Jeremy Nicholls

Jeremy Nicholls is seeking to change the basis on which profit is calculated by using regulatory, public interest and accounting levers. His objective is to transform the accounting system so that it reflects the true cost of business, working with Social Value International (SVI), which he co-founded and led.

His work has meant identifying the levers for change, often deep within the existing economic system, and then using this knowledge to start and move between organisations, retaining links along the way, to progress systemic change. The new idea is that the core problem within our economic system lies with financial accounting and how profit is calculated.

His work has introduced the concept of social accounting, a holistic record of what a company values and measures, shifting the focus from only financial gains to including social and environmental positive and negative impacts.

Social Value International has become a powerful global network for social value and impact management. The mission has always been to change the way the world accounts for value by the need to give a voice to those who experience the consequences of an organisation’s work, both positive and negative. But critically, to give that voice power by expressing it in the language and techniques of the existing economic system, through the language and practice of accounting.

Social Value International has a set of principles and standards that reflect accounting and returns on investment but are designed to allow people to hold organisations to account, reflect their preferences in decisions, and avoid overclaiming positive and ignore negative consequences. This include third party assurance which Jeremy calls ‘the important boring bit’ - the element which upholds accountability to whoever a project is serving. The goal is to make sure that work does what it says on the tin.

SVI is now a global network of over 4000 members in around 30 national networks. He stepped down from being CEO in 2018, and spent some time on the board before working with the UNDP on the SDG Impact Standards, creating a third party assurance scheme. These standards share the same purpose as SVI’s work, imagining a world where organisations are held accountable for the consequences of their work, where their purpose is to maximise positive and minimise negative consequences to wellbeing. SVI have recently been confirmed as the interim manager for that assurance scheme.

Jeremy also introduced UNDP to the ISO, culminating in an agreement between ISO and UNDP to work on a new management standard for SDG Management based on the UNDP’s work, with the potential to transform decision-making within business.

His current work focuses on influencing the accounting system and the argument that the calculation of profit needs to change. A combination of elements of Jeremy’s work including the social accounting practice designed to empower (from his work developing the SVI principles and standards), the basis for decision making (from his engagement with the UNDP SDG Impact Standards) embedded in international management standards (as leader of the ISO 53001/2), linked, through the UN and the Guiding Principles for Business and Human rights with the expectation that business remediates for any damage being done (have highlighted that bringing these together can influence the existing accounting system. Jeremy’s understanding of the various elements has shown that significant changes can be made using existing legislation (interpretation of true and fair) and existing accounting standards (IAS 37). This provides the basis to raise the disconnection between public and private interest in the financial accounting system and highlight the root cause of social and environmental damage - a focus on financial returns which assumes that this is all investors care about. This unique convergence of knowledge, experience and networks makes it possible to change the way the world accounts for value, to stop profits being made for some at the same time as creating costs for all of us.

The accounting system is not fit for purpose. Accounting practices mean profits are made without accounting for social and environmental costs, costs which still exist and are experienced by others. Current structures have a basic mathematics: if income is ten and expenditure is five, then profit is five. And expenditure primarily relates to costs agreed in contracts, excluding costs imposed on others ‘external’ to contracts. As a result profits do not reflect the contribution made to externalities - external to profit but internal to the world – such as unpaid labor in the supply chain or the emission of carbon, despite these being impacts or dependencies of a business Excluding these costs is not in the public interest and private and social public interest are not aligned, markets are not efficient and investment may make financial return but they are now literally costing the earth.

Current accounting standards are applied with a conceptual framework that argues that the interest of the maximum number of users is financial returns with no other consideration. As a result accounting measures the creation of value, but it also masks the distribution of value, to investors, from those that experience those unrecognized costs.

Whilst there are many responses to the problem of an economic system that generates such externalities, they primarily add layers to the current financial systems. Jeremy argues that you need to look at the basis of the existing economic system, at the structures of the accounting system itself. Those organisations that set standards, create and audit financial reports and regulate the requirements for accounting and auditing act in the public interest, and have public interest statements that link this to efficient markets, markets without externalities. And yet accounting and auditing practice results in accounts, and profits, which contribute to externalities.

Audit and assurance can seem dry and boring, but they are fundamental to a system where private investments are made to generate private returns in the public interest. They work well to provide assurance to investors making decisions with an interest in financial returns but of those returns contribute to externalities they are not working well in ensuring the public interest is met.

