FAQ
Methodology
What is impact accounting?
Impact accounting aims to the measurement and valuation of corporate impacts on the environment, society and economy. Its key feature is that results are presented in monetary terms, providing a single comparable unit of measure that can be understood by businesses. The result of applying impact accounting is the presentation of impact accounts, an instrument analogous to the financial accounts for sustainability topics that include the depiction of the positive and negative value chain impacts on the different capitals in an impact statement.
As such, the Impact Statement reflects the “Value-to-Society perspective”, also referred to as inside-out or impact materiality.
What are the benefits of monetary valuation?
Monetary valuation serves as a key tool to direct decision-making towards sustainable value creation by interpreting and contextualizing impacts in a simple way in the language of business for decision making.
It allows to consider trade-offs between different sustainability topics and between sustainability topics and financial topics, which simplifies the integration of sustainability into financial accounting, helps reveal financial risks and helps demonstrate the materiality across indicators.
The importance of monetary impact accounting is confirmed by the current work of the different financial market actors, regulators and standard setters like EFRAG, ISSB and GRI, as it embodies the true value contribution of business models to society.
Why should companies consider impact accounting beyond sustainability reporting?
Impact accounting aims to complement financial statements by providing information on the positive and negative impacts a company's value chain has on its stakeholders.
Currently, reported sustainability information is mainly limited to output data, such as the amount of GHG emissions or water consumption, and lack a contextualized view of the impacts on society. As an example, mere data on the total amount of water consumed does not illustrate how local communities are affected. Extracting water from areas faced with water scarcity has very different societal consequences compared to extracting it from areas with high freshwater availability. Incorporating impact information with a contextualized monetary value makes these societal effects visible and, thus, enables improved business steering.
In addition, monetary valuation harmonizes different performance measurement units (e.g., m³ of water consumed, tonnes of CO2, or m² of land used). Thereby, impact accounting not only provide a contextualized view of an entity’s impact, but also make it easier to integrate the information into existing business steering processes.
Therefore, by applying impact accounting, companies create a more holistic assessment of their sustainability performance along the entire value chain.
What is the VBA methodology and what is its purpose?
The VBA and the International Foundation for Valuing Impacts (IFVI) have joined forces to develop one common impact accounting methodology for the public good under the governance of an independent committee that aims to represent the view of the impact ecosystem, the Valuation Technical and Practitioner Committee (VTPC). This partnership brings together the corporate and investor perspective on impact, and the joint work will be made available publicly.
The strategic ambition, together with the Global Value Commission, is uptake by an international standard setter. The work strives to be business-relevant, pragmatic, scalable and transferable – building on the global sustainability reporting baseline currently being developed by standard setters.
How is impact accounting being standardized by the VBA and the impact ecosystem?
Joint teams from VBA and IFVI, supported by the four largest professional services networks – Deloitte, EY, KPMG and PwC – work together on a series of interrelated methodology papers that cover general methodology aspects and topic methodologies. This is supported as well by other leading organizations in the field of impact accounting (e.g., Harvard Business School, the OECD, WifOR). All indicators of the methodology are based on impact pathways to connect business impact drivers with outcomes and impacts.
The VTPC is the independent committee formed by 18 global leaders that aim to represent the impact ecosystem with expertise in the fields of impact, sustainability, accounting, business, and finance. The composition and procedures are designed to ensure independence, balance, and the avoidance of conflicts of interest. The methodology development is planned in different stages: The VBA and IFVI technical staff prepares a first draft under the guidance of the VTPC and other relevant experts that shall be approved by the committee for public exposure. In parallel to the public exposure process, corporate practitioners pilot the methodology in live settings in the VBA Practitioner’s Hub. Feedback from the consultation and piloting is then processed into an updated draft, which undergoes formal vote by the impact ecosystem represented at the VTPC.
In addition, the VBA has additional impact accounting methodologies that serve as a foundation for topics not yet addressed by the VTPC formal workplan, such as legacy methodologies on human rights, training and other environmental topics, and pre-test methodologies developed by VBA partners and member companies on aspects like DE&I, forest resources, ocean plastics, and industry-specific methodologies.
What are value factors and how do they incorporate scientific principles?
