Sunday, February 25, 2024

The Return Of The "Just Transition"

Sustainability accountants, sharpen your pencils! The deadline for submitting comments about the new Climate Change exposure draft of the Global Reporting Initiative (GRI) is this Thursday, February 29, 2024.

The draft proposes updates to the climate change guidance that appears in a trio of GRI standards that were issued six years ago: 201 Economic Performance, 302 Energy, and 305 Emissions. The revisions are noteworthy because of their emphasis of a planning concept that was first defined by the American Labor Movement in the late twentieth century.

This concept, known as the Just Transition, posits that the American labor force should be compensated and retrained during our transition to a clean energy economy. In the current parlance of progressive activists, the concept encompasses the goals of climate justice and social justice.

The GRI proposes that organizations adopt a set of metrics that can be utilized to assess their commitment to the Just Transition of workers. For instance, the exposure draft requires the development of transition plans, followed by the measurement and reporting of metrics like the "number of jobs created, eliminated, and redeployed due to the transition plan (and) the number of employees that received training for up- and re-skilling ..."

This emphasis on Just Transition planning is interesting for two reasons. First, it contradicts the criticism that climate change activists do not acknowledge and account for the significant economic and social costs of transitioning to renewable energy sources. Second, it reaches back several decades for a conceptual construct that had fallen out of fashion but that now resonates with contemporary business planners.

Do you have a strong opinion about Just Transitions? You still have time to share it with the GRI. Whether or not you choose to express your thoughts to them, it may be helpful for you to prepare a Just Transition planning policy for your own organization.

Sunday, February 18, 2024

Modeling Extreme Meteorology (Weather) Risk For The Gulf Stream

Dr. Rudi Dornbusch, the long-time international economics professor at the Massachusetts Institute of Technology (MIT), once described a phenomenon regarding momentum. Now known as Dornbusch’s Law, it posits that crises can take much, much longer to materialize than one might expect; however, once they do occur, they can then generate catastrophic outcomes extremely quickly.

Imagine a home with walls and a roof that are made of wood panels. For a long, long time, the structure may appear to be relatively solid even though the homeowner may see occasional evidence of a termite infestation. But the termites are actually multiplying and “eating away” until, one day, a moderate storm with a strong wind blows through the neighborhood. Suddenly, the entire home collapses.

That appears to be the metaphorical risk regarding certain Climate Tipping Points (CTPs) that are factored into flood risk models. As carbon emissions increase over time, the temperature of the planetary atmosphere likewise increases. That leads to an increase in melting Arctic and Antarctic ice, with significant amounts of fresh water mixing with the salt water in the oceans.

Yes, you may be thinking, I’ve already heard this tale. Sea levels then rise, thereby threatening coastal regions. And when the atmospheric temperature crosses a threshold, the resulting trigger of the Climate Tipping Point (CTP) makes the ice loss irreversible.

This is indeed true, but advanced flood risk models now raise an even greater concern. Ocean waters do not merely move with the tides. Oceans also contain large streams that carry water from one region of the world to another. For instance, the eastern coastline of the United States and much of the European continent are kept warm by the Gulf Stream, a current that carries warm water from the Gulf of Mexico into the northern Atlantic.

The current was first discovered during the early 1500s; scientists believe that it has been flowing for more than a millennium. It has been weakening because the current is disrupted when melted fresh water collides with salt water. Thus, scientists are now studying the possibility of a complete Gulf Stream shut-down.

If that were to happen, Dornbusch’s Law would likely take effect. The loss of warm water in the Northern Hemisphere would significantly lower air temperatures across much of North America and Europe. Many industries, from agriculture to travel, would be directly impacted, and many others would be indirectly impacted by supply chain complications.

The most recent model, released this month, suggests that such a CTP could occur this century and perhaps even this decade. As oceanographic and meteorological risk models become more advanced, the probabilities and costs that are associated with climate change risks are clarified with greater degrees of validity.

Risk managers refer to this type of factor as a “cascading risk.” In other words, as certain risk events are triggered by causal factors, their impacts then trigger successive risk events. A cascading series of “domino effects” then occur, broadening and deepening the damage that must be addressed by an overwhelmed society.

The models, though, are clarifying the challenges that confront us. These statistical clarifications may help government, business, and other organizations plan for a very unstable future.

Monday, February 12, 2024

Trueblood Seminar for Professors at Deloitte University

The following links are presented for educational purposes in support of the Trueblood Seminar (Sessions I and II) presentation entitled Let's Play! Incorporating Experiential Learning Games In An ESG Accounting Standards Curriculum.

Topic Outline

1. Historical Background And Theoretical Frameworks

(1a) Themes: The Triple Bottom Line (Profits, Planet, People) + Governance 
(1b) Client Base: Global, National, Corporate, Community, Personal
(1c) Capstone: Financial, Managerial / AIS, Tax, Assurance, Regulation

Chase Logo + Collect Pond 

2. Organizations and Stakeholders

(2a) Accounting Standards: GRI, SASB, UN SDGs, TCFD, IPIECA
(2b) Corporate ESG Reports: Energy, Freight / Transport, Human Services
(2c) Investment Community: Rating Agencies, Investment Funds, Carbon Markets

See documents: GRI Consolidated Standards, SASB Apparel, TCFD Guidance on Metrics, IPIECA Guidance

3. The Oversight Function

(3c) Public Accounting: Assurance Reports, Data Systems, Supply / Value Chain Analyses
See documents: IFRS S1 (SASB page 16, CDSB page 17, GRI page 37), IFRS S2

See documents: Assurance Report Samples 

4. Experiential, Interactive, Game-Oriented “Real World” Applications

(4a) Save The Blue Frog!
(4b) Feed The Pig!
(4c) Build-A-Business

See document: IR Framework 

Cross Referencing To Learning Goals And Educational Standards

Course Grades

75% Traditional Learning (1abc, 2abc, 3abc)
25% Active Learning (4abc)

Academic Standards

AACSB Curriculum

... content that is current, relevant, forward-looking, globally oriented ... fosters experiential learning ... promoting positive societal impact ...

AICPA Uniform CPA Exam Blueprints 

BAR: Recall how the COSO ERM framework can be applied to identify, respond to, and report environmental, social and governance (ESG) related risks.


To be determined …


Game Introduction


Other Documents


Presentation Links

(1a) JP Morgan Chase Origins:

(1a) Nellie Bly:

(1a) The Triple Bottom Line:

(2a) Global Reporting Initiative:

(2a) Sustainability Accounting Standards Board:

(2a) United Nations Sustainable Development Goals:

(2a) IFRS:

(2a) Task force on Climate-related Financial Disclosures:

(2a) Intl. Petroleum Industry Environmental Conservation Association:






(2c) Sustainalytics:

(2c) S&P 500 ESG ETF:

(2c) EU Emissions Trading System (ETS):

(3a) AICPA:

(3a) SEC:

(3a) COSO:

(3b) CSRD:

(3b) CSDD:

(3c) Assurance Reports (see Other Documents)

(4c) IFRS Foundation:

Sunday, February 11, 2024

The Decline of the Monarchs

Two of the sadder news stories of the past week addressed the decline of global monarchs. One involved King Charles of Great Britain; his office recently announced that he is undergoing treatment for cancer.

