Transcript:
This podcast was transcribed through a third-party application. Please disregard any misrepresentations.
Brad Caruso:
Welcome to Civic Warriors, brought to you by Withum. On this podcast, we bring the conversation to you, sharing, engaging stories that motivate and build consensus in the nonprofit community. This podcast is about the innovators, the leaders on the front lines of adversity, guiding lights in the nonprofit industry affecting change. And through their stories, we can all join forces to become civic warriors. Hey, warriors. Welcome to today’s episode of Civic Warriors. Brought to you by Withum, I’m your host, Brad Caruso, leader of Withum’s, not-for-profit practice. Our guest today is Rob Zochowski, president and CEO of International Foundation for Valuing Impacts, or IFVI. IFVI was founded in 2022 to meet the growing demand for impact accounting. The foundation’s mission is to build and scale the practice of impact accounting, to promote decision making based on risk, return, and impact. Financial accounting has evolved over hundreds of years to measure the financial performance of businesses, which has historically been the primary measure of success for businesses.
Brad Caruso:
You know, anyone like, like ourselves, that work in the accounting world, know that people focus on generally financial numbers and generally the metrics that people use are, are evaluated based on those financial numbers. Um, but as social and environmental challenges of compounded over time, there’s a growing recognition that there’s a new paradigm that’s necessary to improve outcomes for both society and business. One of that recognizes the full contribution of business, not just financial performance, but social and environmental performance as well. So this is very exciting to have a discussion with Rob today to talk about IFVI and the work they’re doing, the impacts they’re having, and how they’re helping businesses evaluate impact. It’s definitely a, a topic not often talked about, and really excited to have this conversation today. So, with all that said, Rob, welcome to the show.
Rob Zochowski:
Thank you so much for having me, Brad. Excited to be here.
Brad Caruso:
Awesome. Let’s start out, maybe talk a little bit about your background, how you arrived at IFVI and the passion for the work you’re doing.
Rob Zochowski:
So, I started out maybe like many of your listeners in a pretty mainstream corporate finance background. My background is in economics as my undergrad degree, and then I, I went mainstream banking right outta school and worked in there in that space for a number of years and learned a huge amount, um, and actually gathered a tremendous amount of respect for the power of financial markets to drive capital toward innovative solutions. So I learned a ton, but I continue to have this sort of nagging itch of saying, you know, if this is my one go around this earth, you know, what am I gonna do with my time and my energy and, you know, whatever subset of skills I have. And so, a number of sort of intervening connections. I did an MBA part-time, where I sort of cobbled together a major around sustainability and impact, uh, in, in that, in that focus.
Rob Zochowski:
And a business school colleague, uh, actually saw a job at Harvard Business School as the director of impact investing and sustainability special projects with a particular focus working with George Seraphim. And on this, this new project called Impact Weighted Accounts Project. And so I went up there, I interviewed, and then, uh, George invited me to join a project that many people, actually, these are his words, thought was impossible. And so if we failed, right, there wouldn’t be anything <laugh>.
Brad Caruso:
Low expectations Yeah. <laugh>.
Rob Zochowski:
There, there wouldn’t be anything, you know, that we’d to do, right? But, so it was, it was basically only upward from there. And so, uh, instead of scaring me off, that totally intrigued me. And I, uh, moved to Boston up from New York City and had the, uh, the opportunity to work there for, uh, an amazing three and a half years.
Rob Zochowski:
That project was very, very experimental. It was a proof of concept. And the reason the dean of HBS Green lit, it was, he said, I consider myself at this point in my career and with this sort of budget, a a venture capitalist of ideas, and I want the next great idea to come out of HBS. And so we, to, to fast forward to how we got to IFVI, we really, it was a proof of concept. And we hit a point where we had proved, um, that a, it was possible contrary to the naysayers, and it was scalable. We did this for thousands of companies based on a highly imperfect data set within the sort of whatever corporate disclosure was, was out there. It’s certainly not perfect. And in December, 2021, a sort of, uh, pivotal moment happened where the G seven group of countries has a sort of an, an annual sort of, it, it’s, it’s not a formal governance piece, but they, they rotate sort of the unofficial secretariat for this project.
