Monetizing and Reporting Impact: Applying an Impact-Weighted Accounts Framework to Asia

The Imperative for a Standardized Framework in Measuring Sustainability Impact

With the growing global emphasis on sustainability, a standardized framework is essential for organizations to measure and transparently report their sustainability impact. Numerous frameworks have been developed to guide firms in assessing and communicating their sustainability efforts. For example, the Global Reporting Initiative (GRI) provides a global standard for impact reporting and accountability, emphasizing responsible ESG practices. Similarly, the Sustainability Accounting Standards Board (SASB) supports companies in disclosing relevant sustainability information tailored to industry-specific concerns across 77 sectors. Recent frameworks include the Value Balancing Alliance (VBA) and the International Foundation for Valuing Impacts (IFVI), which together offer methodologies for assessing social and environmental impacts within financial and organizational contexts (Fernandez et al., 2021). Other prominent examples include the International Integrated Reporting Council (IIRC), the Task Force on Climate-related Financial Disclosures (TCFD), and the EU Taxonomy for Sustainable Activities.

Despite these numerous frameworks, stakeholders face challenges due to inconsistent and non-comparable reporting practices. This lack of standardization complicates decision-making, as the metrics reported by organizations may not align with the priorities of external stakeholders. A standardized framework is thus essential for providing a comprehensive and integrated perspective on the impact of reporting organizations.

Impact-Weighted Account Framework (IWAF) 

What is IWAF?

To address the need for standardized impact measurement, the Singapore Green Finance Centre (SGFC) at Singapore Management University (SMU), in collaboration with Harvard Business School, the Rotterdam School of Management, the Impact Institute, and the Impact Economy Foundation, has initiated the development of the Impact-Weighted Accounts Framework (IWAF) for use in Singapore, Asia, and globally. IWAF builds on existing frameworks to establish an accounting system that systematically measures the impacts organizations create or influence.

What distinguishes IWAF?

IWAF is unique in its use of quantitative methodologies to conduct outcome- and impact-based analyses (International Foundation for Valuing Impacts, Inc. & Value Balancing Alliance, e.V., 2023). Under IWAF, impacts are classified as direct or indirect and further categorized as absolute or marginal based on a reference scenario. Science-based methods convert impact units into monetary values, enabling an aggregated view of total impact in monetary terms.

Additionally, IWAF integrates sustainability impact reporting with financial statements, reducing the disconnect between managerial decisions and sustainability impacts. While Integrated Reporting (IR) focuses on financial capital monetization, IWAF extends this by monetizing six types of capital: (1) Financial, (2) Manufactured, (3) Intellectual, (4) Human, (5) Natural, and (6) Social. This approach facilitates a more profound integration between sustainability impact reporting and financial statements.

Benefits of adopting IWAF

IWAF offers significant advantages for reporting organizations, stakeholders, and society.

For organizations, IWAF enables a comprehensive evaluation of their sustainable impact, helping them manage internalization risks, prioritize sustainability initiatives, and create long-term value. Early adopters may also achieve a first-mover advantage, securing industry leadership.

Stakeholders benefit from the transparency and comparability IWAF provides, gaining clear insights into an organization’s sustainability outcomes. This transparency helps stakeholders make informed decisions, assess trade-offs between short- and long-term actions, and communicate impact more effectively.

As IWAF adoption increases, the comparability of sustainability reporting within industries and sectors will improve. This shift is expected to benefit society by encouraging resource efficiency and fostering positive, sustainable changes.

Application of IWAF

Impact-Weighted Accounts (IWAs) are monetized line items included in financial statements to provide a holistic view of an organization’s impact. Here, “impact” refers to measurable and meaningful changes in outcomes relative to a reference scenario within a specified timeframe.IWAF uses an Impact Pathway to connect specific activities to outcomes and, ultimately, to impacts, as illustrated in Figure 1. In this pathway, inputs are the resources applied in activities, which are further categorized into actual activities (including completed and projected activities) and reference activities. Outputs are the direct effects of these activities, while outcomes represent the direct or indirect welfare effects stemming from these outputs. An activity’s impact is the difference between realized and counterfactual outcomes from reference activities.

Through IWAs, impact information is provided for four key organizational objectives: (1) creating value for society and stakeholders; (2) promoting sustainability by operating within planetary and social boundaries; (3) supporting sustainable development aligned with the SDGs; and (4) managing long-term value creation to fulfill responsibilities to all stakeholders over time. These objectives are disclosed through two types of accounts: (1) Integrated Profit & Loss (IP&L) Accounts and (2) Integrated Balance Sheet (IBS) Accounts, each with its own statements and related derivatives.

