Global Climate and Sustainability Standard Setters are Changing the Definition of Enterprise Value

What is the traditional definition of enterprise value or EV? 

Simply put, it’s the market value of a company calculated as: market capitalization (stock price x the number of shares), plus the total debt, minus liquid assets or cash. 

EV = MarketCapitalization + Total Debt - C

Enterprise value has been a useful way for investors, creditors and lenders to evaluate and compare different types of companies on a purely financial basis. But not anymore. Enter climate change.

What's climate change got to do with EV?

Up until recently, about 2016, it was important when disclosing operations data for your company to show how your business impacted the environment, ie. pollution. But the way of looking at climate and capitalism has changed. Now, since 2016, you have to show not how your business affects the climate, but how Nature is impacting your business. Nature meaning the transition to a net-zero economy. So now you have to provide data and a story about how climate change policy, operating in a 1.5 degree warming scenario and new energy technologies will impact you for decades in the future. 

Enterprise value now takes into account a companies resilience and profitability in a warmer climate with next-zero policies.

So in 2022, looking at the data which is now required by global climate and sustainability standard setting boards, I might rewrite the EV equation like this:

EV = (degrees warming + net policy impact + net tech impact)(MC + Debt - Cash) 

The strange thing is that these international standard setters for business accounting--while they talk about bringing climate change into valuation as the biggest revolution in accounting since either the fourteenth century or the 1930s--they don't seem to be particularly explicit or honest that they have changed EV, fundamentally.

Why does this matter?

Just think for a minute about this like a taxpayer, a plain old hard-working individual who has to do a yearly tax return. Imagine if you had to not just account for your income and expenses, but your Green House Gases or carbon footprint. Imagine if you had a task list like this to do at tax time or every time you apply for a loan or credit:

• you have to show how you will be able to sustain your income, payments or debt in a 1.5 degree warming scenario
• you have to show the detailed emissions of all your purchases, your appliances, your heating and cooling, your transportation, your vacations, and your household waste management
• you have to show how Canadian, provincial and city net-zero bylaws affect your income and expenses now and when they become more stringent
• you have to show how you are investing in a greener future at work and at home

Do you see what I mean? When EV gets into this level of detail with climate change and the transition to net-zero, business becomes less about business and more about accounting and bureaucracy. And it's being done without an open discussion or debate or democratic election because the people changing the accounting rules--and the definition of enterprise value--are operating at the highest levels of international bureaucracy.

You're probably thinking that only an accountant or banker or investment manager should care about how we define enterprise value, but since our economy is made up of a web of corporations, independent operators, the self-employed, etc. How value is determined is rather critical to which entities in the Canadian economy will be able to survive the crush of this level of self-monitoring, data collection and disclosure, especially if we have total buy-in to the global standards from our local jurisdictions. 

Don't be a Climate Rebel, Be a Warrior Accountant

On Monday, members of A22 Network's Canadian chapter, Save Old Growth, blockaded the north side of the Massey Tunnel during rush hour. That's my family's main access to Vancouver where they work and go to school, so I noticed. I also noticed the blockaders were young, university age mostly, and so I wondered why, if they were so serious about fighting climate change, they weren't studying to be accountants. If they really want to avoid being "the last generation," then why not join a revolution that offers real power without the handcuffs? 

Consider Ramya Kirishnaswamy's opening statement to Emmanuel Faber (ISSB Chair) at the World Economic Forum (WEF) Annual Meeting in May 2022 titled Global ESG Standards: Are We There Yet?:

“The ISSB or the International Sustainability Standards Board [is] tasked with perhaps the most important effort of bringing common ESG standards [into] the world, and someone reminded us a few days ago that it’s one of the most important innovations in accounting since almost the 14th Century.”  

Faber laughed at the grandiosity of the claim, but went on to say, “I’d agree with the fact that this is groundbreaking work."

Gillian Tett, Chair of the Editorial Board for Financial Times Moral Money, who was also on the panel added:

“I’m not sure about the 14th Century analogy, but it's certainly in many ways the most striking reform to accounting and audit since probably the 1930s, and it’s very, very ambitious. And precisely because it’s geeky and only understood by the priestly class, people don’t realize that the idea of trying to overhaul, not just the accounting framework, but the audit framework at the speed at which they are trying to move is absolutely remarkable. ... I used to think it was sort of tie-dye-wearing activists who were going change the world and campaign for climate change, now I realize it’s actually warrior accountants and being an accountant has suddenly become quite cool."

As the kids in A22 are probably not members of the "priestly class" and probably don't know these acronyms, let me explain.

