Think tank New Philanthropy Capital (NPC) believes that Social Return on Investment (SROI) has the potential to be a useful tool for understanding and increasing charity effectiveness, but is held back by the low levels of evidence in the charity sector.

NPC in its latest position paper Social Return on Investment, authour Lucy Heady argues this lack of evidence is particularly acute for charities who do a lot of campaigning or whose outcomes are largely subjective, such as improvements in well-being.

The report notes: "SROI is an approach that demands evidence and helps charities think through where more evidence is needed, but it does not tell charities how to collect this evidence. SROI will not reach its full potential until there is more investment in improving the evidence base of the sector."

SROI is often viewed as being all about the final financial ratio, that is, the social value created per £1 invested.

"This attracts scepticism and criticism and means many of its benefits are overlooked," writes Heady.

And adds: "SROI is a process of understanding and valuing impact and should be used by charities to understand where their impact is greatest and how they could improve what they do. SROI does not have to be seen as an 'all or nothing approach'; charities should use those elements of SROI that are most useful to running their organisations."

The report adds that SROI is based on seven principles

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