Balance Sheet of the future

Attending the WBCSD Liaison Delegate Meeting last week, has afforded me with a new insightful perspective to view the business world from a completely different angle, to gaze it with a “sustainable eye”. As an Accounting & Finance student, what intrigued me the most was the upcoming launch of an unprecedented project in academic literature named Balance Sheet of the future.

So far, the existing content of Balance Sheet is not tailored to a sustainability context, even social and environmental impacts were not incorporated into business decision-making. This project drops these standards; it emerges the advent of the triple bottom line as a benchmark for companies to compete on overall performance.

Meditating about natural and social impacts of business, a single query comes in my mind: Can we accurately measure these factors and give them a precise monetary value? Having attended a few of the sessions at the meeting, I realised that we cannot use the same unit metric for estimating these factors as with financial capital. The answer is derived through the application of a variety of quantitative methods and the testing of different corresponding scenarios.

Further to that, I also found out: the starting point to measure the non-financial impacts of business lies in the Natural, Social and Human Capital Protocols. By adopting the protocols and applying their fellow toolkits, companies can ameliorate the measurement and evaluation of their risks and opportunities, thus their true costs, true profits and true value can be ultimately assessed (1).

With regard to the Natural Capital Protocol, it composes the first-even standardised framework for enterprises to measure their impacts and dependencies on nature (2), while the Social and Human Capital Protocol is defined as a harmonized approach for business, as well as with the former, to have their interactions with people and society measured and valued (3). They are both brand new resources as the former’s toolkit was released in July 2017 (1) and the latter has just opened for public consultation this April (4). Aiming at producing comparable information on natural and social capital, these frameworks contribute to the creation of greater value and efficiency for firms as well as to the improvement of decision-making and external disclosure (5, 6).

Some companies have already made a forward step heading to a sustainable direction. An advanced example regards Philips which – in collaboration with WBCSD and the Natural Capital Coalition – reported an Environmental Profit & Loss the previous year, including a monetisation of the environmental impact (7).  Yet, PwC developed the Total Impact Measurement and Management (TIMM) framework in 2010, implying that business can value and compare their total impacts of decisions and manage their trade-offs by evaluating their social, environmental, tax and economic impacts (8).

Today’s world companies need to understand the value they create or destroy beyond their financial returns; Business performance or success is not determined by financial metrics alone. Natural, social and human metrics must be integrated into measurement and valuation. As such, the Balance Sheet of the future shows the way…

Maria Zani, April 2018

References:

(1) World business council for sustainable development. (2018). Launching the Natural Capital Protocol Toolkit, helping business understand its relationship with nature. [online] Available at: https://www.wbcsd.org/Clusters/Natural-Capital-and-Ecosystems/Natural-Capital-Protocol-Toolkit/News/Launching-the-Natural-Capital-Protocol-Toolkit-helping-business-understand-its-relationship-with-nature

(2) World business council for sustainable development. (2018). Natural Capital Protocol – World business council for sustainable development. [online] Available at: https://www.wbcsd.org/Clusters/Natural-Capital-and-Ecosystems/Natural-Capital-Protocol

(3) World business council for sustainable development. (2018). Social and Human Capital Protocol – World business council for sustainable development. [online] Available at: https://www.wbcsd.org/Clusters/Social-Impact/Social-and-Human-Capital-Protocol

(4) World business council for sustainable development. (2018). Launching the Social and Human Capital Coalition: Helping companies recognize the value of people and communities living well. [online] Available at: https://www.wbcsd.org/Clusters/Social-Impact/Social-and-Human-Capital-Protocol/News/Helping-companies-recognize-the-value-of-people-and-communities-living-well

(5) World business council for sustainable development. (2018). The Social and Human Capital Protocol is now open for public consultation. [online] Available at: https://www.wbcsd.org/Clusters/Social-Impact/Social-and-Human-Capital-Protocol/News/The-Social-and-Human-Capital-Protocol-is-now-open-for-public-consultation

(6) Naturalcapitalcoalition.org. (2018). Natural Capital Coalition | Protocol. [online] Available at: https://naturalcapitalcoalition.org/protocol/

(7) coChain Technologies. (2018). Philips reports its Environmental Profit & Loss enabled by EcoChain. [online] Available at: https://ecochain.com/en/news/57/21/Philips-reports-its-Environmental-Profit-Loss-enabled-by-EcoChain-technology

(8) PwC. (2018). Assessing your Total Impact. [online] Available at: https://www.pwc.co.uk/services/sustainability-climate-change/total-impact.html

 

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