First, please note, I'm not going to go into the accounting revolutions of the 14th Century and the 1930s. These are important moments in financial history in their own right and so deserve their own post. What I want to focus on are three pillars of the real-deal, mega-funded net-zero revolution that's underway right now and operating at the highest levels of financial power and influence. These pillars are: stakeholder capitalism, SDGs, and ESG.

Stakeholder Capitalism

There is a 50 year history to this concept which is outlined in two recent books (The Great Narrative and The Great Reset) by Klaus Schwab, a German economist and founder of the World Economic Forum. The concept is quite simple. In shareholder capitalism (or what we think of as plain old capitalism) companies create value for shareholders, while in stakeholder capitalism companies create value for shareholders plus the community, customers, employees, suppliers, and the environment.

Schwab's manifesto calls for a business-led transition to net-zero. The idea is that business, instead of governments (which are in debt) and charities (which are comparatively poor) can throw much more manpower and money at humanity's problems, and only they, the capitalists, can really make progress by gatekeeping who gets investment capital and who doesn't. Numbers like $6 trillion per year, with $2.5 trillion alone going to the environmental part, were mentioned by Brian Moynihan (CEO, Bank of America) during the WEF panel cited above. When stakeholder capitalists throw their financial power around like this, they say they can marshal the forces of accounting (enter the warrior accountants) to move the whole economy toward SDGs whether everyone wants to or not. 

SDGs

The United Nations Sustainable Development Goals or SDGs have their roots in the 1992 Earth Summit in Rio. I have to imagine the A22 kids are familiar with these 17 goals that were codified and agreed to by all UN member nations in 2015 in The 2030 Agenda for Sustainable Development. From ending poverty and world hunger, to promoting gender equality, ensuring affordable and clean energy, to encouraging responsible consumption and production, the SDGs are what warrior accountants are going to make sure every company lives up to. How? That's where ESG comes in.

ESG

Environment, Social and Corporate Governance. This poorly defined and uncoordinated way for companies to self-report on how their operations are doing on SDG goal was all the rage for about 20 years, especially as a way to bundle high scoring companies into green or social justice fund packages to sell to retail investors. Actually, it still is all the rage and people in the investment world still use it every day, but ESG's days are numbered. The big boys, well, the Big Four (accounting firms Deloitte, Ernst & Young, KPMG, and PwC) actually have come up with a set of global baseline financial reporting standards (headed by Faber and the ISSB) that will forcefully align capitalism, the stakeholder kind, with SDGs, one entity at a time using financial reporting requirements...again, enter the warrior accountants. 

These global ISSB standards are currently sitting online and are open for comment, if that sort of thing interests you, which it should if you run a business in Canada.

So, you see, young climate rebel, the smarter way to protect your generation and future generations is not to stop my family from commuting to work and school, it's to get your CPA.

Dragons' Den Auditions Coming Up

Like her first novel, Polly Wants to Be a Writer,
The Adventures of Bob Warhop will
teach through an entertaining story.

With my new financial literacy novel, The Adventures of Bob Warhop, in it's final stages, it's time to head to the 2014 Dragons' Den auditions and see if I can get impress the producers, get on the show and wrangle a dragon.

The protagonist is Bob Warhop, a young ferret who lives with his family on an upscale ferret farm. Bob is six months old when a major financial crisis rocks the world and changes the circumstances of the ferret farmer, his family, and Bob's family, for the worse. The only way to stop the farmer from selling Mr. and Mrs. Warhop and Bob's siblings to the Big City museum for taxidermy is for the Warhops to raise five thousand dollars. Bob's unlikely quest to raise this capital in a declining economy takes him far away from the luxurious dollhouse mansion where he grew up and deep into the harsh world of humans and money.

The Adventures of Bob Warhop is a fantasy novel intended for nine to twelve year olds. At home and in the classroom, it will introduce kids to some basic financial vocabulary and spark discussions about money, how it works, and how to earn, save and spend it.

I'll be at the Vancouver audition on February 22nd with manuscript in hand and that famous clip of Dave Chilton (The Wealthy Barber) putting down the notion of teaching high-level money terms to six year olds on The Lang & O'Leary Exchange. I have an offer in mind: cash for a percentage of sales until the cash is paid back and then a lower royalty in perpetuity. I'll let you know how it goes.

My first novel, which also uses storytelling to teach fundamentals (in this case writing skills), Polly Wants to Be a Writer: The Junior Authors Guide to Writing and Getting Published, is now on sale worldwide and getting nothing but five-star reviews. I hope you will pick up a copy at a bookstore near you. After all, it has a dragon on the cover, a grumpy, albino one that might remind you of Kevin O'Leary when he sniffs out a sour deal.