What was the other story? As a lifelong environmentalist, Charles was undoubtedly distressed to learn of the decline of the Eastern Monarch Butterfly. Each winter, the species migrates to Mexico from the Eastern regions of the United States and Canada. 

Approximately 350,000 insects are tagged by conservationists at the beginning of each season. After their annual migration to Mexico, the conservationists inspect their traditional roosting (i.e. nesting) grounds to assess how many butterflies have survived the year.

Regrettably, this year’s roosting population was the second smallest ever recorded. Such declines are attributable to the spread of toxic chemicals, the loss of natural habitat, lumber logging, short term droughts, and the long term impacts of climate change.

Although “less efficient than bees at moving pollen between plants,” butterflies do engage in that crucial ecological function. In addition, butterflies have portrayed important roles in art and mythology throughout human history.

Environmental scientists express hope that the monarch butterfly can recover its population. Let’s hope that their sentiment is well-placed, and that King Charles likewise experiences a full recovery.

Wednesday, February 7, 2024

Is ESG Really A “Dirty Word” In Corporate America?

In an article that was first published by the Wall Street Journal on January 9, and that was later republished by MSN News, a pair of Journal columnists suggested that after “years of simmering investor backlash, political pressure and legal threats ... a number of business leaders are now making a conscious effort to avoid the once widely used acronym for such initiatives.”

Their evidence? Among other facts, they noted that “At Coca-Cola, the company published a “Business & ESG” report in 2022 ... in 2023, it was released as the “Business and Sustainability” report.”

That is indeed true. What the columnists didn’t mention, though, was that the 2021 report (issued in 2022) contained 86 pages. One year later, the slightly renamed report actually grew to 88 pages. In addition, whereas the Table of Contents page of the first report proclaimed the firm’s dedication to “building a more sustainable future for our business and for the planet,” the second report’s Table of Contents page noted that the company’s “strategy is grounded in our core values and commitment to social and environmental responsibility.”

Values? Social and environmental responsibility? That language certainly doesn’t indicate that the firm is bashful about its commitment to reporting on Environmental, Social, and Governance matters.

The Journal itself acknowledges that these changes are “subtle.” So subtle, perhaps, that opinion leaders on both sides of the ESG issue may have reason to be displeased.

On the one hand, those who support ESG initiatives may not appreciate the firm’s avoidance of the acronym. But on the other hand, those who oppose ESG programs may not be thrilled that the report itself has barely changed at all.

Sunday, January 28, 2024

Can Geothermal Heat “Sponges” Keep Us Warm In Winter?

 How do we heat our buildings? Many of us, of course, burn oil and gas in furnaces. Others employ electricity that is generated in power plants that do likewise. And some utilize solar and wind power that is generated by light panels and air blades.

But have you considered the possibility of geothermal heat? Historically, this option involved the transfer of existing heat from natural subterranean sources (such as hot springs or volcanic magma) to above-ground buildings. New technologies, though, are enabling us to develop alternative geothermal solutions.

For instance, what if we could extract unwanted heat from our buildings during the summer and store it for winter use? Or what if our urban buildings could capture heat from industrial sources such as sewer systems and subway networks? We wouldn’t need natural subterranean sources of heat to employ these options. Instead, we’d simply need material that could: (a) “sponge up” such heat wherever and whenever it is found and then (b) be “squeezed” to produce heat for our buildings during the winter season.

Conceptually, it’s a reasonable approach. But what material can serve as “sponge” of heat energy? Just as limestone can soak up atmospheric carbon as a long-term storage option, metal pipes in deep underground facilities can store geothermal heat for future use. Such processes are already in place or under development in a variety of locations, including academic institutions and large-scale residential developments.

So let’s not assume that our traditional carbon based systems – or even our current solar and wind electrical systems – will always serve as our primary options for heating our buildings. Many engineers are thinking “outside the box” to design superior geothermal systems; all we need is a single project that can provide a feasible alternative.

Monday, January 22, 2024

The Turkish Commitment: Adding Asia To List Of Regions With Sustainability Disclosure Mandates

A few months ago, the Brazilian Ministry of Finance announced that it would join the government of Chile in mandating corporate sustainability disclosures. Given Brazil’s position as the largest economy in South America and ninth largest in the world, its decision further compels all organizations with significant supply chain relationships in the southern continent to develop sustainability reporting functions.

The European Union, of course, preceded Brazil and Chile in mandating sustainability disclosures. Its Corporate Sustainability Reporting Directive took full effect last year, following the introduction of its Non-Financial Reporting Directive in 2014. Thus, organizations with significant supply chain relationships in Europe must also report sustainability data.

Are nations on other continents following these European and South American economies? Last month, during the COP 28 global climate conference, Turkey announced its adoption of IFRS S1 and S2, the recent groundbreaking pair of international sustainability disclosure standards. As a G-20 nation that functions as a gateway to Europe, Turkey carries Asia into the group of continents with major economies that mandate disclosures.

Which continent may be next? North America, perhaps. SEC Chairman Gary Gensler continues to maintain that mandatory climate disclosures may soon be required of certain publicly traded countries in the United States. Although the SEC has delayed its announcement multiple times, sustainability groups continue to hope that it will establish reporting requirements in the near future.

In the meantime, California and other major U.S. state economies continue to pass sustainability legislation under the accommodating stance of the Biden Administration. Whether or not corporate policies actually encourage the development of sustainable business practices, the continually shifting nature of global supply chains ensures that most global companies – like it or not – will need to maintain sustainability data reporting functions.

Sunday, January 14, 2024

Financial Valuation Models: The Air Versus The Sea

Last week, the Norwegian government legalized large-scale commercial sea mining. Many expected environmentalists to applaud the sea floor production of natural elements like lithium and cobalt, elements that are used to create large batteries for the storage of renewable energy.

After all, one major complaint about solar and wind power is that energy production dwindles on cloudy days and evenings when the atmosphere is quiet. With powerful batteries, though, energy that is generated on sunny and windy days can be stored for later use when production facilities lie fallow.

Many environmentalists, however, protested Norway’s decision on the grounds that sea mining would disturb ocean life. Jellyfish, for instance, may become “stressed” by commercial activity.

Thus, financial valuation models must now account for the competing scenario probabilities that: (1) government will take action to protect the air through the development of battery technology for wind and solar projects, thereby accelerating the drive to eliminate carbon emissions, versus (2) government will opt to strengthen regulatory protection of the sea, resulting in our legislators' refusal to approve mining activities that produce battery material for wind and solar projects.

