The Price of Business Digital Network has a new series of outstanding commentaries from thought leaders. This is one in that series.
Why do we continue to struggle to incentivize sustainable and inclusive behavior in our global economy despite the over $80 trillion of assets under management with commitments to implement environmental, social, and governance (ESG) metrics into investment processes, propagation of ESG corporate reporting, and hundreds of pledges to behave more sustainably by companies? We believe it is because the current paradigm is too difficult to implement. What is needed are impacts that are reported in terms of money so that they can be understood, compared, and integrated more comprehensively into decision-making processes by investors, consumers, boards, and governments. This talk will dive deeper into this topic.
Rob Zochowski is the Program Director and Senior Researcher for Multi-Faculty Sustainability and Impact Investing Special Projects, including The Impact-Weighted Accounts Project, the Social Impact Collaboratory, and the Project on Impact Investments at Harvard Business School. Previously, Rob was a Vice President at Goldman Sachs where he had roles in Investment Product Innovation, Strategy & Development, Alternative Investment Strategies, and Private Wealth Management. Rob has consulted with the National MS Society and the World Wildlife Fund and was a 2019 Three Cairns Climate Fellow focused on mitigating the environmental effects of charcoal use in Mozambique. Rob received his MBA from Columbia Business School in the Executive Program where he concentrated on Social Enterprise and Impact Investing, graduating Deans Honors with Distinction (top 10%). He was featured in Poets and Quants annual 100 Best & Brightest Executive MBAs list. Rob is the 2019 recipient of the Carson Family Changemaker Award which recognizes commitment to the field of social enterprise. Rob earned his Bachelor’s Degree in Economics from Georgetown University where he graduated Magna Cum Laude.
About the organization: The goal of the International Foundation for Valuing Impacts (IFVI) is to drive the global integration of impacts in financial analysis to promote effective resource allocation and achieve long-term financial stability. To do so, IFVI will develop methodologies and valuation estimates, conduct research needed to support impact valuation, increase awareness about the feasibility and importance of full impact disclosure, and build market uptake of impact valuation among corporates, investors, and policy-makers. The IFVI will build on the IWA’s impact frameworks, methodologies, and datasets published to date. Since its inception in 2019, IWA has demonstrated that impact-weighted accounts are feasible, valuable, and scalable. It has published 22 papers, conducted over 2 dozen pilots, and released four open source data sets comprising thousands of companies. It has also drafted key principles underlying the display of impact-weighted accounts in conjunction with the Impact Economy Foundation, building on the internationally accepted frameworks, the Natural Capital Protocol (2016) and the Social and Human Capital Protocol (2018). The IFVI has been launched as an independent organization to implement the recommendation of the G7 Impact Taskforce.
The global business environment has fundamentally changed. Rather than a singular focus on financial performance, businesses are increasingly held accountable for their impact on employees, customers, the environment, and society at large. This is a notable departure from the historic focus on financial returns in determining the performance of an organization. In many cases, organizations have been deemed historically successful. In response, companies have started to integrate sustainability targets into their governance systems to ensure competitiveness and business resilience. Investors are also integrating these considerations into investment decision making and the development of products to provide capital to the market, and regulators are considering organizational externalities as they make policy decisions.
However, if the ambition is a truly sustainable economy, building on sustainable production, product solutions and financial stability, we need to move beyond the current performance measurement and accounting systems. It is not sufficient to measure air pollutants – we need to understand their effect human health in specific contexts, their relevance compared to other environmental, social, and economic indicators – in short: their weighted impact on society and on the company. Further, we must do it in terms understandable to boards, managers, and civil society. We believe this requires concerting the changes in outcomes for people, the planet and society at large, into money terms (called monetization) based on scientifically derived methodologies, so that the tradeoffs being made and the value created or destroyed for and by whom can be widely (democratically) understood. Impact-Weighted Accounts (IWA) are the precondition for a meaningful accounting system enabling companies to steer the impacts of their business models and provide relevant information to investors and stakeholders in terms that they can understand and compare (money) in order to make sound decisions relating to their engagement with the company. Over the past three years, the IWA at Harvard Business School has proved that impact-weighted accounts are feasible, valuable, and scalable. It has published 22 papers, over 2 dozen pilots and four open source data sets comprising thousands of companies. It has also drafted key principles underlying the display of impact-weighted accounts in conjunction with the Impact Economy Foundation which build upon the foundation of the Natural and Social and Human Capital Protocols. The next step of success requires additional research, painstaking consensus-building, alignment with the work of the ISSB and emerging legislative work, in addition to extensive ongoing partnership with corporate, investor, and public policy communities to continue building momentum and uptake of impact-weighted accounting. The time and ecosystem are now ripe for the launch of an independent, international organization to drive impact to the next level, as referenced in the G7 Impact Taskforce’s report – Time to Deliver, which was published in December 2021: “Investment decisions are being taken today with incomplete information. We should be working towards a world in which such decisions are thoroughly informed by risk, return, and impact. For this reason, the ITF urgently calls for mandatory accounting for impact as a destination, stressing that the journey towards this goal must be underpinned by greater transparency, harmonised global standards and strong mechanisms to ensure integrity of data and analysis…. This work is needed to deepen our understanding of how to value impact in a way that allows a meaningful comparison of the impacts and profits of companies, while also revealing the relationship between the two.” It is for this reason that we have founded the International Foundation for Valuing Impacts.
LISTEN TO THE INTERVIEW IN ITS ENTIRETY HERE: