Accounting for Sustainable Finance: Does Fair Value Measurement Fit for Long-term Equity Investments?

Purpose: The purpose of the article is to discuss whether fair value accounting fits for long-term equity investments, which are considered key to retool economies according to sustainability criteria. In doing so, the article focuses on the European Union (EU) and addresses the European Commission’s (2018a) concern that current accounting rules are unfit for achieving the United Nation Sustainable Development goals and the targets of the Paris Agreement on climate change. Design/Methodology/Approach: The article grounds in a wide literature review on the effects of fair value accounting on investors’ asset allocation strategies. By critically integrating literature on the notion of long-term investment with theories and possible accounting approaches, the article provides implications for a revision of the current measurement system for long-term equity investments. Findings: The literature review supports the view that fair value accounting has played a role in discouraging equity investments over time, thus leaving economies with poorer risk-sharing and weaker long-term investments. The article contributes to the debate on alternative measurement systems by suggesting possible solutions in relation to controversies arising from empirical evidence. Originality: Reorienting economies according to sustainability criteria represents an urgent issue which requires prompt and policy-oriented responses. Accordingly, this article offers insights and guidelines that can help policymakers revise current accounting rules for long-term equity investments in line with sustainable development objectives.