Toby Heaps, Chief Executive of Corporate Knights and creator of the Global 100, writes for Harvard Business School

The following will appear in the publication Harvard Business School E-Book: 2010 Integrated Reporting Workshop Remarks.

Summary: Sustainability is the megatrend of the 21st century and corporations are its mega-institution. The aphorism that no business can succeed in a society that fails has never been truer, and as such it is no longer tenable for our time’s megatrend to be kept off the balance sheet of its mega institution. Among global stock exchanges, regulators and institutional investors, there is no longer a question of whether we need to move toward a new balance sheet for the 21st century that more fully reflects a company’s impacts on the planet and society; rather, the question is, “Where do we start?” In this regard, crowd wisdom drawn from existing disclosure thresholds and indicators sophisticated investors are already integrating into their analysis points to a surprisingly clear path of six first generation metrics (carbon, water, waste, energy, payroll, and injuries) that, if disclosed across the board by all large corporations, would enable a radical improvement of corporate valuation models with a more forward looking orientation. Three steps are required to accelerate the evolution of the balance sheet and corporate valuation:

1. Mandate: A critical mass of investors and companies issue call for all large companies to report a New Balance Sheet consisting of a focused list of first-generation metrics at the same time as their regular financial filings by a certain hard date, and back this call up with a public relations and lobbying campaign to give regulators the impetus and courage to take action.
2. Correlate: A “Stern Report” showing where green pays to reveal where there are strong linkages within industries for certain social/environmental metrics and profit/revenue growth.
3. Integrate: As investors integrate these clear metrics into their valuation models, they will create a virtuous cycle where the most sustainable companies attract the most capital and earn the best returns.

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