A value factor translates the information that an entity collects across its operations into insights on the relative importance or value of an impact. A value factor may collapse the measurement and valuation of an impact into a summary value that is multiplied by an impact driver. Value factors are based on academic, scientific and evidence-based sources of the monetary value to society of an impact.
The social cost of carbon is an example of this type of value factor. It converts an entity's greenhouse gas (GHG) emissions, measured in tonnes of CO2e, into monetary terms by accounting for the net present value of the total climate damages caused by one additional metric tonne of carbon emissions. Its valuation draws on decades of research in climate change economics, including the work from Nobel Prize laureate William Nordhaus.
How is the VBA methodology related to other existing frameworks?
The impact accounting methodology developed by the VBA in partnership with IFVI adds to and seeks compatibility with existing and emerging frameworks and, where possible, refers to existing frameworks and initiatives rather than create its own definitions. For example, for principles related to natural capital valuation, the Natural Capital Protocol raises as an important foundation, while for the measurements of impact drivers, the work is linked to existing reporting standards such as the CSRD’s ESRS, GRI or the ISSB.
Why it matters: There is currently a proliferation of initiatives & frameworks –the so-called “alphabet soup”– which makes it difficult for users to understand where their focus should lie. Even though the focus of the work of the VBA is on a standardized methodology with an emphasis on quantification (data and calculation), rather than disclosure (which many initiatives focus on), it will only add to the confusion if links to established frameworks are not clear.
How can I participate in the VTPC public consultation process?
The impact accounting methodology developed by the VBA in partnership with IFVI is open to public consultation. Throughout the year, various public consultation processes are conducted. Each public exposure draft typically includes an explanatory note and specific questions to obtain structured feedback on key points, although participants are welcome to provide additional comments.
The public exposure drafts are generally introduced through webinars, and instructions for providing feedback are clearly outlined. Current exposure drafts can be found in the Publications section of our website, as well as on IFVI’s website.
How can impact accounting be integrated in corporate decision-making?
Impact accounting has multiple applications as a key tool to integrate ESG data into corporate steering to drive sustainable value creation. Some examples include target setting, strategic decision-making, double materiality assessment and internal pricing at the strategic level; trade-offs, performance analysis, IROs scenario modelling, integration in finance and incentives and SROI at the implementation stages; strategic controlling, monitoring and supporting evidence for auditing at the review stage, and support for reporting, management reporting, advocacy and investors relations at the communication level.
How does the Value-to-Business perspective complete the Value-to-Society picture?
The Value-to-Society perspective can be complemented by the Value-to-Business perspective, also known as the outside-in or financial materiality perspective.
The Value-to-Business perspective focuses on understanding how sustainability impact drivers and dependencies influence, or may influence, a company’s financial performance. Together, the Value-to-Society and Value-to-Business perspectives are critical for driving sustainable value creation.
Why is the perspective of the VBA methodology backward-looking? How can future strategies and target settings be included?
Analogously to financial statements, the production of an impact statement involves the use of data corresponding to a specific past period of time, such as the latest reporting period. However, impact accounting can also consider forward-looking assessments.
From insights on historical information of past years, companies can forecast future impacts, . For example, through country-specific estimates on potential child labor cases in the supply chain, companies can easily identify high-risk countries. This information can be reflected in future decision-making (e.g., where to source from, where to build a factory), steering or target setting. Another example is scenario analysis, as using the VBA methodology may translate backward-looking information into forward-looking guidance to assess impacts on society. This can help forecast future impacts and direct decision-making towards the most sustainable outcomes, minimizing corporate risks and maximizing opportunities.
What is the VBA approach to the Social Discount Rate (SDR)? Are future impacts valued less than current impacts?
The Social Discount Rate (SDR) is used in the VBA methodology to incorporate impacts that will occur in the future. SDR is an interest rate applied to expected costs and benefits in order to convert them to a present value. In other words, it represents the value we place on the welfare of future generations and consequently the cost that society today should bear for future generations.
SDR has been widely applied in cost-benefit analysis of public policies. It is used in comparing cost-benefit of social projects like building railway lines or schools (where the costs and benefits are expected to be long term and can differ in their distribution over time).