Rob Zochowski:
And each country has sort of ownership over the cycle. And the UK was leading that again, um, uh, in 2020, 2021. And they had, uh, what was called the impact task force. And the UK had focused on impact previously, out of which came the global steering group for impact investing. And this time around, they were focusing on, in particular how capital markets could drive change toward impact. And they came out with this report in December of 2021 called a Time to Deliver. And in that, among other things, they called for mandatory accounting for impact as a destination towards which all sectors of the economy should collaborate. And so we’d use that as a moment to take stock and say, in our current form, can we actually deliver and be a meaningful player in this, in this space? Do we have the right budget? Do we have the right governance? Do we have the right staffing? And out of that, we decided that we did need to spin out of Harvard Business School, which had been a wonderful home, but we needed a little bit more operating flexibility from that.
Brad Caruso:
Rob, based on that, very, very simple terms, what does IFVI do?
Rob Zochowski:
So IFVI focuses on impact accounting. In very simple terms, impact accounting is putting a monetary value on the changes that are experienced by employees, customers, and the environment from an organization’s actions, or frankly, lack of actions. ’cause that’s a choice as well. And so we have research that we are doing, building upon the work that we did at Harvard that frames the way business decisions are made by making the social and environmental impacts of these organizations and these choices very, very clear, standardized and comparable to business financial performance. So as you, as you mentioned in your intro, we have for hundreds of years measured corporate success in monetary value, what is delivered to, uh, to the providers of financial capital. That is, uh, you know, our, our current state of account is fit for purpose in, uh, toward that end. Um, but we really leave to, uh, sort of, um, not, not chance, but it’s just not recorded.
Rob Zochowski:
All the other impacts and effects, uh, in economics, we call it, at those externalities, um, uh, sort of really are not, are not recorded. Um, and there has, I will, I will mention there has been, you know, in the past, uh, you know, probably two decades, probably starting in 1997 when, uh, the global reporting initiative GRI was, was formed, there has been a lot more focus on providing, um, uh, sort of context, uh, and clarity to those, those other impacts, those externalities. Um, so, uh, you know, many companies will provide a sustainability report, sort of an ESG report, something like that, or an impact report now. But still those, uh, those are not on level footing as far as we are concerned in, in sort of the, the global economic paradigm, right? Because everybody understands money. I, I would be hard pressed to describe a culture, I, I can’t say it’s exhaustive, a culture, you know, a yeah.
Rob Zochowski:
Um, or a group that does not have some sort of currency as a medium of exchange. Um, and, uh, but, but try to contrast that to a decision in which you’re trying to evaluate, um, sort of GHG emissions avoided, or those are greenhouse gases avoided. Um, and frankly, we, we sort of have a more cultural understanding of that when you go deeper onto environmental elements like PM 2.5, emitted, SOX, all these sort of esoteric, you know, and I name these because right, it is not intuitive, and that is the current state of play. And now try to imagine a board of directors, uh, trying to compare, uh, an expenditure or a focus in, in a given year of an environmental impact versus a human capital or a customer impact, right? These are really not denominated currently in terms that are really intuitive, um, to the people making the decisions, or frankly, even for the recipients of, of, of that impact.
Rob Zochowski:
And so if you record those in monetary terms, it is very, very easy to put these on level playing field and, and, and have comparability between them. And so our work is split between two complimentary pillars. We do research, so we are developing impact accounting methodologies, which are free of, uh, of use. Uh, we are very, very focused on this being a public good as as a nonprofit, um, across, um, all social and environmental topics, really. That is our aspiration. We will take time to do that. Uh, but, but really to be comprehensive, um, in, in, uh, providing transparency to those, those impacts. And additionally, we have what we call applied research, which is research that supports the progress of the impact accounting field, maybe not directly related to the direct methodology that we’re producing, but, but provides additional important lenses, um, including the links between, um, impact and financial performance.
Rob Zochowski:
And then we have market development. So these are equally important. There are many, many great ideas that have not left, uh, academic journals. With all respect to those, those authors and those, those journals, they serve a purpose. But if we don’t have the right uptake, um, uh, by the, the real economy, we will not be successful in our, in our mission. And so we are bringing impact accounting to life, um, outside of the methodology by piloting, uh, with organizations, scaling through data providers, creating guidance to build a community of impact accounting practitioners, um, and engaging in regulatory and policy processes. So, um, I, I, hopefully that provides your listeners with a, uh, you know, a sort of an overview as to what we do.
