Connecting Sustainability and the Balance Sheet: Measurement and - PowerPoint PPT Presentation

Connecting Sustainability and the Balance Sheet: Measurement and Presentation Shari Littan CPA, JD Editor, Thomson Reuters Tax & Accounting

Accounting 101: Investment game Bank account Netflix Italy: Inflation-pegged bonds Valeant Pharmaceuticals Residential mortgage-backed HP security (RMBS) National Grid UK Coca-Cola Amazon Nestle Goldman Sachs Blue Diamond Facebook Shell Global GE Enron BT McDonalds Bank of America Apple GM Johnson & Johnson VW Skanska

Accounting 101: Investment game 10 Bank account 5 Netflix 1 Italy: Inflation-pegged bonds 4 Valeant Pharmaceuticals 2 Residential mortgage-backed 4 HP security (RMBS) 5 National Grid UK 3 Coca-Cola 8 Amazon 5 Nestle 5 Goldman Sachs 0 Blue Diamond 7 Facebook 2 Shell Global 10 GE 1 Enron 5 BT 2 McDonalds 3 Bank of America 5 Apple 5 GM 4 Johnson & Johnson 1 VW 3 Skanska 100

Summary: Objective of accounting and reporting Who is the user? What information does the user need to make resource allocation decisions? Does the system provide information that facilitates efficient, collective resource allocation?

Incorporating sustainability into qualifications Incorporating sustainability into strategy 1. Identifying the most material ESG issues for an 2. organization Measuring and reporting non-financial information (e.g., 3. carbon footprint) Understanding the relationship between sustainability 4. and value Identifying sustainability risks (prioritizing environmental 5. and climate change risks)

Model Balance Sheet for Sustainability Resource contributors (“Capital”) Resources (“Assets”) Current assets Vendors and employees Government (taxes) Noncurrent assets Lenders Recognized intangible assets Shareholders +/- Other comprehensive income +/- Fair value Total assets (book value) Total liabilities + equity + Unrecognized intangible assets + Unrealized capital (goodwill) = present value of contributions: expected cash flows • Customers (reputation) • Employees (diversity; training) • Shareholders (commitment to business model) Market value • Commons (taxpayers; nature) +/- Adjustments for market inefficiencies Intrinsic value Contributions by all stakeholders

Barriers: Sustainability content in accounting and finance qualifications • Lack of knowledge • Competing priorities • Lack of investor recognition • Lack of support from senior management • No clear link to business management

Enabling factors: Sustainability content in accounting and finance qualifications • Competition for talent (Millennials and post-Millennials) • Growing regulatory attention • Development of new standards • Evolving understanding of the connection between sustainability and value