Applying the SDR is based on assumptions that societies will be wealthier in the future due to economic growth, and that a dollar in the future will therefore be worth less than a dollar today. This does not necessarily mean that the current generation is deemed more important than future generations, but people prefer income today rather than tomorrow, even if they expect to be richer tomorrow.
Public VTPC-approved methodology documents already discuss the different SDR alternatives and fundament their choice in any case, such as the dynamic discount near-term rate of 2% approach taken by the GHG Emissions methodology.
How does the current version of the VBA methodology address human rights and the valuation of a human life?
The VBA methodology already covers basic human rights – occupational health & safety, living wage, forced labor and child labor. Not all human rights topics can be fully represented in an impact measurement and valuation framework due to limitations in underlying studies.
To date, there are few mature studies that monetize the impact of human rights topics based on impact pathways (e.g., no current study on impact valuation for freedom of association). Our methodology is, thus, still in development, and more aspects of human rights will be added in the future as methodologies become available.
As the VTPC-approved methodology indicates, impacts related to human health or human rights violations have significant societal implications and capturing these impacts is crucial for a comprehensive assessment of the societal value created or eroded by an entity’s activities and business relationships. This does not mean that it aims to determine a price for human health or human rights. Life and human rights are invaluable and cannot be traded like market goods. People cannot sell a year of their life or any of their human rights to someone else. The valuation of these sensitive topics is built on extensive research in fields such as environmental and health economics and is frequently used in policy-making.
Can negative impacts be compensated by positive impacts?
(e.g., climate impacts compensated by high wages for managers; deforestation acceptable when large profits can be made)
The VBA methodology cannot be used to compensate for negative impacts in one area through positive impacts in another area (opposition to offsetting is made clear in all of our methodology papers and in other VBA statements).
Indeed, the use of a monetary value (USD or EUR) helps to identify the exact trade-offs and interdependencies by enhancing transparency as well as comparability.
Moreover, it helps companies to better understand the positive impacts on society and the environment that the company should aim to build on – as well as the negative impacts that should be reduced as much as possible.
Can negative impacts be compensated by positive impacts?
(e.g., climate impacts compensated by high wages for managers; deforestation acceptable when large profits can be made)
The VBA methodology cannot be used to compensate for negative impacts in one area through positive impacts in another area. As such, opposition to offsetting is made clear in all of our methodology papers and in other VBA statements.
Indeed, the use of a monetary value (USD or EUR) helps to identify the exact trade-offs and interdependencies by enhancing transparency as well as comparability.
Moreover, it helps companies to better understand the positive impacts on society and the environment that the company should aim to build on, as well as the negative impacts that should be reduced as much as possible.
Does the VBA methodology regard planetary boundaries?
While planetary boundaries are developed for public accounting, the VBA methodology is applied by corporates to understand the value created and destroyed by a company on its stakeholders, so fundamental differences exist between both frameworks. Moreover, planetary boundaries assessments aim to set physical targets, while the VBA methodology is a more holistic approach.
Nonetheless, the VBA methodology implicitly accounts for planetary boundaries by assigning higher negative values if the performance KPIs of an entity are close or surpass the boundaries. Monetized values indicate the relative importance of different environmental factors and vary by the context considered (e.g., water stressed area vs. water abundant area). As a results, some value factors in the environmental dimension are affected by the contextual planetary boundaries.
VBA Organization and Governance
How is the VBA organized? What are the decision-making bodies and workstreams?
The VBA is an independent and not-for-profit member association organized under German law.
The members are international companies that share the goal of creating a new way of measuring sustainable value creation along the concept of double materiality: Value to society and value to business. The VBA methodology translates ESG data points into business relevant information comparable to financial data. The members test the methodology to ensure feasibility, robustness and relevance.
VBA represents over 25 companies and targets further growth. The alliance is supported by major accounting firms, researchers and academia, and works in close collaboration with standard setters and international organizations.
The VBA offers different membership models, which can be freely selected by each company.
