SROI Discussion

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TWINHILLS CENTRO: SOCIAL RETURN ON INVESTMENT Mahrukh Tahir, Elizabeth Henderson, and Irene M. Herremans wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2016, Richard Ivey School of Business Foundation Version: 2016-06-14

One afternoon in the spring of 2012, Maria Taqir received her first call from Susan Nelson. The only thing she knew about Nelson was that she was the chief executive officer (CEO) of OpenGate, a land development company that had a vision to create a new town called TwinHills CENTRO (TwinHills) on the east side of Calgary, Alberta—about a 10-minute drive from where Taqir lived in Forest Lawn. Nelson was interested in introducing a new financial reporting mechanism called social return on investment (SROI) for her development project, and was recruiting students to test the feasibility of SROI in order to eventually implement it at her firm. Nelson asked Taqir brief questions about her background and experiences with the intention of seeing whether she was a good fit for her project. Nelson wanted to know which courses Taqir was taking in her undergraduate program and what volunteer experience she had. Then Nelson said something unexpected. “Maria, I trust you. I get spiritual feelings about people, and I know that you’re a pure spirit; I want you to work on my project with me. This is how I have hired everyone who has ever worked for me—I trust my gut. Come to the university tonight so you can meet other candidates for the project.” Taqir was intrigued by this and decided she wanted to learn more. THE FIRST MEETING Later that evening at the university, Taqir joined a group of people in a small boardroom. As they each introduced themselves, Taqir was surprised to learn that many of them were MBA students. Taqir’s impression was that the room was full of hardworking and accomplished individuals. One MBA student in particular stood out. Lisa Anderson had experience with corporate social responsibility and was the principal of her own consulting company. Taqir would later come to realize that Nelson had an uncanny ability to attract talent and utilize the skills of high-profile individuals for her development project through a volunteer advisory board (see Exhibit 1). The volunteer advisory board constituted the collaboration process at TwinHills (see Exhibit 2). Nelson explained that on its merit alone the project drew hundreds of people from around the world who wanted to use their skills to make this project a reality. The core idea behind the board was collaboration and input from the brightest minds, not only in Calgary, but also from around the world. Members of the board

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Page 2 9B16M087 included former aldermen, alderwomen, politicians, vice-presidents and CEOs of top energy and communications companies, managers of non-profit organizations from around the world, and academics. The members of the board were clearly what made it so successful. For example, the former head of IBM Europe was the chair of the technology and innovation committee. The board meetings were conducted every three months to provide the project with strategic direction. They were run by Nelson, her husband (Gord Case), and OpenGate employees. Taqir quickly noted that Nelson was a hands-on person. This project was clearly her legacy, and she was a visionary. Nelson led the meeting. She showed the attendees a brief video about the background of TwinHills (see Exhibit 3). They learned that Nelson had inherited the piece of land for TwinHills from her parents; therefore, there was no debt on the land. She spoke very passionately about the project and made it clear to everyone in the room that her motivations for creating this community were purely to leave a positive legacy: people were the focus of her project. Through years of her own service to the community, she felt that the problems that plagued many lives (such as health-related issues, domestic violence, social isolation, and poverty) could be solved through the creation of a cohesive community where people felt like they belonged (see Exhibit 4). Nelson also wanted to immortalize her family’s contribution to a city she grew up in and loved. She explained that TwinHills was located to the east of the city of Calgary and immediately to the west of the bedroom community of the town of Chestermere; it had spectacular views of both the mountains and the city. The rolling piece of land also had natural wetlands, which attracted many species of birds. It was relatively small, just three quarter sections in size (480 acres). Nelson envisioned a compact, almost utopian community that would be built on this land. She emphasized that she believed that TwinHills was a new formula for success that Calgary seriously needed. The underlying principles would be the “five bottom line” (see Exhibit 5) approach of environment, economy, community, technology, and spirituality. The attendees realized that this was no ordinary suburban community concept, and that it was unlike the many suburbs that Calgary already had. Ironically, many city council members were now advocating that urban sprawl (the development of suburban communities) was neither environmentally nor economically sustainable with continued population growth in the city. Although Nelson’s project appeared to be totally in line with the city of Calgary’s future plans in this regard, she could not figure out why her project could not get the approvals it needed. NELSON’S VISION Nelson felt that urban sprawl could be addressed by the environmental and economic benefits of her community. She explained the framework upon which she wanted to build her new-age community. With places of work at the centre and the residential community expanding around it, it would be a place where residents could learn in the post-secondary institutions that were located in (or had branches close to) the eastern sector of the city. It would also be a community that would nurture the environment, and at the same time, it would thrive economically through the creation of partnerships with socially responsible organizations such as Momentum, an organization committed to using a community economic development approach to build essential business acumen in low-income families (similar to micro-finance). Residents would live in the community and work where they lived. Nelson envisioned a place that would attract people of all ages and at all stages of life, from the young who were still in school to those who were retired. Nelson explained how she had already created numerous partnerships with non-profit organizations, such as those that developed skills for youth who were “at risk,” supported low-income and immigrant families, and worked with the elderly to enhance their lives. She believed that these organizations could come to TwinHills and integrate into the community to create a system of support and partnership. Her vision was to create a vibrant, diverse, and engaged community that would be fully sustainable on all “five bottom line” dimensions.

