Putting sustainability into financial reporting

We can envisage a balance sheet from which it is possible to glean the current state of the firm’s investment in circularity. A worked example is given below. Note that by  circular infrastructure we mean infrastructure that:

  • runs (or can run) on renewable energy
  • uses recycled materials and recycles materials
THE TRANSITIONAL COMPANY
PERIOD ENDED 31/12/2016
CURRENT ASSETS CURRENT LIABILITIES
Cash 200 000 € Accounts payable 0 €
Accounts receivable 0 € Accrued Expenses 0 €
Inventory 0 € Taxes owed 0 €
TOTAL CURRENT ASSETS 200 000 € Long term debt 0 €
TOTAL CURRENT ASSETS 0 €
PROPERTY AND EQUIPMENT
*Circular Infrastructure 100 000 € LONG TERM DEBT
*Non-circular Infrastructure 50 000 € *Loans for Circular investment 100 000 €
Less depreciation -4 000 € *Loans for other infrastructure investment 30 000 €
NET FIXED ASSETS 146 000 € Other loans
TOTAL LIABILITIES 130 000 €
OTHER ASSETS STOCKHOLDERS EQUITY
Licence 0 € Paid in Capital 0 €
Goodwill 0 € Retained Earnings 0 €
TOTAL OTHER ASSETS 0 € TOTAL NET WORTH 0 €
TOTAL ASSETS 346 000 € TOTAL LIABILITIES AND NET WORTH
*Percentage circular infrastructure value 67% *Percentage investment loans for circular infrastructure 77%

As the example above shows, the infrastructure is 67% circular. In terms of loans the 77% invested in circularity gives a degree of transparency for investors. For example, if investors think that regulations will become stricter in future, then the investment is sound.

Extended Profit and Loss Statement

An extended profit and loss statement can also be created as shown below.

From this you can derive measures like % of sales of circular products, cost of circular technology, circular vs non-circular expenses and trends over time. This again creates transparency for the capability of the firm to operate in an environmental way.

INCOME STATEMENT
PERIOD ENDED 31/12/2016
CURRENT
OPERATING INCOME
*Circular product sales 50 000 €
*Non-circular sales 100 000 €
Net sales 150 000 €
*Renewable energy 2 000 €
*Non-renewable energy 2 000 €
*Non-circular materials purchase 2 500 €
*Circular materials purchase 2 500 €
Other costs of good sold 100 €
GROSS INCOME 140 900 €
OPERATING EXPENSES
*Renewable energy 2 000 €
*Non-renewable energy 4 000 €
*Non-circular materials purchase 3 000 €
*Circular materials purchase 10 000 €
*Repairs and maintenance on linear infrastructure 20 000 €
*Repairs and maintenance on circular infrastructure 30 000 €
*Costs for waste elimination, non-recycled 2 000 €
Other expenses
TOTAL OPERATING EXPENSES 71 000 €
Other income 0 €
Other expenses 0 €
NET INCOME BEFORE TAXES 69 900 €
TAXES 25 000 €
NET INCOME 44 900 €
Circular products 50/150    75%

Renewable energy 2/6        50%

Circular materials 10/13     77%

Circularity lost to waste    15%

Circular infrastructure

costs 30/50                           60%

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