Connecting Sustainability and the Balance Sheet: Measurement and PresentationShari Littan CPA, JD Editor, Thomson Reuters Tax & Accounting

Accounting 101: Investment game

Bank account NetflixItaly: Inflation-pegged bonds Valeant PharmaceuticalsResidential mortgage-backed security (RMBS)

HP

National Grid UK Coca-ColaAmazon NestleGoldman Sachs Blue DiamondFacebook Shell Global

GE EnronBT McDonaldsBank of America AppleGM Johnson & JohnsonVW Skanska

Accounting 101: Investment game

10 Bank account 5 Netflix1 Italy: Inflation-pegged bonds 4 Valeant Pharmaceuticals2 Residential mortgage-backed

security (RMBS)4 HP

5 National Grid UK 3 Coca-Cola8 Amazon 5 Nestle5 Goldman Sachs 0 Blue Diamond7 Facebook 2 Shell Global

10 GE 1 Enron5 BT 2 McDonalds3 Bank of America 5 Apple5 GM 4 Johnson & Johnson1 VW 3 Skanska

100

Summary: Objective of accounting and reporting

Who is the user? What information does the user need to make resource allocation decisions? Does the system provide information that facilitates efficient, collective resource allocation?

Incorporating sustainability into qualifications

1. Incorporating sustainability into strategy 2. Identifying the most material ESG issues for an

organization 3. Measuring and reporting non-financial information (e.g.,

carbon footprint) 4. Understanding the relationship between sustainability

and value 5. Identifying sustainability risks (prioritizing environmental

and climate change risks)

ModelBalanceSheetforSustainability

Vendors and employees Government (taxes) Lenders Shareholders +/- Other comprehensive income

Intrinsic value

Resource contributors (“Capital”)

Contributions by all stakeholders

Resources (“Assets”)

Total assets (book value)

+ Unrecognized intangible assets (goodwill) = present value of expected cash flows

Market value

+/- Adjustments for market inefficiencies

Total liabilities + equity

+ Unrealized capital contributions:

• Customers (reputation) • Employees (diversity; training) • Shareholders (commitment to

business model) • Commons (taxpayers; nature)

Current assets

Noncurrent assets Recognized intangible assets

+/- Fair value

Barriers: Sustainability content in accounting and finance qualifications

• Lack of knowledge • Competing priorities • Lack of investor recognition • Lack of support from senior management • No clear link to business management

Enabling factors: Sustainability content in accounting and finance qualifications

• Competition for talent (Millennials and post-Millennials) • Growing regulatory attention • Development of new standards • Evolving understanding of the connection between

sustainability and value