Impact Accounting: How come a “bad” $1m result equals a “good” $1m result?
October 25th 2020
A Company harming the environment and enabling social inequalities with a $1m Net Income equals one protecting the environment and promoting social equality and doing the same $1m? Is a (“bad”) Net Income of $1m equal to a (“good”) Net Income of $1m? From a financial point of view the answer is yes! But we all know that it does not feel right anymore. How can we then define an accountable measure that also includes natural and human capital? To date, there has been no way for companies to account for their benefits and costs to society and the environment. This is what Impact Accounting is all about. A knowledge field that needs to be energised and researched to be able to come up with the measures that will make all stakeholders (including shareholders!) comfortable with. We need to find the right answers to questions like: How should we measure “sustainable performance”? How to measure Stakeholder Value Creation? Which key ESG (Environmental, Social and Governance) metrics to be developed? The Impact-Weighted Account Project, developed by Harvard University to address this fundamental issue puts it this way: “We need to create a more inclusive and sustainable form of capitalism that works for every person and the planet. Massive environmental damage, growing income and wealth disparity, stress within developed economies amid a substantial economic boom are examples of how our current system of creating and distributing value is broken. We need to be able to factor into our decision-making the consequences of our actions not only for financial and physical capital but also for human, social and natural capital”. As far as I am concerned this is probably one of the biggest barriers to a definitive implementation of “Responsible Business” all over the corporate world. Have a great and Impactful week! Nuno Moreira da Cruz Executive Director Center for Responsible Business & Leadership