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Page 3 9B16M087 NELSON’S FRUSTRATION As the meeting progressed, Nelson expressed her frustration with the city council for delaying the project with multiple approval processes. This impeded her project from moving forward with important partnerships and building agreements. Part of the frustration was the number of steps involved. Not only did the project have to receive approvals from many different departments in the city, but it also had to go through a public approvals process before it went to city council for consideration. The approvals process typically took several years, culminating in a decision made by the city’s Corporate Planning Applications Group, the Calgary Planning Commission, and a public hearing of council.1 In addition, the city had several land development planning documents, which laid out the vision for sustainable communities. These documents included the Municipal Development Plan (MDP) and the Calgary Transportation Plan, both of which resulted from a public visioning process that began in 2005, called imagineCALGARY. The MDP included a vision for communities that had a more compact urban form, the concept of “complete communities.” Complete communities were vibrant, green, and safe places, where people of varying ages, incomes, interests, and lifestyles lived and had a variety of housing choices and businesses where daily needs could be met. Complete communities used infrastructure efficiently, provided mobility choices (including public transportation), had healthy, natural environments, and employed energy-efficient designs. In addition, they balanced housing and employment within the community. WHAT HAD BEEN ACCOMPLISHED? There had been progress. For example, TwinHills had just been included in the new Belvedere Area Structure Plan. The project still needed approvals at several levels within the process, and the City Planning Commission had indicated that it would take several more months to make a decision about the next steps. Despite the difficulties that the project faced from city council, TwinHills had proved easy to sell to organizations such as Leadership in Energy and Environmental Design (LEED), which provided a rating system and certification for neighbourhood development (LEED ND). This coalition between LEED, the Congress for the New Urbanism, and the Natural Resources Defense Council provided independent, third- party certification that a development’s location and design met accepted high levels of environmentally responsible, sustainable development.2 Based on plans for the development, TwinHills had received LEED ND certification for Stage 1 (a conditionally approved plan available for projects that had not yet completed the public review process). Nelson explained that she had already invested over eight years in this project from its idea to its design and was not ready to give up on it. She was prepared to break ground for the development stage, but was waiting on approvals. Not only had she invested her time, but she was also using her own money to fund it. Nelson felt that the barrier was her inability to communicate the value of the project beyond its financials to city council. She also felt that the members of city council did not fully understand its benefits for Calgary as a whole.

1 “Developing a Community: Approval Process and Community Design,” Urban Development Institute of Calgary, accessed August 25, 2015, www.udicalgary.com/DevelopingACommunity-ApprovalProcess.asp#.Vdyn8flViko. 2 A. Katz, “LEED for Neighborhood Development Rating System Honored for by Renewable Natural Resources Foundation,” U.S. Green Building Council, 2011, accessed November 17, 2015, www.usgbc.org/articles/leed-neighborhood-development- rating-system-honored-renewable-natural-resources-foundation.