What's New with Laura

Dear Visitor,

As I mentioned in my last few posts, I have stepped away from the Financial Literacy Movement to get back to my passion: writing and mentoring young writers.

I have since launched a company called Laura Thomas Communications. Our mission is to promote the development of young writers worldwide, and we are well on our way to managing one of the fastest growing writing contests for youth on the planet.

The 6th Annual Junior Authors Short Story Contest had over 1,800 entries form young writers in 67 this year, plus I have added a one-day Junior Authors Writers Conference in Richmond, BC which will take place in October. Along with an active Junior Blogger program, these are the channels through which I recruit and train talented young writers to freelance for me as junior copywriters.

My YA fantasy novel that teaches aspiring authors how write a publishable short story is now available in eBook and paperback at your favourite bookstore. It's called Polly Wants to Be a Writer: The Junior Authors Guide to Writing and  Getting Published.

Thank you to all my readers, and please stay in touch with me through my jaBlog, Write Q&A Facebook Page, on Twitter as LauraThomasComm, or by email.

I will be auditioning for Dragons' Den in 2015 when my fin lit, children's, animal fantasy novel The Adventures of Bob Warhop is finished.

Thank you for your support and wonderful comments.

Sincerely,
Laura Thomas
Laura Thomas Communications
laura@laurathomascommunications.com

I'm Auditioning for Dragons' Den

As some you fabulous people in finance and the financial literacy movement may know, I have almost given up on my mission of trying to get parents, teachers of K - 7 students, along with ministers of education, to buy into the idea that financial literacy should start in kindergarten. Before I give up entirely, I'm going to take one last stand by auditioning for Dragons' Den.

Auditions start in Vancouver and Toronto on January 19th, so I have just a few weeks to put a pitch together. If you have a moment, could you please read through my draft and let me know what you think about my story and my ask? The pitch is centered on my novel, The Adventures of Bob Warhop.

A draft of my pitch to the Dragons

My name is Laura Thomas. I’m a mom with an 8 and 9 year old from Delta, BC. I’m a full time writer who is seriously concerned that financial education is not a required component of the K-7 curriculum.

"Six is too young to learn about stocks."

There does not seem to be any political will to change this. Even some financial experts think it’s crazy to teach little kids the language of money. I’ll show you a clip from the Lang and O’Leary Exchange in a moment as an example of the attitude I’m concerned about…David you may remember this.

As a creative person, I have tried using my writing talent to help get teachers and parents with K-7 age kids to get engaged in financial education.

• I’ve been studying financial literacy and blogging about it since 2010.
• I've done interviews with some of the Dragons.
• I’ve written and performed some Sesame Street like videos that teach financial terms.
• I’ve written, produced and hosted two seasons of a family-friendly financial TV show.
• I've done a few talk about financial education at teacher conferences.
• I've done a few classroom visits.

All of these approaches have failed. The audience engagement level is either flat or freaked out. Money as a subject is either too boring or too overwhelming.

Out of curiosity, I looked at the stats for my blog since inception. I wondered what Google searches were leading visitors to me:

• 6 of the top 10 key word searches had “Kevin O’Leary” in them
• 2 of the top 10 key word searches were people Googling Arlene

By the way Arlene, more than 100 unique visitors Googled “Arlene Dickinson hot” and found one of the two articles based on my interview with you in 2011. Money is boring and celebrities are interesting. I get it.

What I don't get is this. Why don't we want kids to start becoming fluent in the language of money from a young age? David, let's watch this clip of your response to my Inbox question on what my then 6 year old daughter should use as an investment vehicle - funds or individual stocks.

Go to this link and jump to 57:54 where Chilton says, "Six years old is a bit too young to be learning about stocks and things. If she knows what an ETF is at this age, I'd get her into child counseling."

This way of thinking is what helps keep financial literacy out of the K-7 curriculum and I don’t think that this is going to change any time soon. But I can’t let this problem go. And I have one tiny piece of the solution.

[Show manuscript.] This is The Adventures of Bob Warhop. A kids' novel. Simply put, Bob is a young ferret—a somewhat special needs and doesn’t fit in ferret—who must raise $10,000 to keep his family from being sent to the taxidermist. But like all ferrets he has no idea what money is or how to speak that language. And, he has to raise the money by Christmas Eve which is just weeks away.

This is not another story book or kids’ novel that tries to shoehorn a financial lesson into a flat story. I’ve reviewed a ton of these. The Adventures of Bob Warhop is a fast-paced, exciting novel starring a quirky protagonist whose problem just happens to be that he needs to make a lot of money fast starting from ground zero with lives at stake. But the story really is about Bob and how the adventure changes him.

