We envision a just and sustainable global economy based on the full contribution of business to people and the planet. That’s why we’re creating the foundation for and championing the adoption of a new type of accounting, called impact accounting.
Impact accounting allows corporates and investors to translate their social and environmental impacts into the language of currency, making information about impact accessible, actionable, and comparable to financial performance. By monetizing environmental and social impact, we can readily analyze and act upon information using the same management systems that are already well understood by firms, investors, and regulators.
This provides a holistic outlook on performance and an enhanced view of long- and short-term risks and opportunities. We believe integration of impact accounting in financial analysis, capital allocation, and decision-making will advance solutions to the great social and environmental challenges we face today.
“Nearly two thirds of investors globally want information that describes a company’s impact on the environment and society”Source: PWC: Today’s externalities, tomorrow’s internalities: Why impact matters for company valuations
Financial accounting has evolved over hundreds of years to measure the financial performance of businesses, which has historically been the primary measure of success for those businesses. But as social and environmental challenges have compounded over time, there is growing recognition that a new paradigm is necessary to improve outcomes for both society and business. One that recognizes the full contribution of business —not just financial performance but social and environmental performance as well.
According to a PwC survey, “nearly two thirds of investors globally want information that describes a company’s impact on the environment and society,” and “of those investors who want impact information, 66% want to see companies disclose the monetary value of that impact.”
Over the years there has been the development, and proliferation, of companies reporting on sustainability topics, often known as Environmental, Social, and Governance topics, or ESG. While these developments are aimed at meeting expectations from investors, companies, and their stakeholders, they are also limited. Current metrics are difficult to understand and compare, as they are often presented in highly technical and idiosyncratic units of measurement (such as tons of carbon or employee injury rates). That same PwC survey found that “87% of investors think that corporate reporting contains at least some greenwashing.” They also frequently measure inputs and activities of a business, rather than actual impacts and outcomes, which further limits their potential to drive meaningful change.
“Of those investors who want impact information, 66% want to see companies disclose the monetary value of that impact”Source: PWC: Today’s externalities, tomorrow’s internalities: Why impact matters for company valuations
Impact accounting offers a solution by bringing the principles, comparability, and practicality of financial accounting to impact. Building off of established metrics and data inputs, impact accounting measures and values the impacts of businesses in monetary terms based on best available scientific research and social science, in order to make that information comparable and decision-useful. Rather than comparing disparate units of measurement, impact is expressed in dollar terms that are easily incorporated into financial management infrastructure and processes. In the same way that financial accounting produces a profit and loss statement, impact accounting can produce an impact profit and loss statement that reflects a company’s positive and negative impacts across stakeholders and sustainability topics.
The long-term vision
A world where impact accounting is made as commonplace as financial accounting – where it is expected (and required) for organizations to produce impact accounts – will have the tools to effectively balance risk, return, and impact. This vision requires not only research and methodology development, but also uptake, training and capacity building among a broad range of stakeholders to make impact accounting commonplace. When information about impact is collected and presented in monetary terms, on a level playing field as financial information, we believe the result will be a more just and sustainable economy.