Brad Caruso:
Yeah, that’s awesome. And, and I guess, I guess gleaning from that. So if I think about this, it sounds like what you’re doing is, you know, you’ve identified a need in, in the world, which is we need to think about businesses and how we operate our businesses differently. And, and all of those, the ecosystem those businesses operate in. So you have, you have employees, you have customers, you have the environment, you have social issues that exist around all of this, and you’re, you, you’ve identified a need that there really hasn’t historically been, I guess at least in the, I’ll call it the non-public company world, a framework that has existed to create a comparable metric. So, you know, I can look at a financial statement and say, oh, your EBITDA earnings poor interest is x. I can compare that across businesses. But if I think about the impact that you have on all of these different forces that affect the business, there hasn’t really been a comparable framework per se, that you can benchmark business A to business B is that, you know, kind of in a nutshell, that’s, that’s a bulk of, of, uh, you know, the work that you are doing.
Rob Zochowski:
Yes, yeah.
Brad Caruso:
That’s awesome, by the way, <laugh>
Rob Zochowski:
Thank you. I, I happen to agree, uh, <laugh>, but, um, yeah, exactly to your, to your point, right? It’s from this, and this is applicability both from sort of an investor perspective as well as a, you know, board of, of director, uh, perspective. And, and we’ll go into in a little bit later how we believe this is risk, uh, risk management, and frankly, future proofing.
Brad Caruso:
Awesome. So as you’re talking about different, um, you know, use, you used a few few terms along the way and, you know, obviously have commented significantly on impact accounting. So if I boil down financial accounting and say, financial accounting is debits and credits around dollar amounts that go through a bank statement, or, you know, that go around recording a journal entry over something, that’s the, that’s the basic financial accounting. When you use the term impact accounting, how do you define it in core terms of what those debits and credits are in the impact accounting world?
Rob Zochowski:
Yeah. So there are certainly debits and credits, right? On an annual basis, right? An organization does activities, right? It, it, you know, takes an inputs, it, it puts out outputs, right? There’s, there’s a lot of things that happen, activities that happen in the middle, all of those have impacts, right? All of those are, you know, have direct linkages, right? To changes that are experienced by all these stakeholders that we, that we mentioned. There’s been this idea that’s taught, been talked about, uh, called integrated, integrated reporting, right? And it’s really about having, you know, with within sort of a single report, right? Sort of the, the, the changes not only for the providers of financial capital, but also for all of these other different stakeholders. And so, um, on an annual basis, right? One could, uh, eventually as, as the methodology gets richer, um, and, uh, and, and more evolved and, and more built out in a comprehensive way, um, one could see sort of an individual P and L, right?
Rob Zochowski:
For all of those, those different stakeholders, right? And so understanding what you contributed right to your, your workforce, sort of frankly what, you know, maybe what, what you took away, there’s always positives and negatives on different elements further along, right? One of the things that we are working on in addition, frankly, to the global accounting community is on intangibles, right? And how that then feeds into a balance sheet for a business. And frankly, these, this is actually evolving relatively quickly. So there was just a decision on I-F-R-S-I-S 37 from the interpretations committee that basically says that many, many net zero commitments are actually constructive obligations wherein you have created, you’ve satisfied the conditions for that, you’ve created an expectation of future behavior and changes. And it’s quantifiable, right? It’s actually quantifiable because of our work, right? You, you are able to say, okay, here’s our carbon price, here’s gonna be the net change. So you can both quantify it and create the expectation. So in many cases, um, it is a constructive obligation. They also said in that that expenses that go to satisfy that net zero can be, uh, capitalized instead of just expensed. And so we are rapidly moving, right? And there’s a lot of work that has to happen on intangibles, but we are, we are moving to a place right where hopefully, um, the, uh, relational capital, the, uh, license to operate within with various, uh, stakeholder groups becomes, uh, you know, capitalized on, on a balance sheet.
Brad Caruso:
That is super interesting. And, and it’s one of those, often when you look at, uh, I’ve done a few business combinations on the accounting side of my life where you’re doing this, you know, for the audience that hasn’t really been too involved in it, when you’re doing, uh, business combinations, generally speaking, you, you know, that purchase price is being allocated to assets that you’re acquiring as part of that business combination. So what, so what Rob’s referring to here is if, if, you know, the world is changing, where the assets that we are valuing are changing in the sense of what is a valuable asset. And when you look at a business and you look at how a business operates and how is it successful, and also its impact on the world, uh, certain assets are now gonna start being created that historically were never valued, or never, uh, there was never a, a mechanism to value potentially, which were never showed up.