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Page 4 9B16M087 Communicating Benefits “This is why I have brought all of you young and clever minds together to help solve my business problem of communication,” Nelson said. She explained to the group that she had spent some time considering how best to determine and communicate the enduring value of her project to various decision-makers. Nelson emphasized that she needed a method of conveying the benefits of her project not only to city council to gain the necessary approvals to start the building stage, but also to the various stakeholders who would be affected by its enduring returns, such as residents and businesses who would set up shop at TwinHills. She stressed that she needed a strategy that would communicate the underlying foundation for the community— the five bottom line approach. SOCIAL RETURN ON INVESTMENT Nelson explained to the attendees that she had met with her friend Cheryl Doherty, the CEO of the Boys & Girls Clubs of Calgary, the week prior. Doherty had explained to Nelson how she had used the concept of SROI to communicate the benefits of her non-profit organization to donors and various other stakeholders. Nelson saw potential in the idea of SROI to solve her ongoing communication issue. Nelson explained to the attendees that SROI showed the return on an investment from the perspective of the social impact rather than only the financial return on investment.3 Nelson thought that SROI might give her an edge, but many questions still remained. THE SROI TEAM The next day, Nelson pondered over her encounters with the students. She recalled her discussions with Taqir and Anderson, and decided to contact them to find out if they might be able to help her define SROI further—and especially how it might be applied to TwinHills. Nelson approached them, looking for a team to develop an SROI strategy for the TwinHills initiative. After exchanging information about the project for approximately two hours, Nelson left, but not until she had encouraged them to take on the challenge. Taqir and Anderson had a big decision to make. They exchanged some thoughts. They were not experts on SROI; however, they both felt that they had good research skills. Anderson had just taken a course on evaluating sustainability performance, and she was sure that she could adapt some of the information from that course to a strategy for TwinHills. Taqir lived near the community that Nelson was planning to develop. She was excited about the potential it held and how some of the benefits might spill over into her own community. Taqir and Anderson decided that they were up for the challenge. They looked at each other and at the same time exclaimed, “Where do we start?” Although neither Taqir nor Anderson had any special knowledge of SROI, they were both familiar with financial return on investment, or ROI, in general. Their first step was a thorough literature review to determine the current understanding of SROI, which organizations had used the metric and, more specifically, any techniques they had developed for using it. 3 Financial return on investment is calculated by first determining the revenues minus the expenses of a project, thus providing the net income or the return from the project for a year. Those returns are then divided by the initial investment in the project, such as buildings, wetland and park development, and other infrastructure that have several years of life.

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Page 5 9B16M087 THE RESEARCH PROCESS Taqir and Anderson determined that SROI was a method for monetizing social and environmental impact in financial terms, but more than this, it provided a framework for measuring and accounting for the much broader concept of value.4 Often, social and environmental factors were not monetized and were therefore not valued in cost-benefit and other traditional evaluation systems. A typical SROI ratio might look like a 3:1 ratio, where every dollar of investment produced $35 of social and environmental return. However, to come up with this dollar figure, key performance indicators had to be used and tracked over a period of time. They found that measuring the economic benefit was the easiest part. For a start, they had already found projections on the taxes the city would receive and the number of jobs that the community would provide. They were also familiar with the Global Reporting Initiative (GRI) and knew that they could use the organization’s guidelines to help determine additional economic indicators. Furthermore, GRI’s sustainability guidelines were the most widely recognized set of standards for reporting environmental and social impacts, both positive and negative. Surely they could find some of their answers there. As they reviewed the guidelines, they discussed the technology aspect and felt certain they could convey its benefits in some way, but were not yet sure what that method would be. They would have to do a little more research. The spiritual bottom line was the biggest challenge. “How do you measure waking up in the morning and feeling happy to be alive, hearing the robins sing, and seeing the ducks and other animals scurrying around the wetlands?” Anderson asked, perplexed by the complexity of defining what spirituality would mean in the context of a community development. There were also certain social impacts, such as lower crime and support for seniors in non-traditional ways that improved quality of life for them, for which they could not readily find indicators that they could pull from the sustainability guidelines. To develop the SROI strategy, Taqir and Anderson also needed to know what scope they should cover and whether they would focus only on specific aspects of the project or on the project in its entirety. They would then have to determine who the stakeholders were, and how to engage them in a meaningful way. Taqir and Anderson drew up a list of potential key stakeholders and interviewed people, including former and current aldermen, alderwomen, and professors at the University of Calgary. What they found was that people unanimously agreed that it was a great project, but differed on their views about how it was being managed, the political environment, and the credibility of OpenGate as a new developer in the city. When Taqir and Anderson spoke to former alderwoman Audrey Morningway about the project, she argued that TwinHills needed champions. Experienced aldermen, alderwomen, and politicians could help in getting the project off the ground. As an experienced marketing professional and politician, she argued that people needed to be mobilized through social media to put external pressure on city council to have the project approved. Morningway explained that there would be problems in finding a true champion because politicians did not like taking risks for a project that might never get approved. Furthermore, she believed that there were too many internal politics going on with council that hindered great projects coming to life in Calgary: “Even if the mayor brought forward a beautiful vision for the city, it is immaterial if it’s a good idea. What really matters to council is the person who delivers it.” Morningway spoke to the mayor of Chestermere, and the mayor iterated that the main concerns for Chestermere were TwinHills’ water access, road access, and handling of sewage. Morningway said, “What TwinHills needs is a solid communication

