Increasing number of firms offering 'impact accounting'
By monetising environmental and social data, accountants are bringing ESG into the accounting function.
The push to quantify company reporting on their environmental and social impacts has been growing for several decades.
Two or three years ago, vice president of marketing at Karbon Lachlan Macindoe had never heard of impact accounting. Now, in response to surging consumer demands around ESG compliance, it is “increasingly becoming an area of expertise that more and more firms are adding to their repertoire,” he said.
In a recent white paper on the topic, Thomson Reuters defined it as an “evolution of capital accounting that sets out new standardised accounting and valuation principles to account for, track, and disclose an organisation’s impact on all its capital sources, including natural, social, and human capital.”
Environmental and social inputs are generally not considered in monetary terms, said the white paper. The challenge of impact accounting is finding ways to ascribe a “monetary value on these outputs, making it easier to compare there and, therefore, look at a company’s total impact.”
In that sense, impact accounting strives to create a common, monetary language through which decision-making can factor in the potential profit or loss corollaries of any business activity.
Rob Zochowski, chief executive at the International Foundation for Valuing Impacts wrote that the thesis of impact accounting is that “if you are able to take those impacts…and monetise them, that is something that can be introduced to boards of directors, investors, and C-suite decision-makers in a way that is far more comparable (and decision-useful).”
“Impact accounting helps to monetise a company’s broader impacts…You can’t grasp real impact from a financial report,” he said.
Most of the action has, to date, focused on quantifying carbon emissions, said Mr Macindoe, as organisations have been seeking assistance from their accountants to find ways to get to net zero. He added he had been surprised by the “sheer number” of firms who have been demonstrating an interest in accounting for their environmental impact.
ESG, generally, began as a way to establish a competitive edge, he said. Now, it is becoming a way to keep up with growing consumer appetites for strong social and environmental performance.
“We see evidence that [younger workers] want to be working for employers that are making a positive impact on the world, and that employers are environmentally-focused and community-minded,” he said.
Karla Hourigan, co-founder of MADwealth agreed that the brunt of impact accounting has mostly focused on “nature capital” though the case for better accounting for social impact is strong.
“It makes sense to be acting in a socially responsible way, because that’s what the market is driving,” she said, adding that environmental and social compliance are “interdependent.”
“If you’re pulling on one of those levers and improving one of those capitals, you’re going to most likely be improving your investor attraction as well,” she said.