Brad Caruso:
So, you know, on a balance sheet, you do an acquisition, you know, most people have financial cash flow perspective on, okay, I’ve acquired all these customers, so I’m gonna put an asset on all these customer relationships i, I acquired. But there’s a lot of things that are never assigned ascribed to value. So, and it sounds like the work you’re doing is gonna help contribute to that because you’re creating metrics and other items that these valuation firms that put the value on them can benchmark against. And a lot of valuation accounting deals in benchmarking and deals in future projections. And that, so obviously you can’t put the cart before the horse. You need the work you’re doing to be able to facilitate that. But that, I mean, it is a drive forward. And, and when you think about companies doing business combinations, it also will change the mindset of it’s all profit focused.
Brad Caruso:
It it’s gonna change the mindset to, you’re now adding intangible assets and other assets that are valuable to both the business and the ecosystem they operate in. So that’s, that’s very interesting to think about. So, speaking on that topic, and when we think about, you know, benchmarks and, and as, as you mentioned, you know, the debits and credits are different, and the way we think about it’s gonna be different, so it’s not exactly comparable to the, you know, financial, uh, P and L statement, if you will, or, or different statements. But can you go into detail on a couple, um, just as, as for as examples for the audience on some of the metrics that, that you’re thinking about and, and putting a little more context to, um, what some of those metrics are, and what are some of the things you feel are important, uh, as metrics themselves in this impact accounting world?
Rob Zochowski:
Yeah. So as I mentioned, there’s been a lot of work that’s been done by a number of amazing organizations. So the Global Reporting Initiative, GRI started in, uh, 1997, I believe, um, uh, SASB, which is now part of, um, IFRS Foundation, uh, on, as part of their, um, International Sustainability Standards Board, ISSB. Um, there’s an, there’s a lot of metrics that are out there. We often talk about our work as a form of a, um, a Rosetta Stone, uh, for, for those that are not sort of familiar, right? The Rosetta Stone was this, uh, seminal archeological find for many, many years. We couldn’t understand what hieroglyphics actually meant. And so the Rosetta Stone, um, had, I’m not gonna be able to list the exact three languages, hieroglyphics were one of them. It basically had the same text, uh, within, uh, sort of within three different, three different languages.
Rob Zochowski:
And it allowed us to really translate, uh, and understand, uh, what the hieroglyphics meant. And so we very much see our work as very, very similar to in concept to that, um, which is basically taking these existing metrics, right? Which have been really, you know, are based in, you know, changes that are experienced by different stakeholders and putting a monetary value on it. So at this point, it’s, it’s not, we, we know that those are not always comprehensive, um, uh, in, in sort of what we would wanna measure for what matters. We think it’s pretty close. Um, and so in all of our research, we actually always do sort of a crosswalk or, you know, sort of a linkage to which metrics one would draw upon from those existing reporting, uh, schemes, um, to, in order to sort of then implement our work. Uh, because, uh, we, we actually often hear a lot of reporting fatigue, um, especially in the corporate space.
Rob Zochowski:
Uh, there was a big, big per proliferation of, of, um, frameworks. I think we’re going through a sort of a consolidation and alignment, which is, which is sort of, right, that’s sort of the state of the world for any, the sort of new idea. Um, and, uh, so we’re, we’re in that space, but it’s important to have what we call interoperability between these, these different, these different frameworks. So what I would say is on the vanguard right now is climate is beyond, uh, and above the, the biggest focus, um, which I largely agree with. Um, we are right, uh, we are frankly in a, on the cusp of a climate emergency, uh, looking at the data, I don’t think that’s an exaggeration. Um, and so climate has been an overwhelming focus. So the I-I-S-S-B, um, put out, um, which is, uh, for, for, for most of your, your listeners, IFRS is followed by probably 90% of the jurisdictions, uh, if, if not more, um, uh, around the world than, um, you know, uh, the, the FASB uh, is, is really sort of the outstanding, uh, entity, which is primarily is, is the,
Brad Caruso:
The United States screws everything up. You can say it <laugh>. Yeah.
