In articulating the conceptual foundations of an impact accounting system with General Methodology 1 – including its purpose and key concepts, and mirroring the conceptual frameworks that exist in financial accounting – the groundwork is set for credible and comparable impact accounting to continue to develop towards a vision where impact accounting is on par with financial accounting in terms of decision usefulness.
George Serafeim, Charles M. Williams Professor of Business Administration, Harvard Business School
Highlights
- Sets monetary valuation, which is used to translate the impacts of entities into intuitive units that facilitate trade-off analyses between sustainability topics and between sustainability topics and financial topics, as a foundation of impact accounting.
- Establishes impact materiality, in contrast to financial materiality, as the basis for impact accounts, focusing on the significance of impacts to affected stakeholders. Recognizes impact materiality as entity-specific. Impact accounting, in particular the measurement and valuation of impacts, provides a data-driven and empirical approach to support an entity’s materiality assessment process.
- Consistent with financial reporting, acknowledges that impact accounts are based on estimates, judgments, and models rather than exact depictions and that measurement uncertainty alone does not prevent impact information from being useful. Further, establishes neutrality and conservatism as principles to produce faithfully represented information and avoid misrepresentation of impacts.
- Describes preparers of impact accounts as any entity or investor, and users of impact accounts as managers of the entity, existing or potential investors, and affected stakeholders.
- Establishes impact pathways as the foundational framework for measuring the impacts of corporate entities in the Methodology, linking the activities of an entity to impacts on people and the natural environment through a series of consecutive, causal relationships.
Influences
- Capitals Coalition
- EFRAG
- European Sustainability Reporting Standards (ESRS)
- Global Reporting Initiative (GRI)
- IFRS Foundation
- Impact Economy Foundation
- Impact Management Platform
- Social Value International (SVI)
- The Transparent Project
Development process
The development of General Methodology 1 is governed by the Valuation Technical & Practitioner Committee (VTPC) and follows the Due Process Protocol.
- Development of General Methodology 1 was approved as part of the 2023 Workplan in April 2023.
- Research and development began in January 2023. VTPC discussion meetings were held in April and July 2023.
- The VTPC approved the Exposure Draft on July 31, 2023.
- The public comment period was held from August 16 to October 31, 2023.
- A revised final version of GM1 based on public comment was approved by the VTPC in December 2023.
- GM1 was released along with its Basis for Conclusions in February 2024.