The concept is similar to the one that economists describe regarding substitute goods. As we first learned in our undergraduate Economics Principles courses, we can expect the price (and value) of coffee to increase when it becomes more difficult and more costly to produce tea.

In the current analogous situation, a financial analyst who prepares a valuation model for a Norwegian commercial sea mine would need to assume a certain level of government policy support for eliminating carbon emissions from the air. More policy support for the cleansing of the air would strengthen the market for renewable energy batteries, thereby yielding a higher tolerance for disturbing the environment of the sea.

That would be good news for individuals who care about carbon emissions. It would be bad news, though, for the jellyfish.

Sunday, January 7, 2024

Why Do Canadian Forests Burn So Easily?

A few years ago, as the skies over San Francisco darkened into a nightmarish toxic orange color, many assumed that the city’s proximity to California’s forest wildfires made it uniquely vulnerable to such occurrences.

But then, last year, the skies over New York City underwent the same lethal transformation because of wildfires in the Canadian forests. That’s when many realized that cities far from such conflagrations could suffer from these catastrophes.

But why do Canada’s forests burn so easily? A recent academic study answered that question. Apparently, the lumber companies that chop down Canadian trees and process the wood do follow national environmental laws. They substitute young replacement trees for the mature harvested trees. 

So why do Canadian forests burn so easily? A forest that is full of young trees is not capable of supporting a mature forest ecosystem. Caribou, for instance, are “animals that require large areas of older forest ...” And “without the thick bark of older trees, younger trees are more vulnerable to wildfire.”

In other words, as the lead researcher of the academic study explained, a new forest cannot replace an older one. “You still maintain a forest cover and you might still maintain the forest in a land-use sense over time … but you have degraded some aspect of its ecological quality.”

Perhaps new environmental regulations can repair the inadequacies of the existing Canadian law. Ironically, we can only hope that the overlay of new regulation atop the old legal regime proves to be more effective than the overlay of new Canadian trees atop the old natural forest.

Wednesday, January 3, 2024

Did The COP28 Global Climate Summit Do More Harm Than Good?

A person with a severe case of diabetes visits his physician. “Doctor,” he says, “I constantly feel tired and thirsty. I’m also losing weight. What’s wrong?”

The physician replies “What’s wrong? You have diabetes! It sounds like you’re eating too much sugar. What did you have for lunch today?”

“Three doughnuts and a jumbo-sized cola.” The physician rolls his eyes. “You need to transform your diet right now. Stop eating sugar; eat vegetables instead.”

“Vegetables? I’ll start eating them, but I can’t stop eating sweets.” Eventually, they reach an agreement.

The diabetic will begin to “transition away” from sugary foods; however, he makes no promises and sets no concrete deadlines to do so. After much haggling, he also agrees to triple his current vegetable intake by the year 2030.

Each individual leaves the conversation with a sinking feeling that he wasted his time. The physician thinks “This patient will never change his behavior. And I have no means to track his food intake, much less modify his diet.” Meanwhile, the diabetic thinks “He certainly didn’t persuade me that I’m anywhere near death. For all we know, the invention of a pill that will make me feel better may be right around the corner.”

Sound familiar? This conversation might compel you to recall the negotiations at last month’s COP28 global climate Summit in Dubai. The parties agreed in principle that carbon emissions are too high. However, they didn’t agree on how, when, or by how much to reduce them.

That infuriated former U.S. Vice President Al Gore, who tweeted that “COP28 is now on the verge of complete failure … In order to prevent COP28 from being the most embarrassing and dismal failure in 28 years of international climate negotiations, the final text must include clear language on phasing out fossil fuels.”

Did his viewpoint prevail? Not really. The representatives did agree in principle to “transition away” from fossil fuels. They also agreed to “triple the capacity of renewable energy” by the year 2030. However, like a diabetic’s promise to change his diet “eventually,” the Summit’s closing agreement left no one satisfied about the outcome.

Even Gore voiced mixed feelings about it. In a formal post-Summit statement, he noted that “The decision at COP 28 (is) the bare minimum we need and is long overdue … It is up to all of us to hold our leaders accountable to their promise to transition away from fossil fuels once and for all.”

Ironically, given that more than 60,000 people attended various activities that were associated with the Summit, the amount of carbon that was emitted to transport them to the event may have exceeded the carbon reductions that will eventually result from its final agreement. Is it possible that the Summit itself did more harm than good?

Sunday, December 24, 2023

The Beatles, ABBA, And The Future Of Music Technology

Just last month, The Beatles released a new song and music video called Now And Then. Because two of the group’s “Fab Four” members have been deceased for many years, the surviving artists used the most advanced audio and visual splicing technologies to create the illusion that their elderly selves had traveled back in time to unite with the youthful band to create the new composition.

The Beatles’ work was hailed as an exemplar of advanced media technology. A far more impressive example of contemporary music technology, though, may be a concert series that is currently running on the outskirts of London (UK). The four members of ABBA, the Swedish band from the 1970s, recently released a new album and are now performing “in residence” under the concert name ABBA Voyage.

All four members of ABBA are now in their mid-to-late 70s. Then how can they possibly perform the rock, disco, and pop songs of their youth? In reality, they’re not performing those songs … and yet they are.

Huh? The secret to their concert success lies in the use of digital avatars. Although the ABBA concerts use live musicians to play the musical compositions, the original group members are employing voice recordings and motion capture body suits to capture their performances. Advanced technologies are then used to transfer the data to the electronic figures.

The concerts are drawing rave reviews. Nevertheless, they are merely precursors of even more advanced technologies to be employed by musicians in the future. For instance, as presented by the one minute promotional video on the home page of the ABBA Voyage web site, the avatars are currently life-size. Thus, huge screens are placed at each end of the stage to display giant video feeds of the performers.

Such video screens are typical features at contemporary concerts. But when the performers themselves are digital creations, these screens may prove to be unnecessary. After all, with some moderate technological enhancements, the performers could simply be rendered giant-size and easily visible from any point in the theater.

At the moment, mammoth characters would obviously destroy the illusion that attendees are watching live human performances of the original ABBA quartet. But over time, such manipulations of human perception may become natural extensions of the digital concert experience.

Furthermore, as Artificial Intelligence products become more flexible, it may become feasible to add their capabilities to the avatars. At that point, the digital characters may be able to interact with the audience in a plausibly humanlike manner.

As 2023 comes to a close, such musical performances still sound like they belong in the realm of science fiction. But in 2024 and beyond?

As the Beatles once declared: Tomorrow never knows. And as Abba once sang: If you see the wonder of a fairy tale, you can take the future.

Sunday, December 17, 2023

A Bizarre Environmental Risk: The Attack Of The Giant Goldfish!

