Proponents of a new methodology aimed to better assess the economic and social impact of business, the External Rate of Return, have issued a call to action for parties, including academics, businesses, investors and consumers, to participate.
In a working paper on the new methodology published by LSE Enterprise, the authors asked readers to propose indicators and metrics they believe should be included in a “comprehensive impact assessment platform”.
The initiative is the brainchild of Mark Florman, CEO at Time Partner and a former CEO of the British Venture Capital and Private Equity Association from 2011-2013. Florman has compiled the report with Dr Robyn Klingler-Vidra of Kings’ College London and LSE Enterprise, and Martim Jacinto Facada, an independent researcher.
Based on the public’s input and their own work, the authors said they would create the ERR, with the first step being a proposal specifying its indicators, means of calculating a score, and the design for a platform. The project envisages the public using social media to check company data.
The paper stated, “we propose the creation of a platform wherein companies, investors and third-parties can comprehensively and transparently report their activities across a range of parameters” encompassing a company, its suppliers, customers, the society in which it operates, and the environment.
“We are seeking to enlarge the traditional definition [of social impact] to include economic impact – by failing to do so, many existing models fall short of showing the many positive consequences of business activity and in particular of new investment,” the paper said.
The aim of the project is to establish a way to measure and compare the impact of any type of businesses consistently. “Furthermore, through the ERR platform companies and the public at large can engage in on-going dialogues about the overall impact of business,” the paper said.
In an appraisal of 20 existing social impact measures, the authors criticised weaknesses including intense use of resources, subjectivity, lack of transparency and inaccessibility.
“Existing methods focus too much on ESG and social enterprises, underplaying the role of business activity and related financial, employment and other gains as part of overall social impact,” the paper said.
“We contend that a ‘one size fits all model’ can provide value in total and holistic impact assessment, rather than the further proliferation of sector or firm-tailored methodologies,” the paper said.