Social Accounting for Economically Targeted Investments: The Expanded

Value Added Statement

Laurie Mook, OISE/University of Toronto

October 15, 2005

Accounting Reports

A trade union approach to pension fund investing

• Create good, unionized jobs• Earn good returns with targeted social,

economic and environmental objectives• Promote good corporate behaviour• Limit excesses of corporate executives and

inside shareholders• Curb anti-social corporate behaviour such as

environmental pollution and child labour (CLC 2004)

Economically Targeted Investments (ETIs)

• One type of socially responsible investment which “seeks to obtain risk-adjusted market grade returns while achieving collateral benefits for plan members and their communities” (SHARE, n.d.)

Value Added

• Value added is a measure of wealth that an organization creates by adding value to raw materials, products and services through the use of labour and capital.– typically measured by the difference between the

market value of the goods or services produced, and the cost of goods and services purchased from other producers (Ruggles and Ruggles 1965)

Example

• Raw materials (wood, screws, glue, etc.)

• Transformed by labour and capital

• Finished table

Example

• Raw materials (wood, screws, glue, etc.)$100

• Transformed by labour and capital

• Finished table$300

Example

• Raw materials (wood, screws, glue, etc.)$100

• Transformed by labour and capital $200

• Finished table$300

Income Statement & Value Added Statement

Income Statement

Value Added Statement

Source of information

Financial accounts

Financial accounts

Assumption Enterprise responsible to shareholders

Enterprise responsible to society

Measures Wealth created for shareholders, i.e. profit/loss

Wealth created for stakeholders, i.e. value added

Limitations of traditional value added

• Focuses only on financial items and pays no attention to intangibles and items that do not pass through the market

• Does not account for indirect impacts of an organisation’s activities

• Does not make explicit the choices made in obtaining resources

Outputs

• Direct outputs: – direct effects of an organization’s activities on its

customers/clients

• Indirect outputs:– Indirect effects on clients/customers– Indirect effects on those other than

clients/customers

Sustainable Building Example

Sustainable Building Example

Traditional building

Marginal cost to build using sustainable design elements

Total

Benefits to customers

Benefits to wider society

Combined

Benefits

• To customers– Savings due to decreased energy, water, and maintenance

costs– Savings due to increased productivity and health of

employees (occupants)

• To wider society– Reduction in waste and emissions

• 5 percent increase in costs resulted in 10 times benefits received over 20 years (Kats et al. 2003)

Collingwood Village

Key Considerations

• Creation of jobs• Contributions to pension funds (deferred

wages)• Return on investment to pension fund

investors• Impact on residents• Impact on local community• Environmental impact

EVAS

• Traditional costs• Marginal costs:

– Employee development– Community development– Environmentally sustainable development

• Total costs• Benefits

– Employees– Customer/Client– Societal

• Combined

Next Steps

• Further development needed in identifying, measuring, quantifying, standardizing and placing a value on key social and environmental indicators

Further Reading

Canadian Labour Congress (2004) A Trade Union Approach to Pension Fund Investing. Available from Internet URL <http://www.canadianlabour.ca>

Kats G, Alevantis L, Berman A, Mills, E and Perlman J (2003). The Costs and Financial Benefits of Green Buildings: A Report to California’s Sustainable Building Task Force. Available from Internet URL <http://www.usgbc.org/Docs/News/News477.pdf>

Mook L (forthcoming 2005). Integrating and Reporting an Organisation’s Economic, Social and Environmental Performance: The Expanded Value Added Statement. In Schaltegger, S., M. Bennett, J Bouma & R. Burritt (Eds.), Sustainability Accounting and Reporting. Dordrecht: Springer Kluwer Publishers.

Thank you!

Contact information:

Laurie MookOISE/University of TorontoDepartment of Adult Education252 Bloor St. W., Toronto, OntarioCanada M1L 3S9

Email: Lmook@oise.utoronto.caWebsite: http://home.oise.utoronto.ca/~lmook