With two weeks remaining in 2023, the two top grossing films of the year are thematically based on toys (i.e. Barbie and Super Mario Brothers). The third and fourth highest grossing films are thematically based on superheroes (i.e. Spider Man and the Guardians of the Galaxy).

The fifth highest grossing film, though, is based on a very different type of theme. Oppenheimer is the true biographical tale of the leader of the scientific team that developed the world’s first atomic weapons during World War II. Although it’s an unlikely film to have made the Top Five film list, it earned the respect of critics with its balanced portrait of a man who spent decades repenting his earlier work and warning the world about the risk of nuclear weapons.

Though Oppenheimer (the man) couldn’t stop the nuclear arms race, his ideas did impact popular culture. The plot of the classic 1954 science fiction film Them!, for instance, involved an ant colony that was accidentally irradiated during the first atomic blasts in New Mexico and that grew to giant size. While the monsters made meals out of humanity, an Oppenheimer-like scientist expounded on the environmental risk of continuing nuclear development projects. 

Is humanity literally in danger of an attack from giant ants? No, but other small creatures are actually growing to monstrous sizes and attacking our eco-systems. Last week, for instance, Smithsonian Magazine published an article about pet goldfish that are being abandoned in natural waterways.

With no predators to fear, and with unlimited food supplies and space to propagate within, the abandoned pets are growing as long as nineteen inches and as heavy as nine pounds. They’re devouring native plants and then excreting at levels that hyper-charge the growth of toxic algae. Once established in waterways, they become extremely difficult to eradicate from natural ecosystems. And their sheer numbers crowd out native species of fish.

These giant goldfish are one of the more bizarre invasive species to threaten the American habitat. Any business that plans to develop, invest in, or occupy a land site that is contiguous to an occupied body of water, though, will need to account for the appropriate environmental risks.

Wednesday, December 13, 2023

Like Shohei Ohtani, Many Public Works Perform As “Two Way Players”

A few days ago, baseball superstar Shohei Ohtani signed the richest contract in the history of professional sports by agreeing to play ten years for the Los Angeles Dodgers. The team will pay him $700 million for his services.

Ohtani’s value far exceeded that of any other baseball professional because of his ability to serve as a “two way player.” In baseball parlance, that refers to individuals who can serve in the (usually distinct) roles of full-time pitcher and full-time batter. The last professional baseball player to do so was Babe Ruth more than a century ago.

Like Ohtani, there are many contemporary public works that are highly valued because they are designed to serve multiple uses. The Buffalo Bayou of Houston, Texas, for instance, simultaneously serves as a flood management system, a public park space, and a natural habitat for numerous urban creatures.

The practice of multiple use public works also extends across periods of time. Fresh Kills Park in Staten Island, New York City, for example, recently opened on top of landfill that served for decades as a huge trash dump. It follows the classic example of Flushing Meadows Corona Park, home of the National Tennis Center and the U.S. Open, which was built on top of the ash dump called a “valley of ashes” in F. Scott Fitzgerald’s classic novel The Great Gatsby. 

The most detailed illustration of multiple use public assets, though, may be the chapter about Philadelphia’s Rittenhouse Square in Jane Jacobs’ classic urban planning text The Death And Life Of Great American Cities. Jacobs noted how the park was used in different ways by different groups of citizens at different times of day, thereby optimizing its overall value across all groups and time periods.

Interestingly, a multiple use strategy (by its very definition) contradicts the philosophy of focusing on one’s core competency. When an asset can be deployed effectively across multiple core competencies, though, it can often produce far more value than any single use alternative.

Tuesday, December 5, 2023

Why Consumers Should Read Corporate Sustainability Reports

One of the primary presumptions of the sustainability reporting movement is that data transparency will empower consumer choice. In other words, if rival companies publish comparable and reliable data on their web sites, consumers will use that data to identify vendors that reflect their values.

That doesn’t mean, of course, that consumers will actually always “buy first” from vendors that share their priorities. Buyers may decide that price, quality, convenience, and other factors should impact their purchase decisions. However, the sustainability reporting movement presumes that a significant amount of purchasing capital will flow to supportive companies. It also presumes that this capital flow will influence corporate behavior.

It doesn’t take much time to download publicly available corporate sustainability reports and review such data. If you wish to do so, here are some suggestions to keep in mind.

Much sustainability information is published on beautifully formatted web pages. Feel free to review it, but companies usually publish the most credible data in static PDF documents with titles like Annual ESG Report, Business Sustainability Report, and Corporate Responsibility Report.

These PDF reports are similar in appearance to traditional annual financial reports, given that their metrics complement the data in financial reports. For that reason, sustainability reports are often posted in the Investor sections of the web sites of publicly traded companies.

Furthermore, when you open these PDF documents, look towards the final pages of the reports for data tables that are filled with sustainability metrics. Although you’re welcome to review the visually attractive text and charts on the earlier pages, please keep in mind that rows and columns of hard data are much harder to “greenwash” than picturesque words and images.

In addition, the data tables should contain information that has been prepared and reported in accordance with the selected terms and definitions of credible, reputable nonprofit standard setting organizations. Look for references to organizations like the GRI, SASB, UN SDGs, and TCFD as promulgators of such standards. Then review the specific measurements that have been chosen for publication and ask yourself: “Are these choices consistent with my own values? Would I have asked the organizations to select these measurements from the full array that are published by the GRI, SASB, etc.?”

Most of the time, when you decide where to spend your money, you choose between organizations that compete for your business. Even if the sustainability reports of those competitors aren’t directly comparable to each other, you should consider your own values and then compare the data in each report to what you would have preferred the organizations to measure. Often, when you take this approach, you’ll be pleasantly surprised at your own ability to identify the vendors that come closest to sharing your preferences.

That’s why you should read corporate sustainability reports. Why not give it a try? After all, when you purchase products and services, you may as well invest your capital in organizations that serve your priorities and produce the data reports that prove it.

Sunday, November 26, 2023

New York City’s Composting Program: Rats Rejoice!

Rats throughout New York City must be celebrating the news that New York City Mayor Eric Adams just proposed the elimination of the Big Apple’s organic composting program. After all, much of the estimated 8 million pounds of food and other organic waste that New York produces each day may become available to rodents if not processed in some responsible manner.

Adams says that an ongoing municipal budget crisis requires him to implement across-the-board spending cuts in order to divert funds to manage the arrival of migrants from the Southwestern United States. Adams blames the federal government for its failure to provide fiscal support to house the migrant population, (literally) saying “Don’t yell at me, yell at D.C.

Oddly enough, the city’s Universal Organics Collection Law became effective in July 2023, a mere four months ago. The law built upon the success of a voluntary demonstration project that was launched last year under Mayor Adams.