Profits are made (at a cost to others), time passes, then taxes are paid – but the damage has been done by the time taxes are received which then have to be spent addressing the consequences and at least some of the costs incurred by society.. The financial accounts then contribute to the calculation of GDP, a measure which informs government policies and yet does not provide a useful measure of human wellbeing, to the point that going to war and all the spending that implies only contributes to an increase in GDP. Governments are making moves to supplement GDP with wellbeing indexes and other mechanisms, but these are also add-ons, leaving the root cause of how profit is calculated unchanged.

Jeremy Nicholl’s work has always been about changing the way we account for value, so the strategy is to change the existing system for holding organisations to account which is mainstream financial accounting and reporting, so that organisations are more accountable. Initially, Jeremy’s strategy was to develop an approach to empowerment by creating techniques that used the language of the economic system and to use this as a springboard, which he achieved in establishing SVI. His ‘theory of change’ is organic and to be opportunistic.

The first opportunity to extend the strategy was the opportunity to develop training materials with the UNDP for their standards and thereby strengthening links between SVI and the UN. There is therefore a global focus on human rights and concepts of ‘do no harm’ and ‘leave no one behind’, linking the language of impact from SVI with the SDGs.

The second opportunity was to being SVIs work to a wider global audience through international standards starting with a British Standard on Social Value and then International Standards relating to Assurance, Governance and Purpose.

The third opportunity has been to link SVIs work with government’s work on wellbeing and with public sector accounting. SVI contributed to the Global Steering Group for Impact investing contribution to the G7 meetings hosted by the UK and then Japan. The last opportunity was involvement in the UN FFD4 meeting in Sevilla and an opportunity to contribute to the International Financial Architecture review and the rollout of a declaration which specifically refers to internalizing externalities.

The next stage of the strategy is to influence mainstream accounting, to change to a world where organisations are not only held to account for financial returns but held to account for the wellbeing they create and destroy. A world, Jeremy argues, where much of the existing principle and standards for accounting would still apply but the purpose would have changed.

Jeremy has touched upon a unique approach to policy shift: rather than the uphill battle of crafting, lobbying, and getting legislation passed, Jeremy is focusing on laws, regulations and duties which already exist, and getting reinterpretations of those laws, or highlighting inconsistencies in their application, to hold companies, institutions, and governments accountable for the consequences of their work for investors and the wider public interest..

The current strategy is to show what can be done within existing accounting standards and regulation by directors, and then moving to investors, as the key users of accounts to encourage wider take up and to raise awareness, especially with those networks that support the preparation and audit of the accounts.

This started with SVI commissioning, in 2024, George Bompas KC, a leading company law barrister, to give a new legal opinion on the requirements for annual company accounts (financial statements) to present the ‘true and fair view of assets, liabilities, financial position and profit and loss.’ It states that directors of UK companies have a positive duty to consider whether and how to reflect relevant sustainability issues, such as their contribution to climate change, in their financial statements, to provide a true and fair view of their company’s position. It reminded directors that they must add information to the accounts if necessary to give a true and fair view.  

The opinion also shows company directors in the UK how to include sustainability in their financial statements. Specifically, it empowers directors to deliberately choose to structure commitments in such a way as to impact upon the accounts. An example might be where a company accepts responsibility to pay for its carbon emission, in effect its use of carbon over the year. The concept of the ‘constructive obligation’ clause is already in accounting standards, and Jeremy argues that directors can use this to create ‘obligations’ to pay for sustainability costs and damage done based on statements they make – mandating the transfer of an economic resource to pay for the obligation, for example, contributing to a fund. If there is a valid expectation on behalf of third parties that the directors will meet this commitment and make a payment, an obligation has been constructed, and if the commitment relates to impacts and dependencies in the current year, that becomes a liability.

The true and fair requirement also exists in European Company law and in many other international jurisdictions. SVI have worked with lawyers in several countries to consider the implications in those jurisdictions. The relevant accounting standard or a close version of it, is already mandated in many more jurisdictions.

The insight and the opportunity is that externalities exist because directors have chosen not to construct obligations for their contribution, despite this being possible within existing accounting standards. There are now a small number of businesses that have added information in notes to their accounts and SVI has itself constructed an obligation for its carbon emission and others are considering doing the same. SVI has produced guidance for company directors in the UK and Spain with others are being written. Discussions are now progressing with investor and accounting networks to create further guidance for other audiences.

