• Frankfurt, 06 May 2024

Welcome to our Blog

Welcome to our first blog post! 

We're excited to introduce this platform with an insightful blog by our CEO, Christian Heller, which delves into the concept of Value Creation and Impact Accounting. It's clear that there has never been a more urgent need to make the shift to a sustainable future; urgent issues like biodiversity loss, climate change, and growing socioeconomic inequality require our immediate attention. 

Join us on this journey as we delve deeper into the concepts and strategies that can pave the way for a sustainable future. Stay tuned for more thought-provoking discussions, expert insights, and innovative solutions right here on our blog!

A new paradigm for value creation

The paradigm of infinite resources and concept of quantitative growth have become obsolete. We need a new, expanded understanding of value creation that goes beyond purely financial aspects.


The transformation towards a sustainable future is well underway. Governments and actors such as businesses often seek their own solutions to address challenges such as climate change, loss of biodiversity, or growing social disparities. It remains highly questionable whether these often-uncoordinated approaches will lead quickly enough to the necessary systemic change of our societies and markets to achieve goals such as the SDGs, Paris Agreement, or Kunming-Montreal targets. The COVID pandemic and current wars, with all their consequences, are creating additional barriers to a unified approach. In this complex situation, it is nearly impossible for politics to implement an internationally aligned system change.


Our global market economy is based on the principles of performance, competition, innovation, and cooperation. If we want to take responsibility for humanity and future generations as an economy, we must address two central issues:


  1. Return on investment: Investments must pay off financially in a market economy. Without profit, there can be no investments and innovations. Sustainability efforts must be financially rewarding.
  2. Externalities: Our markets are governed by prices - they reflect the value of products and services attributed to them by market participants. As long as externalities such as emissions are not fully integrated into price formation, markets remain inefficient as a control function.

Thus, part of the solution to the transformation towards a sustainable economy is clear: the external effects - both positive and negative - of business models must be measured and reported in a standardized and comparable manner. Financial incentives must be created for companies to be rewarded for their sustainability efforts.


It is in the self-interest of companies that are leading in the area of sustainability to establish a new definition of value creation in the market. It is about qualitative growth that integrates financial, natural, human, and social capital - sustainable value creation. Current financial reporting is fundamental to reflect a company's financial situation. However, to assess a company's overall situation against the backdrop of the new paradigm of value creation, additional performance indicators or capitals must be captured.

Impact accounting as the solution

Different actors are currently struggling to find the best solutions. Politics relies on different forms of regulation as drivers: the USA focuses more on investments and innovations (e.g., Inflation Reduction Act), while Europe leans towards reporting obligations and bans (e.g., Sustainable Finance Agenda). The financial market is moving towards reallocating capital (e.g., Impact Investing, ESG Integration, sustainability-linked bonds, transition plans) but lacks sufficiently standardized, credible, and easy-to-process information on companies' sustainability performance.


Work on this is being done by standard setters such as IFRS and GRI at the international level, as well as EFRAG, SEC, and others at the jurisdictional level. Companies are setting new goals (e.g., net zero and nature positive) without knowing exactly how to deal with trade-offs between financial and non-financial goals and how the market will react to them. Consumers want to consume sustainably but are generally financially unable to buy sustainable products to meet their needs.


These current efforts have not (yet) significantly improved the overall situation of our planet and people. We find ourselves in a predicament: for example, solutions to address climate change impacts exist, but the financial incentives to implement them on a large scale are currently lacking. The question is, which actor will have the courage to make the first systemic change; to make investments that switch our financially driven market economy system to a multi-capital system.


For over a decade, companies have worked on solutions to integrate external effects into decision-making, steering, and disclosures. The most promising approaches are Environmental and Integrated Profit & Loss accounts (E-P&L / I-P&L) as disclosed by Kering and Holcim. As a non-profit organization, the Value Balancing Alliance (VBA) brings together multinational corporations to drive this development to the next level – together with our partners. Our goal is to integrate sustainability aspects into companies' accounting (impact accounting). This should pragmatically enable companies to base decisions and steering on a multi-capital approach. For this purpose, we assign monetary value to non-financial effects of business activities. In other words, we build a bridge to integrate external effects into the measurement of value creation.