Membership-Models
o LEAD: Orientation for and shaping of VBA and its Methodology
(includes the services and offers of DRIVE & EQUIP)
o DRIVE: Implementation and Performing Impact Accounting
(includes the services and offers of EQUIP)
o EQUIP: Knowledge lead on the development of impact accounting and regulations
o FINANCIAL MARKET CHAPTER: Development of applications along the needs of Financial Institutions
o ASSOCIATE: Sponsorship & Support for VBA & Impact Accounting
For details please reach out to Thomas Wulff (thomas.wulff@value-balancing.com)
A LEAD member also has a seat on the Steering Committee and sends one employee to work as a secondee at VBA. This ensures a strong link and direct interaction between members and the VBA organization and workforce.
Strategic decisions are taken by the Steering Committee. Every year, the alliance holds a general meeting with all members in which each member company has one vote. The VBA receives external support from the Advisory Panel. Only daily operating decisions are made by the Executive Committee (CEO, COO and CFO).
Based on the partnership agreement signed 27th of December 2022, the methodology development is carried out jointly with Harvard spin-off International Foundation for Valuing Impacts (IFVI) and approved by the Valuation Technical and Practitioner Committee (VTPC), where VBA is represented with 8 votes. These bodies determine their own procedures and constitute themselves according to best practice with regard to due process.
Enforcement of the methodology lies outside the scope of the VBA. The VBA members discuss the methodology informally on the Membership Day and decide voluntarily whether to pilot the methodology. Each member independently pilots the methodology and shares findings with the VBA.
As the VBA collaborates with standard setters and other public bodies, the VBA is under constant monitoring and input from such bodies, commissioned by the EU to develop natural capital accounting principles reflected in the CSRD (project “TRANSPARENT”), and collaborating with organizations such as IFRS, GRI, EFRAG, OECD or NGFS.
How is the VBA funded?
The VBA funds itself through its members via equal annual fees and FTE contributions corresponding to the chosen membership model. Member companies also provide experts to VBA and allocate dedicated resources for piloting the methodology.
What are the ultimate goals of the VBA?
The Value Balancing Alliance was founded with the ambition of changing the way company performance is measured and valued. The alliance’s objective, together with its partners, is to develop, test and mainstream an internationally accepted impact accounting methodology– a standard for monetizing and disclosing positive and negative impacts of corporate activity. To achieve this objective, VBA collaborates with various initiatives and organizations in the sustainability and accounting ecosystem, with financial services and data provider, with standard setters, policy makers, and regulators. VBA’s key target group is the corporate business community. By testing and piloting the methodology to their operations, VBA members and affiliated companies validate its feasibility and build relevant know-how.
The Value Balancing Alliance’s vision is that companies measure their sustainable value creation to society and the enterprise as holistic as possible – in a way, that it is pragmatic, relevant, concise, and comparable for management accounting and external disclosure.
Publications of the Value Balancing Alliance:
All publications are available on the Value Balancing Alliance website, on the Publications page. Further piloting rounds will build on and expand current results.
Piloting
What does it mean to 'pilot'?
To assess the feasibility of the impact accounting methodology under live conditions, member companies apply and test the impact accounting methodologies in their operations. To measure their value to society, companies calculate the economic, environmental and social impacts arising from their corporate activities across the value chain. Challenges and lessons learned from this piloting exercise are discussed among VBA member companies and consolidated into subsequent versions of the methodology.
What needs to be piloted?
Since the aim of the pilot is to gain insights into the applicability, feasibility, relevance, and consistency of the impacts computed, members companies should pilot the full scope of the methodology – all indicators, along all value chain levels (as far as possible). Over the course of the already successfully completed piloting rounds, about 30 companies from various industries assessed the 16 indicators including more than 200 indicators on country-level, and along their value chains. Often, companies focus on their upstream and own operations impacts, since data availability is lower for downstream activities due to complex product portfolios. To address this, the VBA has established industry clusters to collaborate in this topic.
The learnings of the pilots are published in the pilot studies, which are available HERE.
What support does the VBA provide? What resources are required for piloting?
The Value Balancing Alliance provides a detailed description of the methodology, additional guidance for implementation, templates, and support for the piloting process through introductions to the topics, and peer exchange. The effort required for piloting will depend on individual factors like the level of experience or data structures of a company. In our experience, piloting requires good PMO and stakeholder engagement. Internal functions involved in the piloting include finance and accounting, CSR, environmental/sustainability management, health and safety management, human resources, and procurement. They are instrumental in providing the data needed for the calculations. As a rule of thumb: 1 FTE would be required for 4 months, working on coordination and data availability.