Rob Zochowski:
Okay. Okay. I, you know, I, I was being a little more politically No, you’re good.
Brad Caruso:
We all feel in the accounting world. Yeah. I’ll write a book one day called Why we Should Be on the Cash Basis, but that’s a conversation for another day. <laugh> <laugh>.
Rob Zochowski:
Um, so, uh, yeah. So, um, they’ve put out two standards, S1 and S2, which are overwhelmingly focused on climate, uh, and in fact, uh, in the United States, um, which is a little bit more of a laggard in this, this space here. Um, the SEC has actually proposed, uh, rules around climate, uh, as, as well those are being delayed. Um, while there are numerous, uh, judicial arguments over that, but that is, uh, far and above coming right behind that actually are things around biodiversity, um, water use, um, and human capital slash human rights. Um, sometimes those are divided. We’ve taken the argument in a, in a recent letter to, uh, ISSB, that you cannot separate human rights from, from human capital. It’s, they’re, they’re so intrinsically, uh, linked. So, um, those are the big things and big topics I would talk about. I don’t know that it’s sort of that helpful for our, your listeners to go into the very, very specific nuances, but more the topics.
Brad Caruso:
Yeah, no, I think that’s a great high level overview. And I think, I think the way that you just described the couple key areas that are our focus climate and the environment, um, and I really appreciate just the human capital aspect of measuring a business and human rights, general human rights, because as you look back in history, um, you know, those are the things that capitalism generally destroys. And so, in order to bring the capital market to the reality of where the rest of us live, um, I think there has to be an element of that, and that has to be a significant component of judging a business’s sustainability as well as ethical responsibility to the world. So I’m a huge advocate of that comment, and I know that that’s gonna be important. Um, I think it’s always, it’s funny because I’ve operated in the early on in my career, operated in the corporate for-profit world, and very, very quickly translated to the not-for-profit world, and connected a lot better just as a human.
Brad Caruso:
I, I felt not-for-profits always had that human rights, human focus with not only their external environment of who they worked with, but also their internal environment with how they treated their employees, the policies that came up. They always had, you know, not all, all of them, but many had full benefits. You know, like, like there’s a lot, lot of things that were, you know, you would see the corporate world not do, and then you’d see the NARA world. I’m like, oh, yeah, you’re giving people like unlimited time off. You’re giving people the ability to work flexibly. You’re, you’re providing for, uh, benefits that other places won’t provide for. And yeah, compensation might be less, but at the end of the day, you, you’re putting the focus on, on those employees and how you’re operating your business. And, um, yeah, I think that’s, that’s, it’s a very important thing. And, and I think once again, you don’t hear people talk about how that gets quantified. So I think it’s phenomenal that you’re going through this mechanism of quantifying that, as well as building that into the overall culture of how we analyze a business and how we, how we view it as, as stakeholders in that business. Whatever, however you define stakeholder.
Rob Zochowski:
Yeah. I mean, we take this very, very seriously within our own workforce. Uh, we have to have to practice what we preach. And I, I, I do see that, uh, you know, around, in the, um, the not-for-profit space. I mean, I think we can potentially blame Milton Friedman, right? <laugh> and, and the, uh, the only duty of a corporation is to maximize profits to its shareholders, right? For sort of putting us into the current paradigm. But it’s gonna be really important as we start thinking about AI, and it’s a, and I don’t, you know, that’s a whole nother podcast here. <Yep.> But, uh, you know, from an economics perspective, you know, from a very traditional economics perspective, there’s three factors of production. There’s capital, labor, and technology, right? And if technology becomes owned by capital, right? And increasingly disintermediates labor, right? We, we really do need to have some sophisticated conversations about, um, how we think about our workforce.
Brad Caruso:
So a lot of our listeners are in the not-for-profit community. A lot of them, uh, I I think, you know, historically have always seen, you know, significant, they, they, a lot of the nonprofits I’ve worked with have done significant reporting on impact. And they’ve, they’ve put out reports. They do this work on a regular basis. Um, with the work you are doing and thinking about kind of the future for the, not-for-profit space, um, you know, how do you feel leaders in the not-for-profit space should be thinking about this impact accounting, and how, and how does it translate in their world?
