Our Research.
Why we set out on this journey
Is it not every manager’s secret dream to be able to make decisions about the future of the organization without jeopardizing sustainable development?
Can accounting and the accountant make this dream come true?
Accounting standards have a significant impact on the mindset of a business, its managers, investors, and their decisions. In the past, the International Accounting Standards (IAS) permitted the use of various formats for creating income statements, including the value-added income statement. This type of statement was conducive to showing how value was produced and distributed among stakeholders. The current IFRS standards have eliminated this option and now follow a narrative focused on shareholders and profit. Nature is out of sight and out of mind. We argue that using a modified version of the value-added income statement, i.e., one that includes ‘Nature’ as a stakeholder to be repaid (Quattrone, 2022), would allow us to rethink capitalism according to a value-oriented approach that places stakeholders, including Nature, at its center.
Please find a summary of the findings below.
To read about ‘Calculating Sustainability and the Value-Added Statement’ in more depth, you can read the full report* including case studies and extracts from research interviews here:
Our key findings.
The Sustainable Value Table (SVT) offers a space where organisational actors can discuss, propose ideas, brainstorm, and strategize on the changes to be made in the long and short term. It recognizes Nature as a key stakeholder and integrates it in the financial statements.
The SVT functions as a strategic planning tool to forge future decision-making and considers the relationship between means (financial values) and ends (non-financial values), thus providing a solution to the tensions between the financial and non-financial dimensions of the business.
The modified value-added statement enables organisations to consider how they can adopt a compensatory approach to ‘Nature’, thus contributing to the regeneration of the natural capital consumed in the production of economic value. The restorative approach can be integrated into business models that shape a more sustainable future landscape for organisations.
For the SVT to become a reporting tool, accounting systems need to support the classification of income statement items according to their nature and impact on the SDGs.
Our Method.
During the pandemic, we contacted a number of large, medium, and small companies based in Europe to investigate the viability of the modified value-added statement and to test the SVT as an accounting tool that promotes sustainability-informed decision-making by organizations.
We performed semi-structured interviews to explore the challenges related to the feasibility of constructing the modified value-added income statement that recognizes ‘nature’ as one of the stakeholders to be remunerated. Then, we tested the application of the SVT identifying the practical implications for management accountants and policymakers.
Value-Added Statement & Sustainable Development Goals (SDGs)
There is an increasing awareness of the need to make Nature a stakeholder, with recent initiatives providing a seat on the board to Nature (e.g. Faith in Nature) or recognising its rights as a shareholder (e.g. Patagonia). By linking the value-added income statement to the SDGs we formed a matrix. This matrix creates a space in which the various stages of value creation and distribution can be linked to the relevant SDGs, based on their expected impact.
The SVT at its heart could allow for decision-making that goes beyond merely compensating ‘nature’. Alternatively, a more restorative approach to management could be taken. This aspect emerged in the interview with Better Energy’s Sustainability Manager when she argued that:
“We have to start giving back, and that’s where you piqued my interest with this nature through provisions to a fund for nature because we actually have to take into consideration a gift back. We have to start building into a business model the restorative behaviour that ultimately feeds nature in a way that it becomes regenerative so that business becomes part of the national system. You can say this equilibrium, so I actually think that sustainability is the lowest bar but we actually have to get companies understand the restorative responsibility that they have through years of negative practice in terms of impact. So I see lots of potential here.”
What can we learn?
Lessons for management accountants: Management accountants ought to reconsider how organisations create value in the long term, seeking to modify business plans if current operations have several negative impacts on the environment. In addition, management accountants need to be mindful of the links between the short and the long run and may, in this period of transition from the current business plan to the sustainable business vision, perform actions in the near term to alleviate the negative impact deriving from value creation.
Lessons for policymakers: Greater commitment from policymakers is needed to support organisations in shifting to a more restorative perspective of natural resources consumed. Legislative support from policymakers is crucial to steer organisations towards a more sustainable world.
*This report is funded through CIMA’s research programme that is designed to promote and develop the science of management accountancy as stipulated in our Royal Charter. The programme encourages leading academic and practitioner researchers to explore issues and provide fresh topics of interest to CIMA members and CGMA designation holders.