Do the results of the company´s impact using the VBA methodology have to be published?
No. Members are only obliged to share their piloting results and their feedback with the VBA. The insights, however, are not published such that a trackback to the company is possible (unless the company so wishes). Moreover, the results are not shared with other VBA members in a way that identifies the individual companies, neither are members obliged to publish their piloting results. It is at the sole decision of the member whether to use the results and, if so, in what form.
Do companies need to fulfill certain prerequisites for piloting?
No. In principle, every company can pilot the methodology. However, the availability of data and resources to conduct a pilot needs to be assessed. To apply the methodology, a company must have in-depth knowledge of its business model, company structure, processes, data availability and data ownership.
Partnerships, cooperations and mandates
To what organizations does the VBA compare? How is it different from others?
Organizations such as the Capitals Coalition, the World Business Council on Sustainable Development (WBCSD), the Harvard Impact-Weighted Accounts project, the Impact Management Project or the WEF IBC, and a few others deal with similar topics. These organizations vary in their subject-matter focus, scope and legal structure.
The Value Balancing Alliance does not intend to duplicate their efforts. Our ambition is to harmonize, test and scale the monetization of non-financial impacts and include the practitioners’ view. To this end, we cooperate with numerous key initiatives in this field.
In addition, our work with member companies and Big4 auditors focuses on the sector-specific impact of the companies' products/services, the development of applications for the financial market and the provision of decision-relevant information from CSRD/ESRS reporting data.
What is the difference between the WEF Metrics Initiative and the VBA?
The International Business Council (IBC) of the World Economic Forum (WEF) has launched the Stakeholder Capitalism Metrics project. Similar to the Value Balancing Alliance, this initiative promotes new ways to consider the wider economic, environmental and social impacts of organizations. The two initiatives are complementary and signed a joint statement in early 2021. The Stakeholder Capitalism Metrics project identifies a set of universal, industry-agnostic indicators to measure sustainability performance. The Value Balancing Alliance is building on these metrics and assesses outcomes and impacts. The alignment in the proposed reporting metrics allows companies to consider adopting both.
Does the VBA aim to replace standards such as GRI, SASB or TCFD?
No, the Value Balancing Alliance is working to develop a standardized methodology for impact measurement and valuation in line with already existing frameworks. While GRI, SASB etc. define what to report, the Value Balancing Alliance provides a method for how to measure and monetize it to obtain decision useful information for risk and opportunity assessments as part of transformation plans.
Membership
What are the VBA membership models?
The Value Balancing Alliance offers companies and financial institutions access to information, exchange platforms and engagement opportunities on many different levels through its membership models. Almost every need can be met, from shaping the alliance and methodology to simply supporting the activities of the VBA.
Membership-Models
o LEAD: Orientation for and shaping of VBA and its Methodology
(includes the services and offers of DRIVE & EQUIP)
o DRIVE: Implementation and Performing Impact Accounting
(includes the services and offers of EQUIP)
o EQUIP: Knowledge lead on the development of impact accounting and regulations
o FINANCIAL MARKET CHAPTER: Development of applications along the needs of Financial Institutions
o ASSOCIATE: Sponsorship & Support for VBA & Impact Accounting
For details please reach out to Thomas Wulff (thomas.wulff@value-balancing.com)
How can companies apply?
Following individual discussions, the applicant company informs the VBA of its preferred membership model. Then, all relevant legal documentation is prepared for the formal application. The signed application letter is submitted to the Steering Committee of the VBA for approval.
Is it possible for a subsidiary to become a member?
Yes, but the applicant company needs to be a legal entity acting on behalf of the executive board and/or the supervisory board. The subject matter of our organization – non-financial accounting and reporting – is largely consolidated and steered at HQ/group level. To benefit from our membership, we recommend you have the full buy-in of your company’s finance & controlling leadership.
What are the practical benefits of a Value Balancing Alliance membership for businesses?
