The future is here: what to know about sustainability accounting.

• Author: Rogers, Jean
• Position: Financial reporting

Dwindling crop yields; disastrous weather events; lack of talent in the fields of science, technology, engineering and math ... how companies deal with these sustainability issues affects their ability to create long-term shareholder value. As such, companies are looking for ways to better manage and disclose the sustainability issues most important to their business.

And investors are seeking better data by which to evaluate corporate performance.

In today's world, the capital markets need a common language for assessing and communicating material sustainability risks and opportunities.

Enter sustainability accounting.

What Is Sustainability Accounting?

Market value typically differs from book value, in part, because traditional financial statements do not necessarily capture all die factors that contribute to a company's long-term ability to create value. Much of this "value gap" is attributable to, or can be significantly impaired by, the management or mismanagement of environmental, social and human capitals, as well as by poor corporate governance and missed opportunities for innovation.

Therefore, corporate reporting must extend beyond financial statements to facilitate the measurement and reporting of sustainability information that will enhance a decision maker's understanding of all material risks and opportunities.

Like financial accounting, sustainability accounting has both confirmatory and predictive value, so it can be used to evaluate past performance as well as for future planning and decision support. As a complement to financial accounting, it helps provide a more complete view of a corporation's performance and its ability to create long-term value.

Financial accounting addresses some elements of sustainability performance. However, financial accounting is intended, for the most part, to reflect an entity's current state.

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Furthermore, attempting to account for sustainability performance in financial terms is inherently limited by the absence of proper valuation techniques and adequate market pricing.

While environmental, human and social capitals can be understood conceptually as economic assets and liabilities, they are difficult to "price" adequately, either in terms of historical costs and prices or in terms of current market prices or fair values.

Sustainability accounting consists of defining non-financial metrics--both qualitative and quantitative--on industry specific sustainability topics...