4 Tim Goodspeed, Ellis Lawlor, Eva Neitzert, and Jeremy Nicholls, “A Guide to Social Return on Investment,” Cabinet Office—Office of the Third Sector, 2009, accessed August 25, 2015, www.neweconomics.org/ publications/guide-social- return-investment. 5 All currency amounts are in Canadian dollars unless otherwise stated.

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Page 6 9B16M087 strategy, to clearly lay out the plans to satisfy the main concerns of water, sewage, and road access—and then a champion would bring it to life.” Taqir and Anderson investigated further and realized that communication was integral to the success of an SROI strategy for TwinHills. The core of SROI was the theory of change, by which the value that was produced was measured. The theory of change was essentially a statement that could summarize the value created and change what occurred in a community as a result of an action. At the next meeting with Nelson, Taqir shared an example of the SROI theory of change for a partner organization with TwinHills—the Boys & Girls Club of Calgary. The theory of change against which the Boys & Girls Club measured success was, “If at-risk youth that feel isolated due to their cultural experience have social, educational, recreational, and employment opportunities, then they will have the tools to make positive life choices and transition into adulthood successfully.”6 The SROI study helped to determine the social value created for specific demographics, and used financial proxies to put monetary values on the results of the Boys & Girls Club program. For example, the avoidance of police time was estimated to affect a certain percentage of the clients, and this was then valued per the cost of each avoided police call-out. To calculate the ratio, the total social value created (as calculated using the financial proxies) was subtracted from the police call-outs average for the city (status quo), and then the variance was divided by the total cost of (or investment into) the program. ADAPTING SROI TO TWINHILLS CENTRO Taqir and Anderson met to determine how SROI might be adapted to TwinHills. They worked from the “five bottom line” philosophy, reasoning that the metrics used to calculate SROI should evolve from the underlying vision and mission of TwinHills. They brainstormed that the community would decrease the levels of stress felt by its inhabitants, thus reducing the cost of health crisis interventions. They then decided that stress reduction could be measured by comparing the average number of crisis interventions in other communities. They then needed a financial cost for each crisis intervention. They wondered where they could find that figure. After some investigating, they discovered that SiMPACT and the City of Calgary had developed a financial proxies database.7 The next hurdle was getting some numbers from TwinHills to use in the metrics that they were creating for the SROI framework. However, TwinHills was not an operating development yet; it was still in the planning stage. They both went back to their computers to see whether they could find an answer to this challenge. “Look at this,” said Taqir. “There are two kinds of SROI analyses you can do. One is a forecast, so that might be useful for TwinHills, as it is still in the planning stage. The other is an evaluation, and is done after a project is up and running.” This was both to determine possible improvements in the project’s performance and to inform future operations for this project as well as other projects. “I wonder if TwinHills should consider both kinds?” Anderson contemplated. “The first could be done in the planning stages, to help with the development approvals. The second one could be done later, to check how accurate the forecasted evaluation was.” Taqir agreed, “That way, the process becomes valuable not just for TwinHills, but possibly for other land developers in Calgary and in other areas. They could mimic the process. This would mean our research would have a wider value than just for this one project.” “So,

