ImpactAlpha, July 1 – By the end of the decade, financial accounting may seem quaint. In its place: a measure of value that takes natural and human capital into account alongside financial capital.
The race is on to define the standards of corporate value – and the accounting rules of the new stakeholder economy. A group of banks and academics including UBS, ABN AMRO and Harvard University is looking to get a jump on such developments by creating a common impact measurement and valuation system for the sector. Building on initiatives including Harvard’s impact-weighted accounts project, the Banking for Impact framework would help banks quantify their impacts, positive and negative, and translate them into the lingua franca of finance.
Other initial members of the group are Singapore’s DBS Bank, Denmark’s, Danske Bank, and the Impact Institute, which is working on new standards in integrated reporting.
“Financial institutions are in a unique position to establish themselves as the drivers of the transition to an impact economy,” the group writes in a new “vision paper.”
Externalities
The nuts and bolts of devising impact accounting systems are complex. How do you quantify employee well-being or healthy communities, for example? Banks have the additional complexity of assessing the impact of their financing activities. One challenge is attribution: How much of a coal company’s greenhouse gas emissions is the responsibility of the bank that loaned it money?
Banking for Impact’s framework will seek to quantify, value, attribute and aggregate financial institutions’ material impacts. “We are not just talking about reporting here,” said Kristina Øgaard of Danske. “We aim for this to be a proactive decision making tool so that banks can better manage their impact.”
Open call
Banking for Impact researched existing sustainability reporting initiatives and concluded they weren’t designed to assess the full range of value-creation across the banking value chain. It plans to consult with groups such as the Principles for Responsible Banking and others and issued a call for collaboration “to make the vision of an impact economy, promoted by financial institutions, a reality.”
