Four financial firms including UBS , Singapore’s DBS , Denmark’s Danske Bank , and Amsterdam-based ABN AMRO Bank issued a joint press release on June 30 with Harvard Business School’s Impact-Weighted Accounts Initiative (IWAI) and the Impact Institute, announcing that they would ally to adopt new impact-reporting standards, as reported by Reuters later that day. The new alliance, named Banking for Impact (BFI), aims to create a new reporting system that captures the environmental and social externalities not reflected in traditional financial reporting rules.

According to BFI’s vision paper, the group recognized banks and financial institutions as the pivotal drivers in the transition to the impact economy. The paper identified four key steps to impact measurement and valuation (IMV) as quantification, valuation, attribution, and aggregation. It also drew conclusions from pioneering research results that showed the inconsistency and limitations of current CSR and ESG reporting frameworks, which served as the basis for BFI’s call for a standardized and value-based reporting rule.

Other research efforts have led up to the group’s establishment. Harvard Business School launched the IWAI in 2019 as a pilot to investigate the valuation of companies’ environmental and social impacts. The pilot’s early participants include BlackRock and Calvert, an investment management company owned by Eaton Vance . The pilot researched over 1,800 companies and found a significant relationship between negative environmental impacts and lower stock prices. This provided a compelling business case for green business practices as well as accurate IMV.

IWAI was not the first attempt to translate environmental impacts into monetary values. Kering , a French luxury group, priced its negative environmental impacts at EUR524m (USD638m) in its 2019 annual report. The food company Danone also reported carbon-adjusted earnings per share (EPS) in addition to the normal EPS. In 2019, the company recorded a 12% increase YoY of its carbon-adjusted EPS as opposed to an 8% increase of the normal EPS, based on an estimated carbon cost of USD35 per ton.

Sources:

https://www.reuters.com/business/sustainable-business/ubs-joins-peers-track-how-lending-affects-environment-jobs-2021-06-30/

https://www.reuters.com/business/sustainable-business/insight-putting-green-greenback-esg-investors-target-corporate-accounts-2020-12-18/

https://bankingforimpact.org/

https://bankingforimpact.org/wp-content/uploads/2021/06/Media-Release-Banking-for-Impact.pdf

https://bankingforimpact.org/wp-content/uploads/2021/06/BFI-Vision-paper-June-2021.pdf