suppliers

Commitment by the entrepreneurs to bring about social changes for the cause

Degree in which social value is created

Social /Developmental Effectiveness Criteria

Business/Management Criteria

Return on Investment

Business Model

Financials

Governance

Leadership

Impact on Community

Employment

5

■Focus and basis of the evaluation:Relationship between the mission and purpose of the business is crucial. Discussions with investees focus on how they related to each other to enhance the business potentials. ※Achievement of mission is the priority, and business is the means to achieve the mission. Social performance is assessed accordingly.

■Comprehensive approach in different phase:To evaluate impact of the business, comprehensive approach is taken; whether the business is producing tangible outcomes for the ”purpose” that was set forth , what kind of results came out of the business (outputs) and how they lead to the overall impact of the business in the given area/field.

Mission and purpose

of the business

Output Outcome ImpactInput

Investment

Resources

Social Performance

Main focus for assessment and evaluation

6

ARUN’s social impact performance evaluation

7

Monitoring and Evaluating the Social Impact of Investment① Monitoring components for social entrepreneurs and social enterprises

Item Key Questions Metrics/Index

Social entrepreneurship

① As a social entrepreneur, commitment and enthusiasm to resolving social issues is strong and has not been declined.

・ Clear awareness of social problem and its solution

Willingness and commitment to the society

① Awareness of the social purpose of the organization is listed clearly and unchanged, and outlook and anticipation of the future is stated.

・ Clear awareness of the social purpose of the organization, stated and reflected in business plan

② Spirit of innovation / creativity in the business. ・ Ratio on economic /socialComparative reference with other cases

Employment ① Impact of job creation is maintained in a stable manner, and the scale is greater.

・ Total # of people employed, changes of # over time

② Is the business successful in creating the employment of vulnerable groups? ・ Women / elderly / disabled, changes over times

Wage ① Impact of income generation is maintained in a stable manner, and the scale is greater.

・ Income, Percentage of sales, Income of the socially vulnerable people, changes over time

Networks and business expansion

① In order to achieve the social purpose of the business, is network of customers and suppliers are expanding?

・ Communication with suppliers / customersLevel of mutual understanding , satisfaction

Contribution to the community

① Does the business actively utilize as much local resources as possible? ・ Use of local resources in equipment and raw materials

② Does the business actively engage in the re-investment in the area? ・ Relationship improvement in the regional, details of the relevant activities

③ Does the business contribute to the vitalization of local economy? ・ Relationship improvement in the regional, details of the relevant activities

④ Does the business contribute to regional revitalization efforts? (Movement creation through interaction)

・ Relationship improvement in the regional, details of the relevant activities

⑤ Ripple effect on society and other stakeholders. ・ Presence or absence of effect, details of the relevant activities

REFERENCE ONLY

Consideration on Environmental

① Active efforts on eco-friendly/environmentally sustainable actions. ・ Achievements

Consideration on working environment

① Active efforts on improving working environments. ・ Achievements

Consideration on customers and consumers

① Does the business strive to maintain and improve safety · QC of products and services as consideration for consumers and customers.

・ Achievements

② Do you strive to disseminate information about safety · QC of products and services as consideration for consumers and customers?

・ Achievements

Monitoring and Evaluating the Social Impact of Investment① Monitoring components for social entrepreneurs and social enterprises

Item Key Questions Metrics/Index

8

REFERENCE ONLY

Monitoring and Evaluating the Social Impact of Investment②Monitoring components for employees

Item Key Questions Metrics/Index

Understanding of the social purpose of the organization

①Employees understand the social purpose of the organization?

・ Changes of understanding, shared value among employees

②Spirit of innovation / creativity in the business? · Understanding of social issues to be solved by the company· Degree of the influence that their services has solved (%)· Aware of the companies and organizations with same business model

Awareness of environmental considerations

①Among employees, are needs and social significance of the organization/company’s efforts of eco-friendly activities being shared and understood?

・ Changes in the understanding of the need for consideration in eco-friendly activities, Changes in social trends

Awareness of working environment

①Among employees, are needs and social significance of the organization/company’s efforts of improve working environment being shared and understood?

・ Changes in the understanding of the need for consideration in working environment, Changes in social trends

Considerations on customers and consumers

①Among employees, are needs and social significance of the organization/company’s efforts on maintaining and improving the safety and quality control being shared and understood?