Members get access to and build internal know-how in relation to non-financial reporting, a field that, under the current regulations, represents above all a huge burden whose enormous amounts of data can hardly be made productive for the business model. By measuring and evaluating the impact (instead of the output as in reporting), the information contained therein can be calculated in monetary terms for all key business processes and can therefore be managed in terms of standard decision-making.
By implementing, testing and constantly evolving the methodology according to the needs of practitioners in a pre-competitive setting, Value Balancing Alliance members build expertise and support transformation efforts within their organization. Members also benefit from our global high-level standardization and sustainability reporting network, including the EU, UN, IFRS and other key initiatives.
Is the Value Balancing Alliance relevant for all industries?
The Value Balancing Alliance is open to companies from any industry. The methodology is industry-agnostic. Members appreciate the learnings they gain from other industries.
Is the Value Balancing Alliance relevant for non-EU companies?
The Value Balancing Alliance is a global alliance of companies developing a standardized methodology that can be applied to all companies across diverse industries, geographies and sizes. Current members are headquartered mostly in Europe and Asia, with operations worldwide.
Do companies need to hire an external consultant before joining the Value Balancing Alliance?
The piloting phase requires project management capabilities and expertise, especially the preparation of data and the performance of various calculations. Value Balancing Alliance’s peer learning sessions accompany the process. However, many members choose to bring in external support for the more complex calculations. Thus, external support can be useful, but is not mandatory.
As a member, how can a company influence the design of the methodology?
The methodology is developed in collaboration with the International Foundation for Valuing Impacts (IFVI). By testing the methodology and providing feedback on practicability, applicability and decision-making relevance, our members provide essential input for further methodology updates. In addition to the feedback, our members can make proposals for additional methodology components. The feedback and proposals of our members are then presented to a methodology expert committee (the Valuation Technical and Practitioner Committee – VTPC), which takes up this input and decides which methodology updates will be implemented. The VTPC is a joint body of the IFVI and VBA.
In addition, the member companies work with the VBA methods team and external experts to develop specific applications, particularly for the impact of products and services. Another VBA workstream is dedicated to the external presentation of the results in an impact statement.
Do members receive a label or certification?
No. Members may use the Value Balancing Alliance logo in their communication, to position their approach and ambition for sustainable value creation of their business model but there currently is no label or certification as such.
Does Value Balancing Alliance perform factory audits or issue reports, such as ISO14001?
No. Value Balancing Alliance does not monitor or assess companies. As a network of global organizations, Value Balancing Alliance provides members an opportunity to be involved in discussions on methodologies for measuring and valuing non-financial impacts and to help in piloting practices based on these methodologies.
Who should be assigned as a contact person for the Value Balancing Alliance?
Member companies choose a contact person and/or a secondee. Many member companies designate a sustainability expert with experience in sustainability reporting or an expert in sustainable finance. HR, Investor Relations or CSR can be a good match too.
Does the VBA methodology help companies achieve the UN Sustainable Development Goals (SDGs)?
Becoming part of the Value Balancing Alliance can help a company obtain a transparent, holistic view of how the company contributes to fulfilling the SDGs along its value chain. This novel view can be used to make steering decisions regarding resource allocation, product portfolio, geographical expansion of business and CAPEX/OPEX. In this sense, Value Balancing Alliance’s approach can help companies achieve the UN SDGs.
Does the Value Balancing Alliance provide consulting services?
No. While consulting and audit firms work alongside our corporate members, the Value Balancing Alliance does not provide consulting services, as such, at this time.
Is the Value Balancing Alliance an alternative to ESG rating agencies or sustainability indices?
The Value Balancing Alliance's impact accounting methodology provides standardized, comparable and monetized data. This data can be used to create impact statements in a transparent and scientifically recognized way from data collected by the company itself. This gives companies the opportunity to add or compare their own reporting to externally produced impact statements such as S+P, Upright Project and Gist Impact as well as external ESG ratings.
Policy and standard setting
Does the Value Balancing Alliance represent my company in Brussels?
No. The Value Balancing Alliance is not a lobby organization. The Value Balancing Alliance provides its expertise, but does not, as such, represent its member companies in European legislative processes. VBA strives to provide constructive input for more usable and practicable regulations as well as standards, with the ultimate goal of enhancing relevance, meaningfulness, effectiveness and credibility.