Of course, any competent risk manager would caution critics to review the Mayor’s plans for diverting the organic material before castigating the proposal to eliminate the composting program. It’s possible that an alternative pipeline of waste flow could address the possible risk that the waste would end up feeding the rat population.

Unfortunately, the Mayor has not yet presented an alternative plan. It’s possible that his proposal is simply a negotiating ploy.

The rats, however, are undoubtedly hoping for the best. Writing on behalf of the human population, though, the rodents’ best outcome might prove to be our worst.

Sunday, November 19, 2023

King Charles III Disappoints The Environmentalists

British environmentalists were disappointed two weeks ago when Charles III delivered his first King’s Speech as the British monarch. Many of his listeners were hoping for some expression of support for the environmental causes that he championed during his longstanding service to Queen Elizabeth as the Prince of Wales.

British tradition called upon Charles to read a speech that was written by the Prime Minister. The King had no legal authority to change the text of the speech, regardless of his opinion of it. Nevertheless, given the Prime Minister’s support of the oil and gas industry sectors, many hoped that Charles would find a way to signal his disagreement while supporting the renewable energy sector.

The environmentalists were disappointed. Charles simply read the Prime Minister’s prepared text without delivering a single disapproving frown, nose wrinkle, or finger wiggle. The King may not have agreed with the text, but he performed his royal duty.

Interestingly, Charles’ dilemma was explored in a popular theatrical drama named King Charles III that played on the London stage in 2014, a time when Queen Elizabeth still ruled Britain. The script was crafted in Shakespearean prose and was marketed as the play that The Bard himself would have written about the end of Elizabeth II’s reign and the ascension of Charles III.

The plot involves the British Parliament’s support of a law that, in the view of the newly crowned King Charles, impinges upon the freedom of the press. The King invokes controversial royal powers to prevent the implementation of the law.

Violent clashes ensue between followers of the British Crown and supporters of the British Parliament. Charles’ eldest son William, the heir to the throne, sides with the Parliament.

How does the play end? If you’re curious about it, you may wish to watch its 2017 film adaptation now playing on Amazon Prime. Any one who is familiar with the dramas that Shakespeare wrote about aging royal leaders, though, can likely guess the outcome.

Oscar Wilde once opined that “Life imitates art far more than art imitates Life.” Any environmentalist who hoped that the actual King Charles would revolt against Parliament during his recent King’s Speech, however, would not have observed such consistency.

Sunday, November 12, 2023

Direct Air Capture: Will Limestone Save The Planet From Carbon Emissions?

What comes to mind when you think of limestone? The Roman Colosseum, perhaps. Or the Empire State Building and other modern buildings that were designed in the classic style.

Most people don’t think “Limestone? That’s the geological stone that will save the planet from carbon emissions!" And yet, last week, the first commercial Direct Air Capture (DAC) facility in the United States opened for business with a limestone-focused business plan.

DAC is not the practice of “scrubbing” carbon out of emissions before carbon gas is released into the atmosphere; that better known technology is called Carbon Capture (CC). DAC, instead, relies on the premise that carbon can be “sucked” out of the atmosphere long after it has been released into it.

It sounds like science fiction, doesn’t it? Nevertheless, it's based on valid science, although it utilizes a very expensive process. The facility that opened last week is owned by a start-up called Heirloom Carbon Technologies. It relies on the fact that limestone is capable of absorbing relatively large quantities of carbon.

How does it work? Stacks of limestone absorb carbon. Then the limestone is heated to remove the carbon. Concrete storage bins permanently store the carbon. The limestone is then repositioned to absorb more carbon. Simple, isn't it?

The entire Heirloom facility is only expected to offset the carbon footprint of approximately 62 Americans. That’s 62, regrettably, not 62 million or even 62 thousand. However, scientists and environmentalists hope that the cost of the process will plummet over time.

Companies like Microsoft are paying Heirloom for what the start-up's web site calls “the highest quality carbon removal credits.” That statement probably isn’t a hyperbole, given the dubious claims of many carbon credit issuers. Nevertheless, given the current cost of operating DAC technology, it clearly cannot be considered a primary solution to the challenge of climate change.

Thus, at the moment, there is no practical approach to estimating future production volumes, projecting potential profits, and then using this information to establish current market valuations for DAC based business ventures. And yet early stage venture capitalists and angel investors know that portfolios of long-shot financial bets on speculative technologies sometimes produce a single winner that can justify the entire portfolio's capital stake.

It is, indeed, a reasonable investment strategy. Perhaps, though, we shouldn't wager the future of the planet on its success.

Sunday, November 5, 2023

The Slow, Strange Destruction Of The Panama Canal System

One of the strangest aspects of climate change is its tendency to enhance opposing tendencies simultaneously. The melting of the polar ice caps, for instance, can destabilize the polar jet stream and bring extremely chilly weather to regions on an otherwise warming planet. And the healthy elimination of air pollution from the atmosphere can enable more of the sun rays to strike the earth, thereby exacerbating the destructive impact of carbon emissions.

This week, another example of paradoxically troubling news emanated from the Panama Canal. While other regions of the world are grappling with flood risk, the canal authorities are forced to address a lack of water that results from extreme drought.

Without water, of course, canals (like lakes and rivers) simply dry out. Although the Panama Canal has not yet reached a “totally dry” state, its long term drought condition has compelled its managers to reduce ship booking slots from a “normal” 36 ships per day to 32 per day on September 30, 2023 and to an expected 18 per day on February 1, 2024. That’s a projected 44% reduction in shipping capacity in four months, leading to a level that will be 50% below “normal” conditions.

A dry Panama Canal negatively impacts the supply chains of all of the merchandise purchasers that rely on it for shipping purposes. Some of the purchasers will find other paths to bring the merchandise to its destinations, albeit on more expensive routes that will drive cost inflation. Other disruptions in the supply chain will compel buyers of the goods to drop more distant suppliers and shift their purchases to local or regional producers.

The problem represents yet another risk factor that must be addressed by the managers of supply chains. At the very moment that they must worry about flood risk, they must also manage the impact of drought risk.

Wednesday, November 1, 2023

Climate Tipping Points (CTPs) And Flood Risk Models

Data analysts who develop flood risk models for property insurers, land developers, and government zoning officers have a new variable to plug into their data sets. Climate Tipping Points (CTPs) are now becoming important factors in risk forecasts.

The two most famous CTPs, of course, were introduced to the general public during the 2015 United Nations Climate Change Conference in Paris. 196 national entities jointly ratified a set of climate change goals to avoid environmental catastrophe by limiting the increase in global temperatures to a CTP of 1.5 degrees Celsius. And even if the planet surpassed that threshold, we were assured that we could still avoid the very worst apocalyptic outcomes by limiting the increase to a CTP of 2.0 degrees Celsius.

According to NASA, our global temperature has only increased by 1.1 degrees Celsius thus far. Does that mean that we need not worry about environmental collapse?

