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IFVI Seeks Interoperability with Sustainability Standards  

The foundation is collecting feedback on its upcoming methodologies, as new research aims to define impact value creation.  

The International Foundation for Valuing Impacts (IFVI) has said it would aim to make the impact accounting methodologies it is currently developing complementary to existing sustainability ones.  

With that in mind, the foundation has launched a consultation with the Value Balancing Alliance (VBA) on two upcoming accounting methodologies: one focused on greenhouse gas emissions, and the other on living wages.  

The consultation comes against the backdrop of growing tensions around a perceived increase in sustainability reporting requirements. These include the EU Corporate Sustainability Reporting Directive (CSRD), which will introduce European Sustainability Reporting Standards (ESRS) for an estimated 50,000 companies, as well as the International Sustainability Standards Board’s (ISSB) inaugural standards – for which 25 stock exchanges have signalled their support.  

Issues have also been raised around a potential overlap between ESRS and ISSB requirements, and other sustainability reporting standards – such as the Global Reporting Initiative’s (GRI) Standards. 

“The world of standards is a complicated space [in which] it is important to create interoperability,” said Daniel Osusky, Chief Research Officer at the IFVI. “What we’re doing is complementary to the work of others and isn’t duplicative. The ultimate vision [of the standards] should sit alongside the regimes that already exist – whether it’s ISSB, ESRS or GRI.” 

The greenhouse gas emissions (GHG) methodology used in the IFVI standards is fully aligned with that of other reporting frameworks, and therefore will require similar data and reporting, Osusky explained.  

Monetising impacts 

Through its new methodologies, the IFVI is aiming to estimate the value of the impacts generated by a business.

“We refer to it as ‘impact accounting’,” said Osusky. “We feel a monetary unit really enables meaningful analysis and decision-making, and can be cross-comparable to the financial performance of an organisation.” 

At the end of last year, the IFVI published a general methodology statement outlining the theoretical foundations of impact accounting. The foundation has now moved on to developing topical methodologies – the first of which is focused on climate and adequate wages.   

“There is a lot of existing foundational material on these topics, and both are – to some degree – already in the reporting disclosure space,” Osusky added. “But they also have a significant impact across many organisations, so it was a logical starting point.”  

Meanwhile, the IFVI’s impact accounting methodology for GHG Emissions translates the impact of carbon emissions into a currency to reflect their societal costs – such as negative effects on human health or the declining ability of society to produce food.  

It builds on existing methodologies from organisations such as Resources for the Future, the Climate Lab, the European Financial Reporting Advisory Group – which has been providing advice on the ESRS, the GHG Protocol, the GRI and the ISSB.   

The impact accounting methodology for adequate wages, for its part, seeks to measure and value the impacts of wages on people, focusing on two aspects: remuneration impact, and living-wage deficit impact. The former monetises the wellbeing benefit derived by workers from their wages, the latter gauges what happens when a salary falls below the local living wage. This methodology builds on ESRS standards on workers, and other research, including from the Global Living Wage Coalition and the Sustainable Development Solutions Network, which established links between income and wellbeing. 

The IFVI’s work also comes against the background of a push to institutionalise practices around impact investing, which was estimated at US$1.164 trillion by the Global Impact Investing Network (GIIN) in 2022. 

Financial materiality 

In related news, consultancy Tideline and member association Impact Capital Managers (ICM) recently published a research paper that sought to develop a shared approach to defining and reporting on impact value creation. Tideline and ICM defined this as activities that drive both financial and impact performance.

As part of their endeavour, the organisations coined the term “financial materiality of impact (FMI)”, aiming to identify the extent to which improved social and environmental outcomes – or “impact efficiency” – affected financial performance.

“The research sought to point impact managers to where they created impact and returns in tandem,” Marieke Spence, Executive Director at ICM, told ESG Investor. “This could include an impact-agnostic company building out a market with a new impact-focused business line.” 

In addition, the research highlighted seven impact value-creation levers typically used by managers pursuing impact and finance objectives. These included aligning management and financial incentives with impact goals, developing the products and services of new impact-related businesses, or strengthening market presence by positioning a brand as impact-focused. 

“Part of the reason behind the research was to identify how impact managers were unique and different from traditional managers,” said Ben Thornley, Managing Partner at Tideline. “We recognised that there had been an absence of frameworks, which we knew would be helpful for impact investors to tell their stories and for limited partners to ask the right questions.”  

The report is the latest in a series of publications published by ICM and others on how an impact-focused approach can generate improved returns for investors. Last year, ICM published a report analysing the financial performance of impact investment at exit.

 

 

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