6 “Social Return on Investment (SROI) Case Study: Beltline Youth Centre,” Boys & Girls Clubs of Calgary, 2010, accessed August 25, 2015, www.calgary.ca/CSPS/CNS/Documents/fcss/sroi_boys_girls_beltline.pdf. 7 “SROI Canada Financial Proxies Database,” City of Calgary, fcss and SiMPACT Strategy Group, 2010, accessed November 17, 2015, https://www.calgary.ca/CSPS/CNS/Documents/fcss/sroi_canada_financial_proxy_list.pdf?noredirect=1.

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Page 7 9B16M087 let’s see if we can determine specific indicators (metrics) to use in the forecasted SROI,” said Anderson (see Exhibit 6). Although Taqir and Anderson were hopeful that they could obtain financial statements for the project, Nelson admitted she was reluctant to share them. OpenGate, the holding company for TwinHills, was privately held by Nelson and her husband. They had partners in the project, and she did not think it was appropriate to share financials based on either of those facts. “This might be a bit of a dead end. What do you think?” asked Anderson. “It’s impossible to do an SROI analysis without financials,” replied Taqir. “What are our options now?” After brainstorming, Taqir and Anderson decided that they knew enough about TwinHills and its benefits to provide a framework of indicators for Nelson to use in a potential SROI calculation. They would have to determine the appropriate indicators that were applicable and specific to the project and also worth measuring. Nelson could then fill in the numbers herself, but she would need to consider how credible a forecasted SROI study (done internally) would be if only the results, and not the numbers behind the results, were shared with city council. This would also lead to a related decision: should TwinHills also complete an evaluative SROI once the project was at a more advanced stage, and if so, what would be the purpose of doing so? These unanswered questions gave Taqir and Anderson concern about the feasibility of conducting an SROI at TwinHills, but Nelson was enthusiastic about the subject and wanted to move forward despite their concern. Nelson informed Taqir and Anderson that she had two opportunities coming up in the next few weeks in which she was excited to introduce SROI and the progress that had already been made. She requested that Taqir and Anderson draft presentations for the following two meetings that explained the potential SROI of TwinHills and how they could move forward with the strategy. One was a meeting with Gord Case and the partners of OpenGate to review the progress on TwinHills and map out the next steps. The other was an upcoming presentation to the Calgary Planning Commission.

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Page 8 9B16M087

EXHIBIT 1: TWINHILLS’ ADVISORY BOARD

Source: TwinHills, accessed August 25, 2015, http://twinhillscalgary.ca/opengate-advisory-group-new-benchmarks.

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Page 9 9B16M087

EXHIBIT 2: TWINHILLS’ COLLABORATIVE PROCESS

Source: TwinHills CENTRO Planning Presentation, June 2012.

EXHIBIT 3: TWINHILLS’ BACKGROUND

TOWN CENTRO: A vibrant mixed-use urban village that has the Alberta Advanced Education facility as its focal point, and is supported by small to medium-sized start-ups and community retail. CYBER CENTRO: A new hub for large cloud computing and data storage companies that includes the Prairie Preserve, a community-based not-for-profit organization committed to public education on water, energy, and urban agriculture. The Prairie Preserve will include an Interpretive Centre, which will be designed from recycled farm buildings and integrated with the green open spaces of the community.  Approximately 1,150 mixed-income/demographic residential units of varying types and sizes, with a

total of approximately 2,600 residential units in the planned area.  Approximately 550,000 square feet of office development within TwinHills CENTRO, with the potential

for a total of approximately 1,000,000 square feet in the planned area.  Approximately 275,000 square feet of retail development.  Up to 800,000 square feet of …