・ Changes in the understanding of employeeChanges in social trends

②Among employees, are needs and social significance of the organization/company’s efforts on disseminating information on safety and quality control being shared and understood?

・ Changes in the understanding of the need for information dissemination of employee,Changes in social trends

Skills ①Skills originally held by employees improved? Have they been acquiring new skills? Are motivated to work?

・ improvement of skills, details of new skills, process of acquiring.

Confidence and self-esteem

①Are employees gaining confidence and self-esteem by working in the organization?

・ changes in confidence and self-esteem

Contribution to the society

①Through the work in the organization, do employees actively contribute to the region and society?

・ Changes in the regional contribution awareness / political awareness / sense of entitlement of employees

Status of family ①What changes happened to quality of life of the family? (himself/herself, spouse, children, parents)

・ mental strength, voice of women, education of children

9

REFERENCE ONLY

Item Key Questions Metrics/Index

Consciousness of investors

Any changes occurred in the consciousness of investors by participating in the project?

・ Information and number of feedbacks received from ARUN (investors)・ Changes in motivation or interests caused by dissemination of information on the progress of the project・ Number of people (investors) participated in the study tour to see the actual investment sites.・ Changes in motivation or interests caused by having participated in the study tour/visited investment site/interacted directly with entrepreneurs/employees.

Monitoring and Evaluating the Social Impact of Investment③Monitoring components for investors

10

REFERENCE ONLY

Uniqueness of ARUN’s Social Impact Evaluation & Measurement

■Team Structure and Collaboration:- Investment Committee - Social Impact Measurement Team- Research Team (+ ARUN Lab)

■Geared towards “goal setting” for producing high impact, rather than driven by evaluation/assessment tool- local office in Cambodia working together with entrepreneurs/social enterprise on a regular basis- ARUN directors/partners (investors) and ARUN lab members frequently interact with entrepreneurs and employees- workshop/facilitation style evaluation/assessment to highlight the positive aspects of the business

　　 - constantly revising and improving the questions and index by reflecting the needs and feedbacks from the entrepreneurs, and applying the global trend and analysis on social and impact investment

Going forward…- Developing and improving ARUN’s Social Impact Evaluation and Measurement in accordance with our investment area/region (South East Asia, South Asia etc.) and sectors . - Strengthening research arm - Advisory service to Japanese corporations operating abroad (BOP business)

11

#Development

effectiveness assessment framework

Developed by

Components Steps frameworkRecognition

Social Business/management

outputs outcome

impact

Metrics/index

Process

1Impact Reporting and Investment Standards (IRIS)

Global Impact Investing Network (GIIN) ○ ○ ○ ○ ◎

2 Global Reporting Initiative Guideline

Global Reporting Initiative (GRI) ○ ○ ○ ○

3 Global Impact Investing Rating System (GIIRS)

GIIRS members ○ ○ ○ △ ○

4Measuring Value of BCtA Initiative, A Result Reporting Framework

Business Call to Action (BCtA) ○ ○ ○ ○ △ △

5 Development Outcome Tracking Systems (DOTS)

International Financial Corporation (IFC) ○ ○ ○ ○ △

6 Measuring Impact Framework

World Business Council on Sustainable Development (WBCSD)

- - ○ ○ ○ △

7 Poverty Footprint Framework

Oxfam - - ○ ○ ○ ×

8 Baseline Form for new projects

DFID Business Innovation Facility (BIF) - - ○ ○ △

9 Social Return on Investment (SROI)

Roberts Enterprise Development Foundation (REDF), New Economic Foundation (NEF)

- - ○ ○ ○ △

10 Progress out of Poverty Index (PPI)

Grameen Foundation ○ ○ ○ △

Global Study on Evaluation Frameworks

12

Balance between social/developmental criteria and financial/management criteria

Importance on output while considering the outcome

Importance on both the measurement metrics/index and the process of how the impact is achieved and assessed

Recognized globally and aligned with targeted mission and social impact

Social criteria

Business/Mgmt criteria

Output

Outcome

Impact

Process Oriented

Index/metrics

oriented

Global Recognition and application

IRIS Develop own measurement scheme

1

2

3

4

Research Findings: Summary

Mix

13