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 security (RMBS) HP 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 security (RMBS) 4 HP 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

1.

Incorporating sustainability into strategy

2.

Identifying the most material ESG issues for an

• rganization

3.

Measuring and reporting non-financial information (e.g., carbon footprint)

4.

Understanding the relationship between sustainability and value

5.

Identifying sustainability risks (prioritizing environmental and climate change risks)

Model Balance Sheet for Sustainability

Vendors and employees Government (taxes) Lenders Shareholders +/- Other comprehensive income

Intrinsic value Resource contributors (“Capital”) Contributions by all stakeholders Resources (“Assets”) Total assets (book value) + Unrecognized intangible assets (goodwill) = present value of expected cash flows Market value +/- Adjustments for market inefficiencies Total liabilities + equity + Unrealized capital contributions:

• Customers (reputation)
• Employees (diversity; training)
• Shareholders (commitment to

business model)

• Commons (taxpayers; nature)

Current assets Noncurrent assets Recognized intangible assets +/- Fair value

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