Rob Zochowski:
I love this question, um, because I have talked a lot about corporates, right? And their actions and for-profit investors, but this is really, really applicable to, uh, nonprofits as well. So I think this is a great way for them to convey, um, the value that they are bringing to their stakeholders, right? Especially to translate that for, for donors who may believe in the cause they, you know, feel for it, they like really buy into it, but they’re, they’re not experts, uh, in, in, in this space. So, you know, nonprofits are often focusing on issues, right? That are off, that are esoteric, um, right in their, in their nuanced, um, whether it’s things like disease prevention, housing literacy, um, uh, sort of, yeah, mitigation of all sorts of sort of potential, uh, negative outcomes for, for people, um, uh, hunger, um, where it can be difficult to convey in quantitative terms, the full picture of, of the outcomes, right?
Rob Zochowski:
We, we, we know that it is right, is better, right, to be housed versus unhoused, right? We know that it’s better to be not hungry versus hungry, but like, do we fully appreciate, right, all the sort of ripple, ripple effects of that, right? Sort of what is the, you know, even within housing, right? Is it temporary housing? Is it sort of, you know, sort of guaranteed housing and, and all those things. Um, uh, and so if you are trying to make the case to a donor, being able to put a more qualitative impact in terms that they understand, um, can be really, really helpful. Um, and so we actually have an example of this, uh, being used in the sort of nonprofit space. It is one in the economic development space. Um, so one of our partners, and we’ve just published a case study on this, on our website, uh, Fresno Economic Development Corporation.
Rob Zochowski:
Um, our listeners may understand these as like EDCs, um, which is a public, private, uh, nonprofit organization, um, faced an interesting problem. Fresno, uh, county is very, very sort of economically depressed by many, many measures. And they wanted to make sure that they were bringing high quality jobs in without contributing to the race to the bottom. So to say, sort of traditionally the way these policies are written is, it is just focused on the number of jobs that are being brought, right? And so, um, you know, whenever, uh, you know, this, this happened, right? A few years ago, there was a major, major company that was competing for their second headquarters, uh, sort of, you know, city and, uh, massive multi-billion dollar packages were being thrown right at, you know, sort of enormous tax breaks and all sorts of development incentives and things like this, right?
Rob Zochowski:
And so, and that is really the way that, you know, economic and job policies are often, uh, written. But Fresno really wanted to make sure that, um, they weren’t just sort of trading one job for another, so sort of agricultural jobs for, you know, very, very, um, exploitative factory work or things like that. And so wanted to make sure that they weren’t just giving jobs to very low wage work or very extractive industries. And they used our employment methodology to, to help, to quantify this, um, to become much more precise on the quality of those jobs coming into their region. And they developed a community scorecard that incorporates impact accounting metrics, particularly focused on workforce into a framework to evaluate the business and economic development projects from the perspective of the underrepresented community. So how much are they they getting in exchange for their, their time?
Rob Zochowski:
And this is, they are, um, they, they’ve really, really run with this. They actually did a much broader, um, uh, project that was focused on California’s economic development portfolio and incentives, um, and, and help them to actually see sort of where that, that was falling short. And they are currently exploring opportunities to adjust dynamically year over year the incentives, uh, including tax rates, um, based on an annual company’s performance, either through, uh, strictly the impact accounting or this, uh, sort of hybrid scorecard that they’re developing. Uh, so this is something I’m incredibly proud of. I love this project, um, because it really goes to the heart of how we can transform the exploitative labor condition that we are sort of used to
Brad Caruso:
And influence, uh, significant decisions, especially when it comes to government townships locations, because we know the impact that that has on the population. And people are gonna pitch like, Hey, this is gonna benefit you, but then if you read between the lines of what that business is, what they do, and it’s not gonna accomplish the same goals that those that are trying to help those in need are accomplishing. And, and I think, yeah, that, that, it’s an interesting model. If someone wanted to access that, you said you pub, you said you published it, how would they be able to access that? Because that’s an probably an very, very interesting read.
Rob Zochowski:
Absolutely. So it’s on IFVI.org and if we go to impact accounting and practice it is under case studies.
Brad Caruso:
Yeah. We’ll share, we’ll share that out. Yeah, I see it on the, on the web.
Rob Zochowski:
Yeah. I’ll make sure that you, that you have it.
Brad Caruso:
Perfect, so if anyone wants to check that out, it’s definitely an interesting read and it’s always good to put context through example.
