Introducing the concept of calculating return on investment within a sustainable business.
Return on Investment (ROI) is commonly conceptualised as a ‘business calculator’. A scientific tool to understand if and to what extent a business should invest in a particular task or project. Such a decision is based on the expectation, or forecasting, of how much profit (monetary and non-monetary) that the investment will return.
ROI represents the cost-benefits analysis that every organisation needs to undertake when decision making. According to this analysis, the best and highest priority projects are identified and financially supported. Complexity plays an important role when the ROI has to be conducted on sustainable initiatives and programs. In this case, the big questions become:
Social Return on Investment (S-ROI)
- How can we quantify the value of natural sources (such as water or energy) and transform this value into a business perspective?
- Would the concept of sustainability be truly linked to the ‘simplistic’ business logic of investing in order to maximise profit?
, in fact, doesn’t meet the criteria for a traditional ROI. When designing the ROI for sustainable businesses it is necessary to deal not just with the uncertainty, typical of any forecasting activity, but also with the analysis of functional, economic, social and environmental value that the business will create. Such analysis is the result of systematic and meticulous work that includes different elements such as inputs, outputs, outcomes and impact. Therefore, the crucial aspect in planning the ROI of sustainable projects (or practices) is its inclusiveness. S-ROI enables an organisation to calculate the social value
added and therefore communicate the social and economic outcomes, which improves transparency. This allows stakeholders to understand how activities work toward the goals to achieve specific social outcomes.
A simple way to calculate S-ROI is to map the project and create reports on its impact against the goals and demonstrated improvements. For example, if an organisation wants to measure how many workers in its supply chain are receiving a living wage – which is a stated aim of many global fashion brands, and a goal of many global voluntary code mechanisms – it would collect information from each supplier about the average wage paid and measure this against the reported living wage
in each country. This documents what percentage of workers in the global supply chain are receiving a living wage. Organisations need to consider their plan to improve in countries where the payment of a living wage is lower.
Another example, would be to measure the S-ROI of a reduction in the use of toxic chemicals in leather processing in the supply chain.
You will find more useful information about the concept of S-ROI in the articles below. If you are interested, you might like read these articles before moving on to the activity.
Now that you understand what Social ROI is, think about how a business may start the process of moving away from being the calculator of costs, i.e. ‘business calculator’ and shift toward being an ‘environment calculator’ – providing better value to the environment through doing less harm.
Create a mind map using Bubbl.us
to show the steps you think a company importing leather products could take to prepare a S-ROI on ethically sourcing leather. When you have finished creating and mapping the steps, you have the option to share your mindmap
with the learning community in this course by posting your mind map URL to the Comments