We also did two pilots on consumer impact for portfolio companies Milarex and Pagero together with researchers from Harvard Business School.

When the IWA research project at Harvard Business School came to an end in 2021, the International Foundation for Valuing Impact (IFVI) was established as an independent non-profit organization to further advance standardization of impact accounting. Since its launch in 2022, IFVI continues to build on the results of the IWA project and lead the development of standardized impact accounting practices. Summa has partnered with them to advance the field of impact accounting and pilot methodology updates as they become available, recognizing the importance of standardization when it comes to impact accounting.

We were interested in continuing our work on impact accounting and expanded the practice further across our portfolio in 2024. To support this effort, Summa engaged the consultant Valuing Impact to apply impact valuation across more aspects of our portfolio companies, recognizing their expertise in implementing these practices. We also employed Valuing Impact’s methodologies where specific impact methodologies have not yet been developed by IFVI. Valuing Impact remains a valuable partner in helping us make our impact data actionable both for us as investors and for our portfolio companies. They support us in applying impact valuation more widely across our portfolio, which means we can drive better outcomes for all stakeholders. So far, we have done pilots for portfolio companies Oda, Axion and Logpoint, one from each thematic investment area resource efficiency, changing demographics and tech-enabled transformation.

This journey reflects our commitment to transparency and sustainability, ensuring that both financial and impact performance are key to assessing the value of our investments. Through impact accounting, we can more effectively measure and manage what truly matters and address the world’s challenges to make it a better place.

Taking a step back, let us bring some clarity on the different terms that are key in impact accounting, such as impact valuation, reference scenarios and impact pathways.

Impact-weighted accounts was the term previously used for impact accounting during the proof-of-concept testing at the IWA project at Harvard Business School. During its existence IWA made groundbreaking strides in advancing the idea of financial accounts that reflect a company’s financial, social and environmental performance. By 2021, it had achieved proof of concept for impact accounting, demonstrating both feasibility and value, with more than 20 papers, two dozen pilots and four published datasets displaying monetized impact figures for over 6,000 companies.

With this validation of its work, most significantly in the call to action from the G7 Impact Taskforce for “mandatory accounting for impact as a destination,” the time was right to scale the work of translating company impacts into currency.

A name-change in 2022 to impact accounting was completed based on stakeholder feedback. The impact-weighted accounts terminology often led to the false assumption that impact accounting was being designed to replace financial accounting, as opposed to supplement it. The terminology change helped clarify the intended separation between financial accounting and impact accounting. These are parallel systems that can be intertwined but are not meant to replace one another.

Impact accounting describes a system similar to financial accounting. It measures and values the impacts of corporate entities, generating impact information to inform decisions about an entity’s effects on sustainability. This is the same concept as impact-weighted accounts; the changes was purely in terminology, not in meaning.

When making the impact valuation exercise, the reference scenario comes into play. Regardless of which type of reference scenario chosen, it refers to the activity to which we compare the company’s activities (the so-called counterfactual) and which in the end leads to the change in outcomes or impact:

Impact accounting brings practicality to the complex world of corporate sustainability disclosure. Translating environmental and social impact to the language of currency makes information about impact accessible, actionable and comparable. Once impact is monetized, it can be measured and managed strategically, using the same infrastructure that already exists for financial management.

Together, financial reporting and impact accounting lay the foundation for a comprehensive assessment of an entity’s performance. Companies, investors, regulators, policymakers, employees and consumers can then make better decisions for people and the planet.

Over the years, there has been a significant development in the number of companies reporting on sustainability topics. While this development was aimed at meeting expectations from investors, companies and their stakeholders, it has also been limited. Current metrics are difficult to understand and compare, as they are often presented in highly technical and idiosyncratic units of measurement. For example, comparing an organization’s Total Recordable Injury Rates, which measures employee injury rates, with the tons of CO2e (or carbon dioxide equivalents) it emits is difficult to do. They also frequently measure inputs and activities of a business, rather than actual impacts and outcomes, which further limits their potential to drive meaningful change.

Why should investors adopt impact accounting?

Investors can leverage the data provided from companies in their portfolio to understand the risks, opportunities and impacts across their portfolio, to identify future investment and engagement opportunities. It enables the measurement of outcomes instead of activities and outputs. Some of the use cases for investors include:

• Fruitful engagement with portfolio companies: By embarking on a journey together to monetize the impacts of a portfolio company, the investor and company teams can gain a deeper understanding for the impacts and identify collaboration opportunities.
• Improved decision-making: Assessing and comparing total social value of companies can inform due diligence and investment decisions – an opportunity to monetize the theories of change that Summa develops for each subtheme.
• Greater portfolio-level visibility: Increased transparency around potential risks and opportunities to enterprise value and understanding of their nature and magnitude.
• Enhanced portfolio comparison: Greater comparability across companies and better understanding of the total social value created and/or destroyed across a portfolio.

Please reach out to our impact team if you want to learn more: impact@summaequity.com or sign up for our newsletter to get updates directly in your inbox.

This article is informed by methodologies from the Impact-Weighted Accounts project at Harvard Business School, the International Foundation for Valuing Impacts (IFVI) and the Value Balancing Alliance (VBA), and Valuing Impact.