Rob Zochowski:
Absolutely excited for people to read. And we are actively working on about 10 case studies in addition this year to come out. Uh, and so really, really excited to provide those very clear examples of this sort of ethereal idea in, in many cases and, and how they’re being put into practice, um, and helping to change, uh, decisions.
Brad Caruso:
Love it. So with that personal example, and kind of in general, I’m an auditor by trade and, uh, what I’ve learned in my 17 years of practicing in this world is that, uh, how you both capture data and interpret data and, you know, obtain this completeness of data where you’re, you know, how do we intake this data? How do we, how do we know we’re getting the right data? Um, with, with many of the, uh, items you’re referring to, uh, measuring, measuring of impact, how do you view the data capture on that? Like, how, how does the data capture process occur and how should businesses be thinking about data capture, uh, from that, from that regard? Because I think that’s obviously an important part of being able to measure impact, is you have to an you have to get data, uh, and where does that come from?
Rob Zochowski:
Yeah. What’s the, what’s the old saying? Garbage in is garbage out.
Brad Caruso:
GIGO, garbage in garbage out. Yeah, yeah.
Rob Zochowski:
So, um, so y you’re exactly right. And, um, the data, as I mentioned, the data is certainly not perfect. Um, but it, we are rapidly moving toward a, a place, um, I think of, of much, much better data, primarily enabled by sort of the internet of things. Um, and, uh, and, and just how connected, uh, you know, all of our machinery is. I, it’s, it’s frankly, right, like hard to buy a device today to bring into your house that does not have, um, some sort of like internet, internet connection, whether you want it or not, right? And businesses have a similar paradigm. Um, many businesses have more data than they know what to, to do with, um, uh, and so it’s, it’s about collecting the data in a way that is, um, rigorous, uh, and, and qualified. Um, there’s a bunch of work that’s happening in the ecosystem around, um, sort of data interoperability, data, minimum standards language and, and things like that so that, um, various data points can be tagged, um, in a, in a consistent way.
Rob Zochowski:
Um, so there was a big working group that was just, uh, finished, I believe done by the Capitals Coalition. So with all that said, that’s not very helpful to your exact, exact listeners, but it’s just sort of background for the fact that this data does exist or proxies, right? And so where you can’t get the exact ones right, for example, maybe you know that a certain machine right, has X hours of runtime, you know, or, uh, and, and then can tie that to electricity use and, and your grid. Um, so we, we are sort of in a, in a period right, of sort of hybrid data. So, um, sort of primary source data, and then imputations, we expect to move closer and closer to primary source data over time. So as I mentioned, a lot of businesses have more data than they know what to do with.
Rob Zochowski:
Uh, I actually had a business school colleague who’s entire, like business and company that he worked with was helping companies, right? To, uh, that’s sort of how I first became aware of this, was like helping companies to understand the data that, that they had and then ingest it in a way that’s comparable. One of the really interesting things that’s happening in this space is the ability of blockchain, right? Um, and, uh, you know, blockchain to take data and actually sort of tag it from the source and then sort of credentialize it so that you know that it is, it is accurate. Um, and, uh, so that’s something I’m actually very optimistic about, uh, to, to having that, that rigorous, um, that rigorous data. One interesting thing that we’re seeing in this space is that, um, a lot of these sort of sustainability reporting functions, ESG DEI reporting functions are moving from corporate affairs or the CM office of the chief marketing officer under the office of the CFO, because we are increasingly seeing regulatory scrutiny saying, uh, by the way, your sustainability report does not match what you’re saying in your management discussion and analysis.
Rob Zochowski:
And in, in the EU, um, the implementation of the CSRD is, is bringing required disclosure, right, to the level of scrutiny and rigor requirements as financial accounting data. And so, uh, CFOs have a very rigorous, uh, uh, sort of data infrastructure or they should have that. Um, and so that it makes a lot of sense for them to be, to be bringing that, um, under, under their purview. Um, and so, um, with all that, um, I am optimistic for the, the, the future of that. Many people will say, right now in the current state, you know, Rob, how on earth can you ever hope to get to, you know, to, to be, well this, this is never gonna be comparable to financial accounting. To which I will say, well, you know, the right modern, well accounting right double entry bookkeeping dates back right to the Medicis in Italy in the last millennium and in the middle of the last millennium, right?
