Whether they acknowledge it or not, businesses always impact on society and the environment, be it positively or negatively. It is therefore obvious that customers need to be informed about the nature of such an impact, and the public value created by the said business. Your Public Value re-publishes a blog written by David Thomas, author at Social Value UK, on whether companies should be forced to include reporting on their social and environmental impact, when they report on profits.
Should companies be forced to include social and environmental impact when calculating profits?
“A YouGov survey commissioned by Social Value UK shows that 40% of people think additional measurements should be mandatory when calculating profitability.
Our finding places further pressure on businesses to demonstrate their sustainability and social responsibility credentials, as 40% of people believe that companies should be forced to account for their financial, social and environmental impact when calculating their overall profitability.
Our research found that millennials are the most likely to want a change in accounting rules, with the number of people agreeing that the additional measurements should be included rising to 44% in the 25-34 year old age group.
Only 11% of the 639 people surveyed thought only financial value 25-34-year-old included. Currently, profitability typically only takes into account the rate of return.
We at Social Value UK are encouraging businesses to adopt a ‘principles-based’ approach to accounting, taking in a broader definition of value which goes beyond merely the financial.
Our research comes amid mounting pressure on businesses to show they are behaving responsibly. Recent years have seen a surge in non-financial reporting requirements, with certain businesses now expected to disclose information on gender pay, supply chain management, human rights, emissions and energy efficiency.
While many of these initiatives allow for the information to be kept separately, this research shows that some people instead want the information integrated into the overall calculation of profit and performance.
Increasingly, people want extra-financial information integrated into the overall calculation of profit and performance.
The Financial Reporting Council (FRC) has also this year launched a major project to challenge existing thinking about corporate reporting and consider how companies should better meet the information needs of shareholders and other stakeholders. Meanwhile, there has recently been a strengthening of the Public Services (Social Value) Act 2012 by the UK Government, who announced last month that public procurements will have to take into account social and economic benefits.
The YouGov research commissioned by us at Social Value UK also found that there was a general lack of understanding amongst members of the public who do not realise what information is included in company accounts. 65% of respondents said they were unaware that companies do not have to include social and environmental value created or lost when completing their financial accounts.
Our research also suggests that only a handful of people are happy with the current basis of financial reporting. Only 15% of respondents said they would want their investments to maximise financial returns with no interest in social or environmental impact, with 38% wanting to make some financial profit and know that some additional value had been created.
Ben Carpenter, CEO of Social Value UK, said: “The overall ‘value’ or‘profitability’ of a company is highly important as it informs key decisions, from setting share prices to informing economic analysis.
“This hasn’t escaped the attention of members of the public, who now clearly expect companies to account for their social and environmental impact, as well as their financial performance.
“We believe there is a huge opportunity to radically reshape the way that we calculate the value of a company, with a growing body of professionals already proving that it can be done.”