The Social Discount Rate (SDR) is the rate used to compare the value of social impact achieved in the future to impact achieved today, reflecting the trade-off between achieving impact now versus in the future.
Just as a financial discount rate reflects compensation needed to choose “money later” over “money now,” the SDR estimates how much one values creating social impact today versus the same impact in the future. This matters because impact-first investments let the investor redeploy returned capital for future impact. SDRs enable making such impact trade-offs through time. The IFI Tool defaults the SDR to 3% to match long-term US inflation. Assuming program costs follow general inflationary trends, this essentially means being agnostic about impact timing—the investor is simply adjusting for the fact that the same impact will cost more in the future due to inflation. If one wishes to adjust the SDR, they should assess three key drivers. These parallel the key drivers of financial discount rates: inflation, time preference, and risk:
- Changing program costs over time:
- Will the same interventions cost more or less in the future?
- Costs rising → Higher SDR (future dollars buy less impact)
- Costs falling → Lower SDR (future dollars buy more impact)
- Time preference for impact now vs. impact later:
- Do you value impact less simply because it happens later?
- No time preference → Don’t add to SDR for this factor
- Prefer impact sooner → Add increment to SDR
- Future impact opportunities & impact risk:
- Will there be better or worse opportunities for impact later?
- Better future opportunities → Lower SDR
- Fewer/riskier future opportunities → Higher SDR
- Consider factors like beneficiary prosperity growth, cascading effects of interventions, critical timing windows, and uncertainty about future conditions (impact risk)