As a real estate leader you’re no doubt familiar with the concept of ROI – the return on investment of any project, initiative, or property you take on. Are you also aware of social ROI? This is another metric that although related to traditional ROI, measures something very different. In this article, we’ll explore what social ROI (SROI) is and whether it is something you need to be tracking across your multifamily portfolio.
According to NEF Consulting, SROI is “an outcomes-based measurement tool that helps organizations to understand and quantify the social, environmental and economic value they are creating.” It’s a method that results in a numeric ratio of value created outside of financial metrics to dollars spent, and can help color decisions and inform ESG efforts at any level of the organization.
For multifamily investors, there are a million ways SROI fits into the business of real estate. Every stakeholder you touch has the potential to gain value over the course of developing and operating an apartment portfolio. That includes:
- Your employees
- The community around your property
- The environment, if your property contributes to biodiversity net gain
- All of the investors and suppliers of the businesses you do business with
How do I track social ROI?
According to the non-profit Better Evaluation, there are a number of steps to undertake when analyzing SROI, not necessarily in a set order:
- Define the scope of the project or initiative you are analyzing
- Make a list of all the stakeholders involved in the project
- Alongside your stakeholders, develop a plan describing how your project is impacting each of them
- Inventory inputs and outputs of the project, intended and unintended alike
- Convert the inputs and outputs into a numerical value
- Apply that value to a ratio based on what you paid for the investment or project
- Develop one or more narratives, or stories, to accompany your ratio
- Verify your analysis with a double-check of your assumptions, numbers, and ratio
This is a very condensed description of the steps that go into SROI analysis. For more, check out Better Evaluation’s full article here.
Should multifamily investors track social ROI?
At this point, you’re probably wondering if it is worth tracking SROI. If you thought there was a simple, clear-cut answer to that question, we’re sorry to disappoint you. Like many other strategic decisions, the choice of whether to track SROI or not is based upon the specific situation you’re in as a business. As we said in our white paper focusing on how to measure multifamily ESG, it is absolutely critical that you answer the why first.
Why are you measuring SROI?
Is the metric something that is just close to your heart, and you are simply driven by a sense of altruism? Is there a program, incentive, or ESG certification you’re targeting that tracks SROI? Have you identified SROI as something that could substantially help your marketing efforts? All of the above?
Properly analyzing SROI takes time and effort. To do it properly, you’ll need to dialogue with all of your stakeholders – potentially a daunting task, since as mentioned above multifamily firms have a lot of stakeholders. If you go into an SROI analysis without the time and resources to properly execute it, you’ll end up with inaccurate or worse, misleading information that could throw off future decisions or cost you a loss of credibility to your stakeholders and community partners.
For these reasons, we recommend considering an SROI analysis if you’ve done substantial research and are confident that the ratio the analysis provides has meaningful, measurable impacts to your business.
In a perfect world, every real estate firm would always track SROI, but unfortunately, time and resources are limited. This metric is a powerful one with that ability to provide clear insight into how your firm is treating people and planet, but it isn’t something to treat casually.