To sideline a little from my prior post, I came across an initiative celebrated by Singapore's Green Finance Centre - the IWAF, which I thought was worth mentioning and taking a look at. This was a framework not entirely foreign to me as there had been prior Impact measurement frameworks proposed by Impact Institute, which I think now brands itself as the IEF, Impact Economy Foundation.
What actually drew me to it was because one of the contributors to this framework was someone that taught me in University, and was one of the key figures that exposed me to this whole world of ESG, Sustainaible investing and the sorts. Prof Hao from SMU.
More about that (my motivations and fascination when I first learnt about these topics) another time. To discuss the IWAF, the Impact Weighted Accounts Framework. It sets up a another layer for companies to disclose their ESG related metrics. This time it provides actual monetized Impact a company has on 6 different capitals (related to ESG) based off its operations and efforts towards ESG/Sustainability. It also encompasses data used by other frameworks, and captures the significant ones which can translate to actual impact on ESG factors. The framework, thus, sets out not as a competition to existing frameworks, but to supplement and give a more cenetralised baseline for companies and investors to use.
Impact has always been substantially more rigorous compared to ordinary disclosure frameworks where companies simply disclose the efforts/invesmtent amount/emission amount/etc, which leaves actual effects or impacts of these efforts to the interpretation or judgement of the investor. They might serve as possible basis of comparisons, but with countless frameworks and varying levels of disclosure, it might be difficult for someone to even compare simply based off voluntary disclosures. That said, regulators have a part to play in this field, and steps have been made in the right direction, such as the SEC and MAS (Singapore) proposing frameworks from TCFD as the baseline standard for reporting.
However, the narrative of these frameworks from the regulator standpoint comes with a large emphasis on risk mitigation and management. To have safeguards for investors, the economy and to ensure the companies themselves are not taking on too much esg risk in a sense. That is not enough. IWAF contributes by going beyond the risk measuring and mitigation efforts toward measuring positive or negative impact to society, environment. The data provided also enables corporates to make better decision making, something that mere disclosures might not be as effective in. The monetization of impacts gives corporates and leaders something familiar to work with, and as such, they can make decisions more easily regarding their operations and impacts to the 6 capitals laid out by IWAF.
How does the monetization actually work? According to the reports and webinar, well cited and credible academic research is used as a foundation to convert disclosures and data from a company into monetary value. Data is also only taken from credible and reputable sources such as those compiled by the World Bank.
With all that said, impact measurement is definitely a key area that will contribute heavily towards cneetralizing existing frameworks, while providing key useful and comparable data for investors and corpoartes. The project is still in the midst of refining, but I certainly hope to see further developments of it soon.
Another note: A presenter from the IWAF Launch talked about an interesting point - the narrative of the economy of the past was all about pricing and profits. That brought the emphasis in accounting toward these key figures. In a way, the 'scarcity' of that era was about growth/development/industrialization/speed/etc. these were the limitations in the past, with lots of room for corpoartes to grow and innovate without any major consequence. Today, the 'scarcity' relates to environmental resources, impacts on climate, society, etc. Yet the accounting methodology for corporates remain fixated and without major changes from the emaphsis on profits. It is about time to relook at this foundational issue and crucial for regulators to also enact changes to it.
Links to the IWAF Launch and their website:
https://www.youtube.com/watch?v=yYqaqPnfNyY&ab_channel=ImpactEconomyFoundation
https://impacteconomyfoundation.org/impactweightedaccountsframework/iwaf-public-consultation/iwaf-public-consultation-updates/
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