Environmental profit and loss and Equity: Difference between pages

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''Sustainability - metrics.''
1. ''Financial reporting - balance sheet''.


(EP&L).
Amounts in the balance sheet of a company representing the book value of the interests of the shareholders.


A financial measure of corporate performance in relation to the environment.
It includes share capital, cumulative retained profits, and other reserves.


An EP&L is a form of natural capital accounting.
It is also known as 'total equity' or 'shareholders' funds'.




It takes explicit account, in monetary terms, of the effects of an organisation's activities on carbon emissions, water use, water pollution, land use, air pollution and waste.
The book value of total equity is equal to the book value of the company's net assets.


By doing so, an EP&L identifies and incorporates the financially quantified effects of actions that have time-lagged impacts - often negative - such as pollution.  This type of item is not normally recognised so quickly in traditional financial reporting.
These two items in a balance sheet always balance - so long as there are no errors.


This is what is meant by a balance sheet "balancing".


The EP&L is measured across an organisation's entire supply chain, as well as the internal operations of the organisation itself.


2. ''Financial reporting''.


:<span style="color:#4B0082">'''''Footprint in supply chain'''''</span>
Comparable amounts for financial reporting entities that are not companies.


:"Leading sports brand Puma [identified in 2001 that] 94% of their environmental footprint orignated within their supply chain.  [This] sparked a reduction in waste and negative externalities as they created systems to achieve new targets."


:''Sustainable and Social, Amy Nguyen, September 2020''
3. ''Capital investment.''


The capital of a firm invested by those accepting the greatest degree of risk, for example the holders of ordinary shares (also known as common stock or common equity) in a company.


An EP&L can be a powerful tool to enhance the credibility and effectiveness of an organisation's corporate communications and actions on sustainability.


4. ''Securities.''


:<span style="color:#4B0082">'''''Positive presentation'''''</span>
Securities representing the rights of the risk capital investors in 3. above.


:"Kering, the luxury fashion group, is a pioneer of the environmental profit and loss, and uses it as a tool across its brands to evaluate in monetary terms its environmental footprint.
For example, ordinary shares, also known as common stock.


:The group also analyses different irrigation systems to support sustainable cotton cultivation while securing quality on supply.


:What these examples show is that natural capital provides a framework enabling companies to communicate credibly and fulfil their corporate responsibility.  
5. ''Banking and bank regulation''.


:As with Kering, it is possible to establish a baseline and use it in a reporting context to measure progress against environmental goals.  
Abbreviation for common equity.


:Companies that identify and manage their natural capital and environmental impacts plus related risks can present themselves positively to both the investment community and other stakeholders."


6. ''Net asset value.''


:''The Treasurer magazine, Issue 1, February 2021, p41 - Naresh Aggarwal, associate director policy & technical, ACT''
The net value of an asset, after deducting any debt relating to it or secured on it.


For example, the value of a residential property, after deducting the amount of a mortgage borrowing secured on it.


Kering - the owner of Gucci and Saint Laurent - has made its EP&L methodology open source.
If the value of the borrowing exceeds the value of the asset, the situation can be described as 'negative equity'.  




Kering identifies seven stages in its EP&L methodology:
:<span style="color:#4B0082">'''''Example: Equity and Negative equity'''''</span>


#Decide what to measure
:A house is worth EUR 400k.
#Map the supply chain
#Identify priority data
#Collect primary data
#Collect secondary data
#Determine the monetary value of the data
#Calculate and analyse the results


:A borrowing of EUR 300k is secured by a mortgage over the house.


:<span style="color:#4B0082">'''''What we have learned'''''</span>
:The net worth is the difference between the value of the the house (asset) EUR 400k and the borrowing (liability) EUR 300k


:"Implementing measurement systems and presenting the results are the most important features of the EP&L.
:400k - 300k = EUR 100k


:Identifying opportunities is only the start of what the EP&L can do for a company. The findings of the EP&L can subsequently help to boost a company’s performance, too."


:''Kering Sustainability - EP&L methodology - accessed February 2021''
:The Equity in the house is the difference between the current value, and any loans secured over it.
:This is also EUR 100k.