To holistically capture companies' value creation, a double materiality assessment is key. First, how business activities impact society and nature (value to society / inside-out perspective). This is about the true-value or external effects created for society and nature building e.g., on willingness-to-pay and total cost approaches, not on market prices. Secondly, how sustainability performance affects the financial performance and enterprise value (value to business / outside-in perspective) since only parts of the external effects will ultimately be reflected in real prices in a company's financial performance. For example, we currently assume USD 239 per ton of CO2e. This corresponds to the total costs of climate change for society. But only a portion of the USD 239 will affect the financial situation of companies through the internalization of costs such as purchasing certificates, taxes, insurance, etc.


We are convinced that the monetary valuation of human, social, and natural capital is essential to accelerate the transformation of the economy. Reasons include:

  • Monetary values ​​are the language of decision-makers and are understandable to all stakeholders. Only a few experts understand the different sustainability metrics. To raise awareness and embed sustainability in the thinking of most a respective language needs to be used.
  • A uniform metric allows for comparability of different indicators. Currently, the importance (or materiality) of climate emissions versus water use versus human capital, etc. cannot be compared - monetization enables this.
  • A monetary valuation puts quantitative KPIs into context. For example, measuring water consumption in liters cannot indicate whether the water was consumed in arid or non-arid areas. This level of cost or contextualization can be achieved through appropriate monetary valuation and thus provide important additional information.
  • A uniform metric allows for the simplification of information. Different indicators can be summarized into one value, such as water consumption and land use being combined into a "Nature" indicator. This is about aggregation, not netting of information.
  • Monetary valuation allows for much better connectivity to financial reporting and will therefore gain much higher importance in decision-making, up to integration into financial planning.

VBA puts impact accounting into practice

Impact accounting consists of two steps: the physical measurement of the effects of business activities such as CO2e and their monetary valuation in the given context and for the respective purpose (valuation factors). To establish comparability, procedures and methods in both areas must be standardized. Organizations such as GRI, IFRS ISSB, or EFRAG are working on the first step, while the VBA partner organization International Foundation for Valuing Impacts (IFVI) addresses the second step with value factors.


Comparability is particularly relevant for external reporting. The goal is to present the positive and negative effects of a business model on society and the environment in the most comparable, usable, and easily understandable form possible. The VBA uses this for an Impact Statement (similar to an I-P&L), which is reported alongside the Financial Statement. In an integrated report, the aggregated impact information should also be presented in detail at the sub-indicator level - in monetary and physical sizes. For example, an aggregated figure "Nature" is to be subdivided into water, land use, etc. The individual physical values ​​such as liters or square meters and their monetary valuation (value factors) are to be explained. This meets the information needs of stakeholders through aggregated information with more signaling effect (like revenue and profit) as well as detailed information for detailed analysis (similar to the notes and annex of the Financial Statements). An integrated report should also explain the strategies and measures a company is taking to optimize its effects and the effects on financial performance expected.


The VBA is convinced that Impact Accounting is the next essential step to accelerate the transformation of companies. Impact Accounting enables a much better integration of sustainability aspects into corporate management, establishes the interface to the Financial Statement and Enterprise Value, and simplifies the communication and comparability of companies' sustainability performance in reporting. This creates the important bridge until external effects are reflected in market prices.


Impact Accounting is not just a theory – it is already happening. Within the VBA, international companies, together with the Big4 and partners, are testing and piloting impact accounting in various use cases. The IFVI has brought together a fascinating group of thought leaders and technical experts to standardize impact accounting methodologies. Policy makers such as the OECD or the European Commission (project “TRANSPARENT”) address the topic next to standard setters like GRI and EFRAG. Organizations and initiatives such as WEF, WBCSD, Capitals Coalition, Sustainable Finance Advisory Committee of the Federal Government, Institut de la Finance Durable, or Organismo Italiano Business Reporting are discussing impact accounting from various perspectives and develop use cases.


As VBA, we invite corporates and financial market services to join our journey. Impact accounting is one piece of the jigsaw puzzle to drive the transformation. A strong, uniform business voice is key to make it happen!



Christian Heller

CEO, Value Balancing Alliance