Social Investment Elites As Innovators: The Rise of Social Impact Reporting

Perhaps the greatest challenge in explaining social norms in practice is the fact that they emerge in complex socio-political environments and may be influenced by a multitude of factors. For example, the emergence of a new style of performance reporting, labelled ‘social impact reporting’, has become best practice in the UK charitable sector over the last decade (Kail et al., 2013; Nicholls, 2009). This practice differs from the previous norm of ‘narrative’ reporting in that it attempts to represent the socialconsequences of a charity’s interventions but mimics the style of reporting traditionally used by profit-seeking organisations. Much existing research provides functional explanations of the emergence of this performance reporting norm (The Big Society Finance Fund, 2011; Mulgan, 2010). However, many functionally equivalent performance measures have failed to take hold in the charitable sector – so why has social impact reporting, in particular, come to dominate best practice over the last decade?

To answer this question, I employ social network analysis, revealing social and investment structures which made the emergence of this norm possible. Drawing on work in empirical sociology (Padgett and Ansell, 1993; Rogers, 1995; Strang and Soule, 1998, Padgett and Powell, 2013), I investigate the structural characteristics of the community in which the norm of social impact reporting emerged. First, interviews with those involved in social impact reporting suggested that the source of the new practice was a new niche community of social investors.  These social investors were familiar with business-style performance-reporting techniques as a result of their previous professional and educational experience.  Using this evidence, I construct an affiliation network for the social investment community using publicly available data. This network demonstrates the influence of investment experience within the community, and hence the accepted view that investment-like performance measures represent best practice. To this affiliation network, I add connections representing investment relations between social investors and charitable organisations. These investment channels represent a bridge between the two communities, thereby acting as conduits for knowledge transfer between investors and social purpose organisations and enabling norm diffusion to charities.

However, network structure on its own is, at best, an incomplete representation of a social system. This is because the interpretation of relations between individual nodes, based on their social context, matters (see Padgett and Ansell, 1993). Furthermore, a social network can only help to explain a social phenomenon if the assumed structural relations between agents in the model reflect the real social relations of the target system. In the case of social impact reporting, the structural relations in the model admit a number of interpretations, not only because the ‘agents’ may represent either individuals or organisations, but also because multiple types of relations can exist between these ‘agents’. These relations include professional and educational affiliations and investment relations.  I argue that paying attention to the social interpretations of these structural relations is crucial for the construction of a model, if it is to provide an adequate explanation of an empirical phenomenon, such as the rise of social impact reporting.