Especially as young professionals embarking on our careers, we are aiming to find solutions for these issues, and we expect firms to do the same. We seek changes in the corporate world as it is and expect companies to become more responsible in every sense. The way that business is being conducted right now is, unfortunately, often not focused enough on solving many of those issues, also due to a lack of applicable and effective solutions.
Sir Ronald Cohen, philanthropist, venture capitalist, and social innovator, sees the solution to many of today's issues in the concept of impact and the impact revolution. Reimagining capitalism and creating a more sustainable and inclusive form of it, is one of the main goals. Together with the Harvard Business School, he initiated the so-called impact-weighted accounts project, which aims to create financial accounts that reflect not only a firm's financial but also environmental and social performance. Impact accounting comes with tremendous benefits, that could change the way we assess firms, their impact and the way they conduct their business. To prepare those impact-weighted financial accounts it is necessary to define, measure, and monetize a firm's impact. Giving impact a monetary value not only makes it easier to compare but also more understandable for managers, stakeholders, and investors and helps to justify impact-related long-term decisions. Moreover, including the monetized impact in the financial accounts of firms makes it possible to have all the information, that we need to start looking at when assessing firms, in one place. This increases transparency regarding a company's impact and will potentially incentivize firms to reduce their negative and increase their positive impact, which is exactly what we as aware young professionals expect them to do.
Nevertheless, several challenges to impact accounting persist. First and maybe most importantly, it comes with the general challenge of impact measurement, which can only be estimated based on judgments and models for now. This could lead to uncertainties in the measurement, which would make impact-weighted financial accounts less accurate and consequently less effective. Furthermore, there is still a lack of implementation standards and therefore many questions are still unanswered - In which part of the financial statement will the monetized impact be incorporated? Which impact indicators will be measured? What are the rules and regulations for the measurement? How can a sufficient auditing system be implemented?
Despite all these still unclarified answers, we believe that Impact Accounting is part of solving today's issues. Of course, impact-weighted financial accounts are not a standalone solution, and only preparing those accounts will not change the world. However, by focusing on a firm's overall impact, not just its financial performance, impact accounting nudges the corporate world towards a more responsible, inclusive, and sustainable future. If all firms start to measure and report their impact and subsequently act on it, their focus will eventually shift from just doing well for themselves and their shareholders, to doing good for all the relevant stakeholders and society's being. This is what we see as two of the core elements of a responsible business, which we believe is a necessary step for every firm in the long run if we want to change the current state of the corporate business world. Firms have the resources and power to lead the change that we all desperately need. We are optimistic that Impact accounting provides a key tool to holding them accountable and ensuring more comparable transparency on a firm's impact that will lead to firms acting more responsibly in every sense. And this is the hope of our generation.
Have a great and impactful week!
Franziska Rieger & Jeremias de Biasi
Students at CATÓLICA-LISBON
This article refers to edition #226 of the "Have a Great and Impactful Week" newsletter, an initiative of the Center for Responsible Business & Leadership.
