Impact Accounting Amplified by New Partnership
Interoperability is key to ensuring investors and corporates are aligned, says IFVI chief, ahead of finalising GHG-based methodology.
A new partnership between the International Foundation for Valuing Impact (IFVI) and Global Reporting Initiative (GRI) aims to encourage widespread adoption of impact management and accounting by corporates and investors through greater standards interoperability.
“The Memorandum of Understanding (MoU) is a recognition that the IFVI and GRI’s missions are very aligned,” Robert Zochowski, IFVI’s President and CEO, told ESG Investor.
“We want to mutually focus on amplifying each other’s work through our different networks. This includes sharing public consultations, case studies, pilots and other practitioner resources.”
He said the GRI will also be a “critical aid” in determining future priorities for the IFVI, which has been working since its establishment in 2022 on impact accounting methodologies across environmental and social themes.
Zochowski also confirmed that a final version of IFVI’s greenhouse gas (GHG) focused impact accounting methodology – which translates the impact of carbon emissions into dollar value – will be released next week.
Market uptake
The GRI’s impact reporting standards have been honed over 25 years, allowing for entities to report to stakeholders about their impacts on the economy, the environment and society.
The two organisations have committed to increasing market uptake of each other’s methodologies, approaches and standards, undergoing joint stakeholder engagements and aligning fundraising activities.
In addition, much of their combined focus will centre on capacity-building initiatives, such as the GRI’s Sustainability Innovation Lab (SIL).
“We can learn a lot from the GRI about the best practices of engaging with practitioners and delivering high-quality training – which the GRI does through its GRI Academy and SIL,” said Zochowski. “We would also love to help them expand their academy in order to add impact accounting to the programme.”
The two organisations also intend to explore opportunities to incorporate their standards, methods and research into the offerings of data platforms and providers to help investors identify impact-related opportunities and risks, he added.
“Defining the value of impacts and setting out tangible actions to improve corporate sustainability performance are growing expectations from investors,” Cristina Gil White, the newly appointed interim CEO of the GRI, told ESG Investor. “Combining impact reporting through the GRI Standards with the IFVI’s approach to impact accounting opens opportunities for sustainability data to be even more decision-useful and comparable.”
As a next step, GRI will be exploring further the intersection between sustainability reporting and impact accounting, White said.
Impact materiality
Last year, the IFVI published a general methodology statement which introduced the theoretical foundations of impact accounting. It also published specific draft methodologies for GHG emissions and fair wages.
The IFVI’s impact accounting methodology for GHG emissions translates the impact of carbon emissions into a currency that reflects societal costs – for example, the negative effects on human health. The body has proposed a US$236 per tonne as a science-based and standardised social cost of carbon.
Another methodology for fair wages aims to monetise the ‘wellbeing benefit’ gained by workers from their wages and considers what happens when a salary falls below the local living wage.
“Putting a number on something is very powerful and effective. It helps a board member or c-suite leader look at an issue – such as workers earning below the living wage – and be able to attribute a monetary value to the associated social and business impact of raising their salary,” Zochowski explained.
In addition to the final version of the GHG-focused methodology, public exposure drafts for another general methodology, occupational health and safety methodology and water consumption methodology will be published during New York Climate Week.
“Many companies are also asking us about downstream product impacts, which are highly industry specific and idiosyncratic – there are big differences between product and service types to consider,” said Zochowski.
“We’re working on a framework of best practice for downstream impacts which will allow industry working groups to build and accelerate their own exploration of impacting accounting.”
Momentum toward a common framework for valuation and comparison of impact by companies and investors has been building steadily in recent years.
In 2021, the Group of Seven (G7) Impact Taskforce called for mandatory accounting for impact – essentially proposing an accounting system that translates an entity’s environmental and social impacts into a monetary value, allowing for these to be integrated into financial accounts.
Recognition of the need for impact accounting has risen, with two-thirds of global investors surveyed by PwC wanting sustainability reporting to focus on impacts, and a similar proportion preferring such information to be expressed in the form of a monetary value.
The IFVI’s work aims to turn this into a reality, while also ensuring it is complementary to the work of the GRI and International Sustainability Standards Board (ISSB), as well as other standard-setters and regulatory bodies.
Working together
The IFVI’s partnership with the GRI now needs to be replicated across the impact standard-setting market to ensure increased interoperability, Zochowski insisted.
He cited the IFVI’s additional partnerships with GSG Impact – which has heightened interest in impact accounting across Japan, South Korea, Turkey and Latin America – and the Value Balancing Alliance (VBA), the latter of which also worked on the GHG and living wage accounting methodologies.
Alongside the VBA, the IFVI conducted test pilots on monetising impacts with companies and financial institutions, including BlackRock, Calvert Research and Management, Novartis and Summa Equity.
In March 2022, the GRI and International Financial Reporting Standards (IFRS) Board announced an MoU whereby their respective sustainability standard-setting boards – the ISSB and the Global Sustainability Standards Board (GSSB) – would seek to coordinate their work programmes and standard-setting activities. The GRI then partnered with the IFRS Foundation on the SIL, which aims to support entities in their compliance with evolving sustainability disclosure requirements and ensure increased interoperability between the GRI and ISSB.
“Adding monetisation on top of the global [sustainability reporting] baseline that is being established by the ISSB and GRI will ensure that decision-making will be better able to incorporate sustainability considerations across environmental, economic and social impacts at the corporate and investor level,” noted Zochowski.
Last year, Impact Frontiers and the Predistribution Initiative also launched an initiative to improve how investors manage and disclose their contribution to impact.
Work on impact has also been driven by organisations like the Impact Management Project, which evolved into the Impact Management Platform in 2021.
“The Impact Management Platform really started getting different standard setters and organisations in the space to talk to one another and realise that we have more in common than we have differences and that we should work together,” said Zochowski.
Going forward, Zochowski said he would also like to see more consolidation between sustainability-focused standard setters and bodies, pointing to the formation of the Value Reporting Foundation (VRF) and subsequent integration into the ISSB, as well as the effective sunsetting of the Task Force on Climate-related Financial Disclosures (TCFD) under the ISSB.
“The more that these organisations become interoperable, the less confusion there will be among investors and corporates,” he said.
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