== See also ==
:If the value of the house falls to EUR 250k, the borrowing now exceeds the value of the asset.
* [[Association of Corporate Treasurers]]
 
* [[Benchmarking]]
:This is 'negative equity' (of EUR 50k = 250k - 300k).
* [[Biodiversity]]
 
* [[Carbon]]
 
* [[Emissions]]
7. ''Law''.
* [[Environmental concerns]]
 
* [[Environmental KPI]]
A legal system that resolves disputes between persons by resort to principles of fairness and justness.
* [[Environmental Objective]]
* [[EP&L intensity]]
* [[Financial reporting]]
* [[Natural capital]]
* [[Open source]]
* [[Performance]]
* [[Profit and Loss account]]
* [[Recognition]]
* [[Supply chain]]
* [[Sustainability]]
* [[Triple bottom line]]
* [[Trucost]]




== External link ==
== See also ==
[https://www.kering.com/en/sustainability/environmental-profit-loss/ Kering's Environmental profit and loss tool]
* [[An introduction to equity capital]]
* [[Assets]]
* [[Balance sheet]]
* [[Blue chip]]
* [[Book value]]
* [[Capital]]
* [[Capital employed]]
* [[Capital structure]]
* [[Common equity]]
* [[Common law]]
* [[Common stock]]
* [[Compound instrument]]
* [[Debt]]
* [[Debt for equity swap]]
* [[Dividend]]
* [[Dividend growth model]]
* [[Entity]]
* [[Equity cost of capital]]
* [[Equity instrument]]
* [[Equity investments]]
* [[Equity risk]]
* [[Equity structured deposit]]
* [[Equity swap]]
* [[Green equity]]
* [[Hybrid capital]]
* [[Kay Review]]
* [[Liabilities]]
* [[Liabilities and equity]]
* [[Market/book ratio]]
* [[Member]]
* [[Mezzanine]]
* [[Mortgage]]
* [[Negative equity]]
* [[Net assets]]
* [[Net worth]]
* [[Ordinary shares]]
* [[Own funds]]
* [[Private equity]]
* [[Reporting entity]]
* [[Reserves]]
* [[Return on equity]]
* [[Risk]]
* [[Share]]
* [[Share capital]]
* [[Shareholder]]
* [[Shareholder value]]
* [[Shareholders’ funds]]
* [[Shareholders’ wealth]]
* [[Stakeholder]]
* [[Statement of changes in equity]]
* [[Stock]]
* [[Total Loss Absorbing Capacity]]
* [[Total return swap]]


[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:Corporate_finance]]
[[Category:Corporate_finance]]
[[Category:Investment]]
[[Category:Long_term_funding]]
[[Category:Compliance_and_audit]]
[[Category:Compliance_and_audit]]
[[Category:Ethics]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Risk_reporting]]
[[Category:Financial_products_and_markets]]

Revision as of 20:51, 30 October 2021

1. Financial reporting - balance sheet.

Amounts in the balance sheet of a company representing the book value of the interests of the shareholders.

It includes share capital, cumulative retained profits, and other reserves.

It is also known as 'total equity' or 'shareholders' funds'.


The book value of total equity is equal to the book value of the company's net assets.

These two items in a balance sheet always balance - so long as there are no errors.

This is what is meant by a balance sheet "balancing".


2. Financial reporting.

Comparable amounts for financial reporting entities that are not companies.


3. Capital investment.

The capital of a firm invested by those accepting the greatest degree of risk, for example the holders of ordinary shares (also known as common stock or common equity) in a company.


4. Securities.

Securities representing the rights of the risk capital investors in 3. above.

For example, ordinary shares, also known as common stock.


5. Banking and bank regulation.

Abbreviation for common equity.


6. Net asset value.

The net value of an asset, after deducting any debt relating to it or secured on it.

For example, the value of a residential property, after deducting the amount of a mortgage borrowing secured on it.

If the value of the borrowing exceeds the value of the asset, the situation can be described as 'negative equity'.


Example: Equity and Negative equity
A house is worth EUR 400k.
A borrowing of EUR 300k is secured by a mortgage over the house.
The net worth is the difference between the value of the the house (asset) EUR 400k and the borrowing (liability) EUR 300k
400k - 300k = EUR 100k


The Equity in the house is the difference between the current value, and any loans secured over it.
This is also EUR 100k.


If the value of the house falls to EUR 250k, the borrowing now exceeds the value of the asset.
This is 'negative equity' (of EUR 50k = 250k - 300k).


7. Law.

A legal system that resolves disputes between persons by resort to principles of fairness and justness.


See also

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