Figure 2 illustrates the relationship between the Statements of the Impact-Weighted Accounts and these four organizational objectives.

The Integrated Profit & Loss (IP&L) assessment is central to IWAs, providing insights into an organization’s capacity to generate long-term value. The IP&L Statement includes an overview of stakeholder value creation, along with two additional sub-statements corresponding to the first three organizational objectives discussed earlier.

The Integrated Balance Sheet (IBS) Accounts serve as a statement of assets and liabilities that impact the organization’s ability and commitment to create long-term value for all stakeholders. Currently, compiling and disclosing statements based on IBS Accounts is optional within the IWAF, as the framework is still under development.

Pilot case studies in the Asian context

Currently, dozens of organizations are experimenting with IWAs, with many featured in Harvard Business School’s 2021 list. As discussed, IWAF is well-suited for adoption in Asia. In recent years, SMU SGFC has been piloting the framework with various companies to tailor it to the business needs of Asian firms. The following section presents pilot studies conducted in collaboration with one of Asia’s largest diversified real estate groups and a major non-state-owned commercial bank in China, facilitated through their global innovation center in Singapore. Due to confidentiality agreements, the identities of these companies remain undisclosed, and the methodology and data provided are anonymized with generalized figures.

Pilot Case Studies 1: Real Estate Company (Company A) 

In November 2022, SGFC partnered with one of Asia’s largest diversified real estate groups (Company A) to trial IWAF for monetizing the impact of the company’s employee engagement activities within the Human Capital pillar. These activities include employee training, health initiatives, workplace safety, and hiring practices.

By assigning a monetary impact to these activities, companies can transcend the traditional top line and bottom-line figures reported in their financial statements. This approach allows organizations to acknowledge the broader effects their actions have on both their operations and society.For example, IWAF assigns a monetary value to employee well-being events like health screenings based on their contribution to productivity and reduced absenteeism. Similarly, IWAF calculates the impact of employee training programs in monetary terms by considering productivity gains and human capital development. Figure 3 provides an example calculation of employee training’s impact on productivity and overall well-being.

Pilot Case Studies 2: Impact Measurement of Equity Funds for a Major Non-State-Owned Commercial Bank in China

Building on its work with Company A, SGFC expanded IWAF’s application with a major non-state-owned commercial bank in China (Bank B) through its global innovation center in Singapore. This partnership aimed to quantify the environmental and social returns from a selected portfolio of equity funds offered by the bank.To assess the impact of the bank’s investment in a hypothetical Fund A, SGFC selected proxy companies within each industry sector in the portfolio. For example, Microsoft represented the IT sector. By aggregating impacts across sectors according to their fund weightings, SGFC calculated the total impact of Fund A. Figure 4 demonstrates an aggregated fund impact, showing the effect of different sector allocations on the fund’s total impact.

With the impact of Fund A now quantified, Bank B can evaluate the effectiveness of its investment in the fund. For instance, if Fund A received $100 in investment but the total impact amounts to only $50, this disparity may prompt a reassessment of whether the bank should continue investing in the fund.

Extending IWAF to Evaluate the Impact of Academic Research

Beyond its application in industry, the IWAF can also be effectively adapted for the academic realm. Today, academic research influences scholars and plays a crucial role in driving economic development and shaping social policy. It is essential for understanding complex social phenomena, addressing pressing societal issues, and informing policy decisions. However, the broader societal impact of academic research remains underexplored. Recently, Singapore Management University (SMU) conducted an analysis of various frameworks for measuring research impact, reviewing global models and assessing their suitability for the university’s context.

Following a thorough review of different frameworks, a method that integrates multiple research-specific frameworks with the overarching concept of impact pathways is proposed to better capture research impact. This approach is theoretically grounded in the IWAF, which redefines value in organizations by shifting focus from purely financial metrics to societal impact. The IWAF provides essential concepts, requirements, and guidelines to quantitatively assess impact. Its core methodology, based on impact pathways, ensures that real outcomes are measured, not just intentions.

Future Outlook for IWAF Applications

As the pilot case studies demonstrate, IWAF’s application is still evolving, with several assumptions made due to limited data availability. Nevertheless, SGFC aims to encourage Asian companies to incorporate sustainability impact alongside traditional financial reporting, broadening the understanding of corporate influence on society and the environment.

These early efforts in applying IWAF serve not as endpoints but as catalysts for further research, refinement, and adoption by a broader audience of companies and academic partners.