Accounting for Real Change

16 Jul 2020

Accounting for Real Change

Sir Ronald Cohen makes the case for a more sustainable form of capitalism

Re: Ronald Cohen (MBA 1969)

Topics: Finance-Impact Investing Entrepreneurship-Social Entrepreneurship Accounting-Financial Reporting

Ronald Cohen (MBA 1969)

In an opinion piece in the Financial Times, “Crisis Offers a Chance to Rewrite Accounting to Include Impact,” Sir Ronald Cohen (MBA 1969) writes that the global pandemic is creating a new urgency to reconsider how we document a company’s social and environmental record.

Cohen, who serves as chairman of the Portland Trust and the Impact-Weighted Accounts Project at HBS, is a philanthropist, venture capitalist, private equity investor, and social innovator. He is also the author of Impact: Reshaping Capitalism to Drive Real Change.

The opportunity of this moment echoes back to the Wall Street crash of 1929, he writes, when investors realized that they didn’t comprehend the nature of a company’s true profits. By 1933, the US government started mandating that companies adhere to “generally accepted accounting principles,” to be verified by independent auditors.

The COVID pandemic has revealed a similar problem, Cohen writes. “This time, it is the measurement of companies’ social and environmental impacts that must be made transparent.” One-third of the world’s professionally managed assets flow to ESG and impact investments that prioritize environmental or social benefits in addition to profit, he writes. “Yet investors, as well as consumers and employees, lack transparency on the impacts companies make through their products, employment, and operations.”

The solution, Cohen writes, is to measure companies’ impacts according to generally accepted principles and to reflect that in financial accounts. “If governments force companies to publish impact-weighted accounts starting two years from now, they will immediately start to focus on improving their impact and finding solutions to social and environmental problems,” he writes.

The global pandemic has created an opportunity to “bring impact to the center of our economic system, to overthrow the tyranny of profit and to shift the basis for our business and investment decisions from risk-return to risk-return-impact,” he writes. “If we seize the moment, we can transform our economies and societies for the better.”

The full story, which is behind the Financial Times paywall, can be found here.

Featured Alumni

Ronald Cohen

MBA 1969

Featured Alumni

Ronald Cohen

MBA 1969

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