Start worrying. Last week, the British Antarctic Survey published a study in the research journal Nature Climate Change. It found that the meltdown of the West Antarctic Ice Sheet is now unavoidable. In other words, we’re already past the point of no return regarding the Ice Sheet, regardless of any future success in moderating temperature increase.

According to Reuters, the study concludes that “the West Antarctic Ice Sheet will continue to melt this century regardless of how much the world slashes planet-warming emissions … locking in further sea level rise over the coming decades.” That means higher sea levels and much greater risks of flooding on ocean coastlines.

Reuters also notes that “the collapse of the West Antarctic Ice Sheet is one of nine global climate 'tipping points' scientists identified in 2009. The passing of these environmental red lines would be catastrophic for life on Earth.”

Thus, the 1.5 and 2.0 degree Celsius CTPs are no longer the only ones that pose material concerns. According to the British Antarctic Survey, we’ve already passed one critical CTP that will significantly impact coastal flood risk models around the world.

Thursday, October 26, 2023

TXCPA Accounting Education Conference

The following links are presented for educational purposes in support of the TXCPA Accounting Education Conference presentation entitled ESG / Sustainability in Accounting on October 27, 2023.

Topic Outline

1. Historical Background And Theoretical Frameworks

(1a) Themes: The Triple Bottom Line (Profits, Planet, People) + Governance
(1b) Client Base: Global, National, Corporate, Community, Personal
(1c) Capstone: Financial, Managerial / AIS, Tax, Assurance, Regulation

2. Organizations and Stakeholders

(2a) Accounting Standards: GRI, SASB, UN SDGs, TCFD, IPIECA
(2b) Corporate ESG Reports: Energy, Freight / Transport, Human Services
(2c) Investment Community: Rating Agencies, Investment Funds, Carbon Markets

3. The Oversight Function

(3c) Public Accounting: Assurance Reports, Data Systems, Supply / Value Chain Analyses

4. Experiential, Interactive, Game-Oriented “Real World” Applications

(4a) Save The Blue Frog!
(4b) Feed The Pig!
(4c) Build-A-Business

Cross Referencing To Learning Goals And Educational Standards

Course Grades

75% Traditional Learning (1abc, 2abc, 3abc)
25% Active Learning (4abc)

Academic Standards

AACSB Curriculum

... content that is current, relevant, forward-looking, globally oriented ... fosters experiential learning ... promoting positive societal impact ...

AICPA Uniform CPA Exam Blueprints 

BAR: Recall how the COSO ERM framework can be applied to identify, respond to, and report environmental, social and governance (ESG) related risks.


To be determined …

Presentation Links

(1a) JP Morgan Chase Origins:

(1a) Nellie Bly:

(1a) The Triple Bottom Line:

(2a) Global Reporting Initiative:

(2a) Sustainability Accounting Standards Board:

(2a) United Nations Sustainable Development Goals:

(2a) IFRS:

(2a) Task force on Climate-related Financial Disclosures:

(2a) Intl. Petroleum Industry Environmental Conservation Association:






(2c) Sustainalytics:

(2c) S&P 500 ESG ETF:

(2c) EU Emissions Trading System (ETS):

(3a) AICPA:

(3a) SEC:

(3a) COSO:

(3b) CSRD:

(3b) CSDD:

(3c) Assurance Reports (see Other Documents)


The following links are presented for educational purposes in support of the TXCPA Accounting Education Conference presentation entitled Save The Blue Frog! A Game Playing Approach To Experiential Learning on October 28, 2023.

Game Introduction


Other Documents

Sunday, October 22, 2023

Brazil Takes The Leap Into Mandatory Corporate Sustainability Disclosures

A mere four months ago, International Financial Reporting Standards (IFRS) S1 and S2 were issued by the International Sustainability Standards Board (ISSB). For the first time, a major global entity with the authority to mandate corporate disclosures issued a wide array of sustainability reporting standards.

The issuance, though, came with a “catch.” Because S1 and S2 were classified as IFRS Sustainability Accounting Standards and not as IFRS Financial Accounting Standards, S1 and S2 were not immediate requirements in IFRS jurisdictions. Instead, each national government within the IFRS’ geographic coverage area was (and remains) free to adopt or ignore S1 and S2 as it sees fit.

Because government entities tend to move relatively slowly, few expected the nations of the world – and the largest nations in particular – to move rapidly towards adoption. Last week, though, the government of the ninth largest economy in the world did exactly that.

On October 20, 2023, the Brazilian Ministry of Finance announced that IFRS Standards S1 and S2 would be required by January 1, 2026, with voluntary use encouraged as early as 2024. Its simultaneous adoption of both standards was particularly noteworthy, given that S2 only addresses climate-related disclosures, while S1 addresses a broad array of sustainability-related information. In contrast, the U.S. Securities & Exchange Commission has only proposed a climate-related disclosure requirement.

To be sure, Brazil is not the first Latin American nation to mandate corporate sustainability disclosures. Chile, for instance, was the first major nation in the world to mandate corporate use of the guidance of the Sustainability Accounting Standards Board (SASB).

Nevertheless, with a “G-20” economy like Brazil’s taking the leap into a broad sustainability disclosure requirement, a trail has now been blazed for other regulatory bodies world-wide. And entities like the ISSB and the SASB (which has been embraced by the ISSB) have further cemented their positions in the vanguard of the ESG reporting movement.

Saturday, October 14, 2023

In The Sustainability Reporting Field, There Is No “United” Market

Today’s European Union (EU) began its existence in 1957 as the European Economic Community (EEC), i.e. a “community” of independent states. As early as 1946, though, Winston Churchill and others espoused the creation of a “United States of Europe.” And others described the goal of the EEC as the creation of a European Common Market.

Is our contemporary EU a true common market? Hardly. Consider, for instance, the sustainability reporting field.

On the one hand, the EU has adopted the Corporate Sustainability Reporting Directive (CSRD) as law. The CSRD’s “next generation” law, the Corporate Sustainability Due Diligence Directive (CSDD), is currently weaving its way through its state-by-state approval process. For these directives, the EU appears to be operating as a single cohesive entity.

But on the other hand, Germany has separately adopted its own “Act on Corporate Due Diligence in Supply Chains (Supply Chain Due Diligence Act)” as law. With or without the passing of the EU-wide CSDD, its requirements will likely endure as a permanent component of the German regulatory system.

The “somewhat cohesive and yet somewhat patchwork” nature of the European sustainability reporting system is actually not very dissimilar to the American system. California, for instance, recently approved mandatory corporate reporting of carbon emissions in advance of an impending Securities and Exchange Commission (SEC) decision about doing so on the federal level.

Thus, in the field of sustainability reporting, it would be a mistake to assume that the directives of the European Union or the regulations of the United States of America are actually "united." Instead, the business, economic, and legal systems of these legal entities are as fragmented as the societies that they govern.

