How impact accounting can give new insight into reducing environmental impacts
In October, IFVI released the Interim Methodologies and Global Value Factors Database, a suite of new impact accounting resources that enable companies and investors to measure and value, in monetary terms, their most significant environmental impacts. Adding to IFVI’s existing environmental resources, including the GHG Emissions and Water Consumption methodologies, these resources span the topics of air pollution, land use, waste, and water pollution. Collectively they cover the most significant environmental impacts of companies and can be applied to virtually any entity around the world.
The comprehensive scope and granularity of these methodologies might seem overwhelming at first glance. They include nearly 100,000 value factors – a core component of the methodologies that translate company environmental data into the impact created and the value of that impact in currency form. These value factors are presented together in the Global Value Factors Database, including individual value factors for different pollutants, geographies, and impacts covered (as outlined below). The nature of impact accounting, fortunately, is such that any individual user does not apply all of those value factors, just the ones relevant for their business; the volume of value factors is a testament to the broad applicability of the methodologies rather than any complexity in applying them.
Environmental methodologies summary
Where local context matters, value factors are available across more than 200 countries. Select methodologies also have value factors at the state level within the United States.
| Topic | Impacts | Details |
| GHG Emissions (Final Version) | Understanding the impacts of GHG emissions on topics including reduced human health, increased energy demand, elevated water requirements, and decreased ecosystem services. | Establishes a social cost of carbon of USD 236 (2023), based on the two leading models produced by the Climate Impact Lab and Resources for the Future, DSCIM and GIVE, respectively. |
| Water Consumption (Exposure Draft) | Understanding the impacts of water consumption on altered ecosystem services, financial costs to access to water, and human health. | Presents two options for using the methodology based on data availability, with the preferred option valuing water impacts to a specific location (e.g. city, state, or watershed, and the minimum option by country. |
| Air Pollution (Interim) | Understanding impacts of air pollution on human health, agricultural productivity, and visibility. | Covers 6 primary air pollutants: PM10, PM2.5 , SO2, NOx, NH3, ,VOCs; impacts calculated based on source location type (e.g. urban, rural, etc.). |
| Land Use and Conversion (Interim) | Understanding the impact of land use and conversion on the loss of ecosystem services. | Separately values actions related to land use and land conversion, based on different land use types (e.g. forestry, paved land, etc.). |
| Waste (Interim) | Understanding the impact of waste produced via leachate, disamenity, climate change, and air pollution. | Differentiates by waste disposal type (e.g. landfill or incineration). |
| Water Pollution (Interim) | Understanding the impact of water pollution on human health and eutrophication. | Covers 104 distinct water pollutants (ranging from excess nutrients, metals to pharmaceuticals); customized based on type of water affected (e.g. freshwater or seawater). |
To learn more, access the methodologies directly, which provide an overview of the impact pathways, the data necessary to apply the methodology, formulas to apply the value factors, and additional background and details to enable a complete understand of the methodologies and their application.
The full power of impact accounting lies in the insights that come from implementation with real company data. It enhances traditional sustainability disclosures by converting them into a form that is comparable across companies, impact topics, and to financial performance. Taking the best available research and scientific techniques to identify the impacts of a company’s activities and quantifying the significance of that impact in currency, impact accounting turns complex inputs into an easily understandable unit of measurement that can generate meaningful insights and improve decision making.
Users leverage the methodologies to identify and match the value factors that are relevant to their operations and the data they have collected (or need to collect). By applying the relevant value factors to the relevant data points, one can understand the scope of environmental impact created, and be able to compare and contextualize it in a much more meaningful way. To take the simplest example, you combine the GHG emissions of a company with the GHG value factor representing the social cost of carbon (how much damage a ton of carbon produces), and you then have the total GHG impact of that company in monetary terms.
The methodologies and value factors themselves provide insights that articulate how impact is created and valued, and what is most likely to drive more or less sustainable outcomes. Examples of the types of questions that the methodologies answer are:
- How does the impact of waste produced vary based on whether that waste is going to a landfill, or incineration, and how can a company know where their waste streams are likely to go?
- What is the difference in impact between converting previously natural land to another purpose, versus leveraging land that has already been converted?
- Why do weather patterns have such a significant influence on the impact of air pollution, and what does that mean for companies trying to minimize those impacts?
- Where do water pollutants have the most significant impact depending on the type of water that is most likely affected, and how much does this vary by the type of water pollutant?
Over the next few months, we’ll be presenting insights from each respective interim methodology — sometimes reinforcing common knowledge about impacts, sometimes sharing counter-intuitive, but accurate, implications — to highlight the benefits and opportunities of impact accounting itself. Across the methodologies, a common theme plays out. To truly understand impact, context matters. That includes not only the location of an impact, but also the specific nature of the activity of the company that causes that impact. This is a core value proposition of the methodologies, and explains the volume of the value factors highlighted above and presented in the Global Value Factor Database. It also provides a compelling justification for the increased granularity of sustainability disclosures, now and in the future.
The insights that will be shared from the methodologies on their own can be used to improve decision making, whether for projects, companies, investors, and even policymakers, but they will only represent a sampling of the potential insights available when the methodologies are applied to actual corporate or investor data. Along with the insights that we will present, we encourage others to use the methodologies and share their insights as well.