Rob Zochowski:
Modern accounting rigor has really come from the advent of after in the United States of the Great Depression. Uh, and so, but that’s a, that’s about a hundred years ago of, of development. And so it isn’t, right. Can, should we, is it, is it fair to compare something that is in its sort of earlier stages to the end stages of where we are now? Which by the way, there’s still a lot of issues, right? Uh, the amount of goodwill that you see on, on books and divergence between market value and book value and financial accounting, the recent sort of changes to leasing rules and things like that, accounting is still very actively developing today. So I will say we are not at the exact same level today, have to have that humility, but I actually think we can, we can catch up and build upon a lot of the learnings, um, and growing pains of accounting to get there with this body of work.
Brad Caruso:
Yeah. So, I mean, it sounds like you have a lot on your plate. Sounds like you have a <laugh>, you know, a lot, a lot. Yeah. A few things, but, but, uh, you know, it’s really, it’s really great the work you’re doing. It’s really great that you’re sharing this information. Uh, I know for myself as well as many of our listeners, you know, certainly there’s, there’s a lot to think about. Uh, I really hope people, uh, do check out your website and check out some of the publications that you’ve done on IFVI.org, I think there, there’s a lot of good information, uh, that helps people further understand it and, and, uh, and really appreciate the work you’re doing. ’cause it is highlighting something that’s very important that the world needs and personally taking that next step to, to help make that happen. So, um, you know, with all that said, you know, thank you so much for taking the time to be on the show today and, and, and sharing, sharing your story.
Rob Zochowski:
Thank you so much for having me. Um, if I, if I might add one last thing just to say, right? As, as, as a closing, you know, particularly in the United States, I will say today the terms, ESG, sustainability, DEI have become frankly toxic, right? We’ve, we’ve seen like just a massive shift in the, you know, use of those words. It’s sort of exploded and now it’s in a, in a big contracture. And so, um, but I wanna just call it what it is, right? Which is putting aside that whole sort of the debate over that. Um, and like the implementation, this is really, really risk mitigation and, um, and, and future proofing, right? If you are doing, uh, R and D on your future products, right? Do you want, you wanna make sure that those are in alignment, right? With what sort of is being needed cared about, right?
Rob Zochowski:
In, in the next, you know, uh, four to five years, right? You know, not, not the next six months. Um, and so, uh, you need to be looking forward right at, at some of these things. And so understanding how your impacts are, uh, you know, or how you are impacting, uh, your big stakeholders, um, is, is really, really important. And it, it comes also to risk mitigation in a world in which a tweet or an X or an Instagram or whatever the next platform is gonna be can go viral in minutes. And we have numerous, I mean, just probably hundreds of anecdotal evidences of, of this happening, right? Something that a company’s doing, they don’t think that people are gonna find out about it, right? Somebody snaps a picture and it’s, you know, we’re video and it goes crazy. If you are not being aware of those things and preparing or mitigating, especially on the negative side, by the time it’s viral, it’s too late for your business, right?
Rob Zochowski:
And your stock is plummeting. Your executives are canceling their entire schedule for crisis, you know, communications. And so this, this really is about, uh, risk mitigation and future-proofing your business and going to your, your, um, your audience. Um, especially if you are in the nonprofit space, this directly talks to your license to operate, uh, within your different communities and your different constituent groups, right? So, as an example, how do you have the legitimacy right? To talk to a certain group if your workforce looks nothing like that, that, that group right? You know, it, it, it, it sort of feels and comes about as feeling sort of very paternalistic and top down. Um, and, uh, and so your, your work will be bolstered by paying attention to these issues,
Brad Caruso:
Mindfulness and empathy. <laugh>. I think a lot of us need more of it.
Rob Zochowski:
<laugh>. Exactly. Exactly. So thank you so much for having me. This has been such a pleasure. It’s been a really, uh, invigorating conversation, Brad.
Brad Caruso:
I love it. Yeah, thank you Rob, for being here and, and, uh, and sharing this information. I appreciate those, those final thoughts too. ’cause I think it’s important to kind of memorialize it and, you know, how we continue to think about the future and how we continue to think about how we should view the businesses we run and the people we interact with and the ecosystem we interact with. So, uh, really appreciate it. And, and to our, you know, warrior listeners out there, thank you for listening and subscribe and meet us right back here for another episode of With Them Civic Warriors. Bye everybody.
