Rethinking Finance


Insights into company reporting

In an earlier column, I hoped to veer towards having faith rather than distrust of human actors when I said that we have a natural inclination towards doing what is good for society, and that this does not contradict our individualistic nature. But do companies and investors care about sustainability? When they have a mandate to stay focused on gains and growth, do they care about climate change, water scarcity, poverty alleviation, biodiversity, urban development, access to medicine, education rights, or exploitive labor, to name a few? We have seen many initiatives across the board when it comes to corporate social responsibility, but there is still contention here: Why are there limits to investments in doing good? Why is this more prevalent in developed rather than developing countries where regulation is more stringent… does this mean that it is still rules-based, and not normative, not inherent? Whereas there are exceptions, there is the truth that economic actors tend to care about sustainability if it has a financial impact on them.

The process of valuing sustainability is therefore dominated by the market value of social and environmental issues; the higher this value, the higher its worth to the organization. Though this means of “financialization” provides economic actors with a simplification of the complex nature of sustainability issues, it also poses a big problem: only sustainability issues that are calculable and financially material matter in the end. I would like to share an interesting takeaway from an accounting research paper on wildlife conservation by my Ph.D. supervisor Diane-Laure Arjalies. Without getting too academic, she explained how people enjoy funding the conservation of “cute” or “popular” or “interesting” animals: pandas, tigers, zebras, beautiful species. No one really likes to fund unattractive insects or venomous toads. As such, wildlife programs which simply need as much funds as they can get appeal to these biases; what ends up happening is that the overfunding of certain species leads to the underfunding of others and the biodiversity is compromised. A sustainability effort that ends up to be unsustainable.

Such is the case when we talk about whether sustainability matters to markets. Research abounds on this issue and the conclusion is simple: Sustainability matters to economic actors when it can be calculated. To be deemed important, sustainability issues have been largely transformed into numbers that could later be given a financial value. For instance, several studies show that the value of “protecting the environment” was transformed into a “measure of energy consumption” which was eventually translated into “money.” Through this valuation process, the intrinsic value of “protecting the environment” is transformed into “generating profits.” Sustainability reporting is a clear illustration of this phenomenon. By creating frameworks such as the integrated reporting (IR) or the global reporting initiative (GRI) that mirror financial reporting and use a financial language, sustainability issues become institutionalized within accepted processes of accounting and finance.

Yet recent work has recognized the limits of numerical and financial forms of evaluation. Sustainability issues are so complex, with stakeholders from every industry having a different definition of what sustainability means to them. Together with my co-authors, I embarked on a qualitative longitudinal study of the creation of the Principles for Responsible Investment (PRI) Reporting Framework, the leading sustainability reporting framework in the asset management industry. We explored the process through which asset management professionals agreed upon criteria to report and assess their practices of Responsible Investment as they attempted to integrate Environmental, Social, and Governance issues into traditional investment processes. Imagine, apart from trying to execute this challenging task, they had the task of reporting on it as well. What was so interesting about this research project was that no one had any idea of how the reporting tool was to be done. While we were studying this period which we scholars called the “mainstreaming” of responsible investment, 1,248 organizations reported and assessed the sustainability of their investment practices.

In examining the creation and implementation of the Reporting and Assessment Framework created by the PRI, we uncovered the ways in which it enabled the adoption of a new valuation process of sustainability. Constituents created, deliberated, and ultimately agreed upon the (e)valuation criteria used in the framework. We found that they first had to deliberate and agree on what to value, they then agreed on how to value it. This novel process of valuation was rendered possible by selecting non-prescriptive evaluation criteria that avoided financialization and, of course, the support of the PRI, which enabled such a movement and managed contention democratically.

We found that uncovering the multiplicity of values involved in a situation is essential for transforming practices towards sustainability. Not only can accounting devices evolve as they are being transformed and used by economic actors, but they can also support the expression of a diversity of values, even within a financial setting. Even in the most traditionally numbers-driven sectors such as asset management, people were open to using new metrics when they were unable to financialize complex issues, offering a theoretical and empirical path through which the multivocality and evolving nature of sustainability can be acknowledged and expressed.

(To be continued)

Note: This article is based on a working paper entitled “Valuing Sustainability Without Financializing? The Case of the Reporting and Assessment Framework of the United Nations Principles for Responsible Investment (Un-Pri)” written by the author with Diane-Laure Arjalies of Ivey Business School, Western University (Canada) and Nicolas Mottis of the Ecole Polytechnique Paris.


Daniela “Danie” Luz Laurel is a business journalist and anchor-producer of BusinessWorld Live on One News, formerly Bloomberg TV Philippines. Prior to this, she was a permanent professor of Finance at IÉSEG School of Management in Paris and maintains teaching affiliations at IÉSEG and the Ateneo School of Government. She has also worked as an investment banker in The Netherlands. Ms. Laurel holds a Ph.D. in Management Engineering with concentrations in Finance and Accounting from the Politecnico di Milano in Italy and an MBA from the Universidad Carlos III de Madrid.