I'm not a financial expert, I'm an expert writer and storyteller, who just happens to know quite a bit about money from experience. I think money is a theme that artists and writers need to engage with. We need to user our talents to help "edu-tain" future generations so that our economies flourish.

I am asking for $20,000 cash to cover my time and expenses as I polish the manuscript, shop for a publisher, and turn the novel into a script for an animated feature. I would be willing to exchange 50% of my royalties for the $20,000, until that $20,000 is recouped by you. Then then your percentage of my publishing royalty would drop to 10% in perpetuity.

Thank you.

So what do you think? Will I get past the producers and get on the show?

Copyright 2012. Laura Thomas. All Rights Reserved.
Contact Laura at moneyme at telus dot net.

New Fantasy Novel Teaches Kids About Money

Here's a fresh read from Craig Everett, father and finance professor at Pepperdine University in California. Toby Gold and the Secret Fortune is Everett's first book aimed at improving the financial literacy of kids ages 9 to 15. 

Toby is an orphan with super high math and money skills that have been noticed by the wrong people. Toby is sucked into a high-stakes, life and death financial conspiracy along with his two best friends.

“My whole purpose in writing this book is to introduce finance principles to people in an entertaining way using characters with which they can identify,” says Everette. “Financial literacy is a huge issue now, particularly due to the financial crisis. There is no silver bullet that instantly endows people with financial literacy, so the best approach is to expose kids to these concepts in as many ways and at as many times as possible…eventually, it will stick.”

Buy Toby Gold online now at Amazon.com.

Copyright 2012. Laura Thomas. All Rights Reserved.
For reprint permission contact moneyme at telus dot net.

Money or Arlene Dickinson? What are we really interested in?

"arlene dickinson hot"

In the summer of 2010, I started a blog called "Money and Me for Canadian Families." Today, I took a look at the all-time stats for my blog to see which article has been the most read to date. It turns out that that there are two posts which are by far the most popular: Hard Knocks and Spare Change, Arlene Dickinson on Financial Literacy and Kevin O'Leary's Tough-love Approach to Kids and Money.

By comparison, all the other nearly 100 posts on personal finance, teaching kids about money at home and at school, reporting on big doings in financial literacy circles, politics and money, etc. have generated shockingly little interest.

Google search stats don't lie. The top six sets of Google keywords that have been leading people to my blog since inception are:

• "arlene dickinson" (this is by the far the highest by a thousand searches)
• "kevin o'leary children"
• "kevin o'leary family"
• "kevin o'leary kids"
• "arlene dickinson hot" (this search phrase was used 96 times!)
• "does kevin o'leary have children"

So what does this leave me with? The realization that most of the people who find my blog are not looking for financial education or resources. They are very likely Dragons' Den fans who are hungry for personal details about Canadian celebrity entrepreneurs like Dickinson and O'Leary.

This also confirms my observations over the last two years as a financial literacy blogger, producer and speaker that financial education products and services are not interesting to most Canadians. Is this because Canadians are already financially literate? I don't think so. I think our financial literacy is still low, largely as a result of this valuable subject being left out of the school curriculum.

So, if there is a need for financial literacy, why don't we want it? Why are we more interested in Arlene Dickinson's sex appeal and Kevin O'Leary's family life than our own money? I'd really like to hear what you think!

Copyright 2012. Laura Thomas. All Rights Reserved.
Contact moneyme at telus dot net.

Tax Incentives to Stop Helicopter Parents from Shortening the Life Expectancies of their Children

In a generation we have wiped out the practice of letting our children walk to school and of letting them play outside unsupervised. Sports are highly organized and competitive, forcing many children to quit by age 12 because they aren't destined to be superstars. Grade 8 PE teachers say they are seeing more and more kids who can't run,  jump or dribble a ball. This adds up to a booming health care industry, a stretched health care system, and a declining life expectancy for the average Canadian.

What's the cause? Helicopter parenting just might be the biggest culprit. Have you ever heard parents rationalize their child's lack of physical activity or justify forcing a child to specialize in one sport like this:
 
My kids will be abducted if they go outside without me!
There is too much traffic on the roads for bike riding!
I don't have time to walk my child to school!
I just want my kid to focus on one sport so he can make the rep team!

Fear-based parenting, a declining life expectancy and money

A few years ago the Federal Government introduced the Child Fitness Credit. You can get a tax credit up to $75 per child if you spend over $500 per calendar year on sports fees and memberships. This is a good idea, but where is the incentive to let your child try all kinds of sports every year and be active every day?