Tuesday, October 10, 2023

Invasive Species Cost Assumptions In Environmental Risk Models

Last month, the United Nations Intergovernmental Platform on Biodiversity and Ecosystem Services (IPBES) produced a study entitled “Assessment Report on Invasive Alien Species and their Control.” It’s known colloquially as the IPBES Invasive Alien Species Report.

No, the Report didn’t focus on interplanetary visitors. Instead, it addressed the cost of combating species that are encroaching on new territories. The Anopheles Stephensi, for instance, is a mosquito species that is carrying malaria to new regions. Because of climate change, these regions are growing more hospitable to the insect.

How dramatic are these regional climate transformations? Believe it or not, for instance, climatologists now officially classify the New York City region as a “humid subtropical” zone. Evolving weather patterns are enabling invasive species to explore new areas, necessitating significant public and private expenditures to combat them.

How significant? CNN’s feature story about the Invasive Alien Species Report carried the headline “Invasive species cost the world $423 billion every year and are causing environmental chaos, UN report finds.” That’s a huge number, but it doesn’t help risk analysts identify expenditure trends that can be used to forecast annual cost increases in their environmental risk models.

Helpful information, though, is noted in a subsequent paragraph of the CNN story. It states that “the global economic cost is tremendous, scientists say, having at least quadrupled every decade since 1970.”

CNBC, the business news platform, published a story that was much more focused on information that is useful to risk managers. Its note that “the costs of invasive species have quadrupled every decade since 1970” is far more visible than CNN’s equivalent note, appearing as the second Key Point directly below the article’s title.

Ideally, risk managers should take the time to download the original IPBES report and review it for such information. Nevertheless, whether analysts skim these reports, reply on Key Points notations on business sites such as CNBC, or dig deeply into the stories of general news organizations like CNN, the information that they need to develop cost trends is often available for free online.

Sunday, October 1, 2023

It’s Time To Add Meteorology To Your List Of Volatile Risk Factors

A few days ago, almost eight inches of rain fell on New York City in a single day. The deluge imposed massive flooding, sewage back-ups, and other economic costs on the nation’s largest city.

The damage, though, didn’t approach the level of loss that occurred during Hurricane Ida two years ago. Eleven New Yorkers literally drowned in their basement apartments during that catastrophe.

The increasing volatility of the weather is now being attributed to climate change. In a news conference regarding this week’s storm, New York City’s Environmental Protections Commissioner explained “The sad reality is our climate is changing faster than our infrastructure can respond.

This type of meteorological event represents a risk factor that must be addressed by an increasingly wide array of organizations. After all, torrential rains in a flood zone can wipe out all businesses (both large and small) in a region. Businesses in other regions that rely on the ones in the flooded area can also be adversely affected.

In addition, residents of a flood zone can be displaced for extended periods of time. In an era of remote at-home work arrangements, organizations far from a regionally impacted area can be affected by such rainstorms.

Will current attempts to curtail carbon emissions keep global temperatures sufficiently low to curtail the worst meteorological events? Don’t bet on it. Exxon Mobil’s recent Global Outlook report predicts that a 25% decline in emissions by 2050 will not prevent the planet’s temperature from increasing beyond the Paris Agreement’s 1.5 degree and 2.0 degree thresholds.

Are those thresholds important? The first one, if surpassed, may turn New York City’s occasional deluges into frequent events. The second one, if exceeded, may make significant sections of the City permanently uninhabitable.

Such issues have long been the concerns of long term risk management planners. If you’re choosing where to build a large new industrial complex, for instance, such issues have always been significant to you.

But now, if you’re a mainstream firm of any size that conducts business in – or that relies on companies and employees who are located in – regions that can be impacted by torrential rainstorms, then you may need to add meteorology to your list of volatile risk factors.

And given that the vast majority of all regions currently experience some incidents of heavy rainfall each year, most businesses may now need to update their risk scenario analyses.

Saturday, September 23, 2023

The “Double Counting” Argument Won’t Stop California From Mandating Scope 3 Carbon Emission Disclosures

Business lobbyists, in their efforts to persuade regulators to decline to require Scope III carbon emission disclosures, have been leaning heavily on the argument that the category is inherently impractical because it double-counts what it purports to measure. The argument, though, has failed to prevent the State of California from adopting that very disclosure requirement.

Because so many public and private firms in the United States consider the California market “too big to ignore,” they’ll inevitably need to disclose their Scope III emissions. So what went wrong with the double-counting argument?

According to the EPA, “Scope 1 emissions ... occur from sources that are controlled or owned by an organization (e.g., emissions associated with fuel combustion in boilers, furnaces, vehicles). Scope 2 emissions are ... associated with the purchase of electricity, steam, heat, or cooling.” 

Scope 3 emissions, though, are very different. The EPA defines them as “the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly affects in its value chain.”

Thus, as Thomson Reuters notes, “double counting may occur when a manufacturer and a retailer both account for Scope 3 emissions resulting from the third-party transportation of goods between them.”

Likewise, Investment News explains that “there is the potential for double counting ... car manufacturer(s) could conceivably report emissions ... that come from the vehicles after being sold, as well as those of the fuel supplies needed to power them ... meanwhile, the materials providers and energy companies might also be reporting emissions tied to the same car … “

So let’s assume that the chief regulator of a political region wishes to compute the total emissions of all of the organizations in the region and compare the sum to a regional emissions target. The regulator couldn’t complete the task because of the double-counting problem.

That sounds reasonable, doesn’t it? And yet this argument didn’t dissuade California from adopting its Scope III disclosure requirement. Why not?

It’s because this regulatory budgeting activity is not the sole purpose of a Scope 3 mandate. Indeed, the primary purpose of requiring comprehensive disclosures across Scopes 1, 2, and 3 is to enable comparisons across multiple organizations or across multiple time periods for individual organizations.

For an analogous situation, let’s assume that several heavy drinkers vow to reduce their whiskey consumption. Let’s also assume that certain drinkers occasionally come together to share a bottle. If one asks each individual to estimate the number of times (s)he drank from a newly opened bottle of whiskey last week, the shared bottles would be double counted in their aggregate responses.

Nevertheless, each drinker would produce a meaningful individual measure. Comparisons of measures between individuals would likewise be meaningful. And each individual could meaningfully utilize his or her individual measure to (hopefully) track a decline in consumption over time.

Thus, the double counting argument (though valid) failed to deter California from adopting a Scope III disclosure requirement. For the same reason, it’s not very likely to be effective with other regulatory authorities.

Sunday, September 17, 2023

Johnson & Johnson: Farewell, Consumers!

Just a year ago, Johnson & Johnson (J&J) was the manufacturer of Listerine, Neutrogena, Tylenol, and other time-tested consumer health products. Its brand was ranked as the 92nd most valuable one in the world, and its very logo – a facsimile of its name written in classic handwritten script – evoked the signature of its 19th century founder Robert Wood Johnson.

