Columnists
Accounting for impact, trade-offs vital for sustainability reporting
Monday November 06 2023
Impact accounting is how organisations assess and report on sustainability risks and opportunities. PHOTO | SHUTTERSTOCK
Impact accounting is how organisations assess and report on sustainability risks and opportunities impacting the financial fortunes and the environment, people and planet.
It requires a double materiality lens approach when assessing and reporting sustainability risks and opportunities. A feature of impact accounting for sustainability reporting is its ability to capture the trade-offs organisations navigate as part of decision-making on the formulation and execution of their sustainability strategies.
For example, an impact lens would prevent organisations from sacrificing stable long-term return that delivers value to society and the planet in addition to shareholders for short-term returns that drive the wrong behaviour and does not deliver shared prosperity for stakeholders. It is often misconstrued as lowering an organisation’s investment return by embracing sustainability.
However, the data tells a different story and points to a crisis of measurement and reporting on non-financial related value creation. Rather than see it as lowering financial return in the short term, it is seen as delivering value consistently over the long term to a broader stakeholder group beyond the traditional shareholders.
Impact accounting can help tell the complete story of the trade-offs organisations have made for their long-term survival and the shared prosperity of their stakeholders. Organisations willing to tell a comprehensive story on value creation and highlight the business case for embracing sustainability should be prepared to embrace impact accounting.
The double materiality lens applied enables organisations to focus on both the financial returns while capturing the value created or destroyed for the wider stakeholder group. After all, the reason organisations embrace sustainability is its positive impact on their long-term future viability.
The myriad of challenges facing most communities, such as inequality, unemployment and poverty, even in growing economies, is enough reason to rethink the current model.
There is a need for businesses to reconsider their role in society from solely profit-driven to purpose-driven. Therefore, it’s no surprise that the current accounting model might fall short of what’s required, which is why an impact accounting approach to sustainability reflects a more complete picture of how value is created or destroyed from a financial and non-financial perspective.
Akinyemi Awodumila is a Partner at Deloitte East Africa. He is an author who writes and speaks widely on corporate reporting topics.