All the organisations that make up the accounting system, regulators, standard setters, professional bodies for accountants and auditors have public interest statements that refer to a public interest in efficient markets. Efficient markets do not have externalities, and there is a potential inconsistency between this and what happens in practise where contributions to externalities are not included in accounts. SVI is working with lawyers at the Centre for Climate Engagement and with lawyers in several jurisdictions with the support for the Global Association of Impact Lawyers to explore opportunities to resolve this inconsistency. This is then the basis for influencing regulators to highlight the gap between public and private interest and influence standard setters by exploring the expectations of investors as both principals and agents or owners and managers.

In addition, accounting standard setters’ frameworks state that the expectations of recognised users of financial statements is financial returns, without any modification or addition. Existing research into investors requirements is that their expectation is wider. SVI will be running an international survey based on assessing investor’s expectations from a range of options include an expectation of financial returns and doing no harm, aligning the options with the UN and with SVIs other work on international standards as discussed above.

Also, the public sector has its own international accounting standards which state that the purpose is to provide information on how public sector has enhanced or maintained well-being rather than financial returns. Government used to be a recognise user of financial reports but was omitted early in 21 century. However, government, as a collector of taxes is one of the biggest users - and has little interest in collecting taxes that then have to be spent addressing externalities caused by those businesses who pay tax. Governments expectation is wider than only financial returns, starting with the additional requirement to do no harm.

Jeremy’s insight: ‘we don’t need to change the law; we need to change the interpretation of the law and consistency of organisations’ work in the context of their public interest remit.’

Jeremy grew up moving around a lot, his family following his father’s work. He went to Reading University and was quite apolitical until his tutor, Richard Pierce, exposed him to Marxist economics and a more critical thinking approach. He left college concerned with inequality and by development economics, and with a growing sense that current systems were built to reinforce existing power and wealth inequality.

He decided he wanted to work in Nicaragua with the Sandinista government, a government he believed was attempting to resolve that inequality. In order to be useful he decided the gap was financial management. He joined Coopers & Lybrand to train as an accountant, spending time teaching literacy and numeracy on the side, and then moving to consultancy to gain experience working oversea, spending time in Liberia before leaving to volunteer in Nicaragua.

After the election in 1990, Jeremy returned home to the UK. He rejoined PwC to work in Tanzania and then left again to become a stay-at-home dad for a number of years. bringing some awareness of the many consequences of rigid gender norms, and the difficulty in getting another job when his son went to school. This drove him to be entrepreneurial and he set up a consultancy with two others addressing inequality as part of regeneration programmes. The business created a programme to help people get jobs, running an early version of what would become email that uploaded city center job opportunities onto a computer so that they could be accessed and applied for by those living in the outer estates. This was the time when community economic development and social enterprise were gaining more recognition, and activities that communities had long been doing gained a name.

Jeremy began to step into his role as a social entrepreneur, setting up an organisation with Liam Black called Cat’s Pyjamas, which ran events to promote the value of social enterprise. They ran programmes for potential and early social entrepreneurs visiting businesses that were able to share the mistakes they had made. It was also the start of his concern that organisations would overclaim positive and fail to respond to negative consequences of their work unless they were verified by a competent third party acting in the interest of those affected.

One of the visits the Cats Pyjamas arranged was to the United States where he ran across the concept of social return on investment (SROI) and became captivated by its potential. He took the idea to the new economics foundation and started a programme to develop the concept, first in the UK and then with others in Europe. As interest grew, he set up the Social Return on Investment Network with other early practitioners, initially in the UK but with an increasing international focus. A merger with the Social Impact Analysts Association, where he was a director, allowed the creation of a separate international network. Social Value International, whose members are national networks, themselves membership organisations, with a mission to change the way the world accounts for value.

He led SVI until 2008 before stepping down to focus on the mission of changing mainstream financial accounting and to work more closely with other organisations that were part of, or able to influence, the accounting system. The opportunity and time to think about the accounting system, identify levers and opportunities needed more time than was available within the constraints of the CEO of an organisation and all its other activities financing and staffing requirements. He worked with the UNDP until the end of 2024 and is now an advisor to SVI, an ambassador to the Capitals Coalition, a member of the Accounting4Sustainability expert panel, a member of the ICAEW non-financial assurance committee, a member of the GRI due process committee, a honorary senior fellow at Liverpool University, and involved in development of a number of related ISOs, all aspects of either the accounting system or organisations that influence that system.