The International Foundation for Valuing Impact’s interim methodologies will enable companies and investors to measure and value the most significant environmental impacts across the categories of air pollution, land use and conversion, waste and water pollution.
The International Foundation for Valuing Impacts (IFVI), an independent non-profit which describes itself as bridging the gap between financial accounting and impact measurement, has launched a series of interim methodologies that seek to enable companies and investors to measure the most significant environmental impacts in both monetary and value terms.
These resources cover four environmental categories including air pollution, land use and conversion, waste, and water pollution, and more than 430 different types of impacts, which IFVI said had been tailored to the unique contexts of over 268 countries and regions.
The Boston-based organisation said it would make the methodologies available for use prior to completing its methodology oversight process, which includes a rigorous technical review and due process validation, including approval by an independent committee of impact and sustainability experts, in order to drive adoption of impact accounting and meet market needs as soon as possible.
In response to questions from Impact Investor about the motivations for launching the methologies, Rob Zochowski, president and CEO of IFVI, said a challenge the organisation has faced has been matching the pace of its research with increased market demand, particularly from market-leading data providers, companies, and investors who want to do a comprehensive environmental impact analysis given the state of climate change.
“The interim methodologies enable these groups to right now comprehensively measure and value in monetary terms the most significant environmental impacts, as well as meet the needs of companies needing to perform double materiality analyses under CSRD [the EU’s Corporate Sustainability Reporting Directive], for which we are in the first reporting year,” he said.
Laying the foundations for impact accounting
Founded in 2022, IFVI grew out of the Impact-Weighted Accounts Project led by faculty co-chairs George Serafeim and Ethan Rouen at Harvard Business School, with impact investing pioneer Ronald Cohen as chair of the project. The project’s aim was to drive the creation of financial accounts that reflected a company’s financial, social, and environmental performance, creating accounting statements that transparently captured external impacts in a way that drove investor and managerial decision making.
IFVI said the release of its methodologies would enable it to obtain valuable feedback in an effort to drive improved transparency and standardisation in impact valuation as well as help pave the way for an effective impact accounting system.
Zochowski said: “To drive adoption of impact accounting and meet market needs now, we’ve released the interim methodologies prior to completing their official review to allow organisations to begin piloting and analysing the methodologies and models now and allow our team to capture feedback on their systemic application.”
Comparing impact
IFVI, which uses the frameworks and protocols of existing standard setters to develop its impact accounting methodologies, claims that the interim methodologies will, for the first time, enable investors who have made significant ESG investments, to generate robust data to measure and compare in monetary terms the impacts created by companies.
Zochowski explained that investors have historically used a number of metrics, frameworks, and ratings, which were hard to compare across sustainability topics and corporate entities, and lacked transparency, clarity, and decision-usefulness for many kinds of decision-makers.
“For example, comparing an organisation’s Total Recordable Injury Rates, which measures employee injury rates, with the tons of CO2e (or carbon dioxide equivalents) it emits is difficult to do. Impact accounting puts social and environmental impacts into the language of currency, which is already widely understood and easily comparable,” he said.
The resources include: a global value factor database of almost 100,000 value factors; the interim methodologies, including overviews of the topic, its impacts, and how to apply the value factors to support users in preparing impact accounts for each of the topics; interim models, which are spreadsheets outlining the detailed formulas and data inputs used to calculate the value factors, presented for transparency and for future revision and expansion; and interim technical manuals, essentially detailed guides of how to understand, apply, and expand the model used to apply the methodology for each topic.
Tailored approach to local contexts
Asked about how the IFVI had tailored its resources and data to the contexts of different countries and regions, Zochowski gave the example of the impact of greenhouse gas emissions.
“While the impact of greenhouse gas emissions is global, many other environmental impacts have effects on a particular area and therefore require specific geographical context such as population, local ecosystem information, and even weather patterns to properly understand,” he said, explaining the methodologies have calculated these contextual differences.
“For example, air pollution impacts are dependent upon the population density of where the air pollution occurs (air pollution in high density areas has more negative impacts than air pollution elsewhere), as well as whether local weather patterns disperse air pollution or not.”