I think deeper tax incentives may help. How about additional tax credits for putting your kids in multiple sports in a single year, say 3 or more different sports per child? Or, what about tax credits for sport safety gear like bike helmets and knee pads?

As for helicopter parents driving kids to school and keeping their kids indoors to keep them safe, we may need to spend some money advertising in markets aimed at first-time parents. We need to let parents know that that the real world is really not scary...not as scary as unhappiness, low self-esteem, and a shorter, sicker life.

Copyright 2012. Laura Thomas. All Rights Reserved.
For reprint permission contact moneyme at telus dot net.

New Contest for Kids Under 18: Kids Teaching Kids About Money

Canadian kids can win an Ipad, Ipod or Ipod Touch plus big money for their RESPs by entering this contest by October 12th!

The Credit Counseling Society, a Canadian non-profit society that helps families deal with debt and other financial issues, is ringing in National Financial Literacy month (November) with a money contest for kids called, "How would you teach kids about money?"

UPDATE!

The contest deadline has been extended to October 12th

Students from BC, Alberta, Manitoba, Ontario and Saskatchewan who are under 18 are being asked to send in an original idea for teaching kids about money. Each entry, which can be no more than 500 words, will be judged on three criteria: originality and creativity (40%), how effectively it can be implemented across Canada (40%), and presentation (20%).

The contest, according to Stacy Yanchuk Oleksy, Director of Education and Community Awareness at the Credit Counseling Society, is about finding out what kids think they need to know about money. "It's easy for us adults to say what we think kids should know about money, but we wanted to hear directly from young Canadians about how they would teach kids about money," said Yanchuk Oleksy.

When asked what will happen with the winning ideas, Yanchuk Oleksy said, "The Credit Counseling Society intends to implement the winning idea(s) contingent on stakeholder support, funding, and available resources as we are a non-profit, charitable organization that takes managing its income and expenses very seriously."

Entries are due October 12, 2012 and should be submitted by email. For complete contest rules, please visit the Credit Counseling Society website.

Please help spread the news by posting this article on your Facebook page or forwarding it to your child's teacher. The more kids we have thinking and talking about money the better.

Copyright 2012. Laura Thomas. All Rights Reserved.
For reprint permission contact moneyme at telus dot net.

None the Richer: Why the Olympics Don’t Inspire Us to Have Better Bodies or More Money

Every two years when the Olympics dominate the media and influence water cooler chit chat, there are always a couple of sore points that can come up on a personal level—blowing budgets and being out of shape.  Not that Pierre de Coubertin (founder of the modern Olympics) ever planned it this way. His created the Olympics to promote goodwill among rival nations, and, more importantly perhaps, inspire the common folk to aspire for excellence in their daily lives.

Excellence in our daily lives includes being fit and healthy both physically and financially. On a national level that means a lower rate of obesity and a balanced national budget. On the home front, that means an active family life full of sports and recreation along with a balanced household budget.  

With North American obesity rates in children rising above 30 percent and an ever-increasing per capita rate of both public and private debt, the Olympics is an interesting phenomenon.  On the one hand, the Olympics are all about physical activity and money, but on the other hand they don’t seem to be doing a good job of inspiring excellence in either of those areas of life beyond the podium.

Think about it. One of the dominant narratives of the modern Olympics is budget overruns. Take this year’s London Olympics. Back in June, before the games even started, economists were predicting that this would be the most over-budget Games since Atlanta in 1996, which went over by 147 percent. A study of the previous 17 Olympics suggests that the average cost overrun for the Games is a staggering 179 percent. 

Ironically, critics grumble about Olympic budget overruns, but at the same time do not have a budget in place to monitor their personal household spending, which could easily be over 179 percent as well. And, how many of us make a family “activity” out of huddling around the TV eating junk food while watching super-fit athletes go for gold?

The Olympics have been coming and going every two years for a long time now.  Despite legacy programs that have put money back into host communities through a variety of literacy-based grants, it’s a wonder that our bodies and our bank accounts are not any richer for it. It could be that the lack of basic literacy around physical activity caused by severe cuts to physical education programs in schools coupled with the lack of financial education in the school curriculum is making it harder for us to be inspired by the Olympics.

I’ve heard it said that knowledge acquisition is like Velcro. Nothing sticks unless there is something for it to stick to. Bringing back physical education to elementary schools and introducing financial education to the curriculum could go a long way toward inspiring Olympic-level excellence and helping future generations have better bodies and more money.

Copyright 2012. Laura Thomas. All Rights Reserved.
For reprint permission contact moneyme at telus dot net.