As global economies, governments, and businesses continue to face the environmental and social challenges present in our world, greater focus is being paid to how Environmental, Social, and Governance (ESG) factors impact our daily lives and how we conduct business. Increasingly, corporate investors, stakeholders, and companies are interested in understanding how ESG factors impact their bottom line and society at large.
Two factors that define a company’s ESG impact are: 1) the accounting standards dictating how ESG should be measured, and 2) ESG’s intangible nature. With decades of industry leading expertise in both complex accounting, auditing, and financial forensics as well as managing, defending, and valuing intangibles, Ocean Tomo is uniquely positioned to understand the intersection of these two factors related to ESG matters.
To manage something, first it must be defined and measured. To this end, Standards Setting Organizations (SSOs), Non-Governmental Organizations (NGOs), and regulators, such as the US Securities & Exchange Commission (SEC) and European Commission, have been working to establish consistent guidelines for companies to disclose and measure their various ESG metrics. Examples of SSOs and NGOs include the International Financial Reporting Standards’ (IFRS) newly formed International Sustainability Standards Board (ISSB), World Economic Forum, United Nations, Task Force on Climate-Related Financial Disclosures (TCFD), and Global Reporting Initiative (GRI), among others. While the EU has been at the forefront of mandating sustainability reporting, others such as the SEC are following suit, with the latter expected to outline its own mandatory framework within the next year.
Once something is defined and measured, it can then be valued and managed. With the rise of sustainability-based investment vehicles along with growing pressure to report ESG metrics, the availability of ESG data is growing rapidly and will only accelerate with further disclosure requirements. From these disclosures, companies, investors, and stakeholders will be able to analyze the data to make informed decisions about how corporate actions impact business and social value. Further, there are well established methods for the valuation of intangibles that can serve as a key starting point. At the same time, organizations such as the Value Balancing Alliance (VBA), Capitals Coalition, and Harvard’s Impact-Weighted Accounts are working on developing new methods and standards for understanding and valuing this new class of intangibles. As we enter what may be a new paradigm in the world of business, it will more important than ever to have a clear, accurate, and comprehensive understanding of intangible value as it relates to ESG.
Noor Al-Banna is a Director with Ocean Tomo’s Management Consulting practice, working out of the Chicago office. The practice area appraises intellectual property and various intangible assets for acquisitions and divestitures, bankruptcy and restructuring, establishment of intellectual property monetization strategies including licensing, mergers and joint venture/partnership formations, litigation support, and financial reporting and tax matters.
Nicole McTernan is a Manager in the Financial Expert business unit working out of the Reston (DC Metro) office. She provides litigation support and forensic accounting consulting services, including financial statement analysis, the application of generally accepted accounting principles, regulatory compliance, valuation, calculations of economic damages, evaluation of complex accounting and financial issues, and identification of key underlying facts and trends.
To explore this topic and how it could impact your business, please contact: Noor Al-Banna, CFA at Noor.AlBanna@jsheld.com or +1 312 327 4434; Nicole McTernan, CPA, CFF firstname.lastname@example.org or +1 (703) 654-1433.