Earlier this year, though, the firm spun off its consumer products into a new corporate entity called Kenvue. And last week, it replaced its human script logo in favor of one with a standard corporate block font.

J&J’s senior officers clearly believe that it will prosper without the weight of a consumer-friendly health products business. It is thus implementing the same decision that was made by GE when it stopped selling light bulbs, refrigerators, and washing machines to the public, and that IBM made when it stopped selling personal computers.

Conversely, Microsoft still sells Xbox products to consumers. And Fedex continues to maintain a network of Fedex Office stores where the public can utilize its shipping services.

If you were managing a global company with (both) business and consumer lines, would you be more inclined to follow the corporate strategy employed by GE and IBM? Or the one employed by Microsoft and Fedex?

It’s certainly possible to make a persuasive argument in favor of either strategy. Nevertheless, J&J began placing a handwritten facsimile logo on its household products in 1886. It has been manufacturing Tylenol since 1959. We can only hope that it thought “long and hard” before deciding to abandon its venerable consumer brand business.

Tuesday, September 12, 2023

Can Energy Conservation Be A Moral Obligation If We Pay The Heaviest Users To Conserve?

Have you ever noticed the moral tone that is conveyed by energy conservation messages? In 1977, for instance, President Jimmy Carter delivered a speech that declared energy conservation to be the Moral Equivalent of War. And in 2015, Pope Francis issued a Church Encyclical named Laudato si’ : On Care For Our Common Home. In the document, Francis emphasized the role that energy conservation should play in preserving the planet.

If one chooses to refer to such objectives in moral terms, though, it’s fair to question the morality of the methods that are employed to achieve the objectives. That’s why it may be worth exploring how the State of Texas is avoiding power blackouts during a summer of extreme heat.

In addition to implementing its customary array of conservation practices, the Electric Reliability Council of Texas (ERCOT) is paying the state’s heaviest power users to cease operations at times of high demand. Texas Public Radio, for example, reported that ERCOT “paid a bitcoin miner $31.7 million in energy credits in August to not mine bitcoin.”

The company itself, a bitcoin miner named Riot, issued a press release that emphasized the contribution of the $31.7 million to its bottom line:

“August was a landmark month for Riot in showcasing the benefits of our unique power strategy .. Riot achieved a new monthly record for Power and Demand Response Credits, totaling $31.7 million in August … The effects of these credits significantly lower Riot’s cost to mine Bitcoin and are a key element in making Riot one of the lowest cost producers of Bitcoin in the industry.”

There’s no question that “doing what it takes to keep the power on” saves lives at a time when daily temperatures consistently soar past 100 degrees Fahrenheit. ERCOT’s leaders undoubtedly believe that the policy supports the public interest and meets all relevant moral standards.

At the very least, though, it can be awkward to ask the citizens of Texas to reduce their air conditioning usage, sweat through the grueling summer heat, and yet pay electricity rates that generate tens of millions of dollars for bitcoin miners like Riot.

For the sake of argument, let’s assume that this policy is “awkward but necessary.” If so, is it then reasonable to describe energy conservation as a moral concern?

Sunday, September 3, 2023

Do We Want Less Educated (And Less Intellectually Diverse) Accountants?

At the moment, in most U.S. states, applicants must complete 150 credit hours of college coursework to become licensed as Certified Public Accountants (CPAs). 150 hours (roughly) represent five full years of higher education.

Some Minnesota state legislators, though, are attempting to reduce the threshold to 120 hours. If they succeed, Minnesota would join Ohio and New Jersey in providing an alternative pathway to a CPA license, one requiring fewer than 150 hours. Their success would amplify difficult questions about the willingness of other states to respect the principle of reciprocity by permitting “under-educated” CPAs to practice within their borders.

The desire to roll back education requirements is not limited to the accounting profession. Earlier this year, Georgetown University met with eleven other U.S. academic institutions to discuss the concept of a three year bachelor’s degree. And last month, a pair of institutions associated with Brigham Young University (BYU) received approval letters from their accreditation bodies to introduce such degrees.

A representative of one of the BYU institutions explained “ ...we found ourselves in this awkward situation of saying, ‘All right, you’ve completed everything that’s required for the degree, except you need another 30 credits roughly of whatever classes you want.’ And it seems so disingenuous, I think, to say that to this working father or working mother that’s trying to take care of their families and put food on the table.”

Some accounting students face a similar situation. Many undergraduate accounting programs satisfy all of the requirements for taking the CPA exam, other than the completion of 150 hours. Students must then complete a significant amount of additional classes “of whatever classes (they) want” to meet the credit hour requirement.

The Wall Street Journal elaborates on this point. “Some in the industry say the extra time in school and the expense are keeping students from entering the field. Accounting or financial courses aren’t required during the fifth year, and many students take unrelated classes, from liberal-arts electives to earning a minor … “

It’s important to note, though, that free elective courses in higher education have existed for decades. Its proponents believe in self-directed education, i.e. the right of students to customize their degree programs to reflect their individual interests. By enabling students to study “whatever classes (they) want” while completing relatively small portions of degree programs, they empower students to explore more personally meaningful career paths.

A financial benefit can certainly be gained by removing such electives from educational programs. By definition, though, any such step would also remove the intellectual diversity that degree programs nurture in their students.

Sunday, August 27, 2023

Sustainability Reporting and the Supply Chain

Consider, for a moment, the supply chain that must be employed to produce and sell cups of coffee to morning commuters at a drive through service window. How many factors must the coffee bar’s analyst include in the process flow analysis?

There is the acquisition and use of product ingredients, of course, including the disposable cups, the dollops of skim milk, the packets of sugar, and the paper napkins. There is also the employment of service staff, the use of the building and equipment, the creation and distribution of marketing material, etc.

But what about the factors that cannot be controlled by the coffee bar, factors with costs that are externalized to (i.e. incurred and paid by) outside parties? The environmental cost of the automobile exhaust fumes, for instance, that are pumped into the atmosphere when vehicles creep forward at the drive through line? 

Or the environmental cost of managing the waste streams of paper cups that are thrown into the trash bins of employers? Or the human cost of sugar plantations that employ child laborers during the harvest season?

These data components of the supply chain are increasingly covered by new disclosure laws and regulations. The European Commission of the European Union, for instance, has been promulgating legislation such as the:

    • Non-Financial Reporting Directive (NFRD);

    • Corporate Sustainability Reporting Directive (CSRD);

    • Directive on Corporate Sustainability Due Diligence (CSDD).

Many of these legal requirements are not solely applicable to firms that are based in the European Union. They are also applicable to non-European firms that maintain significant direct operations in the European Union or that contribute significantly to the value chains of European firms.

U.S. legislation is also evolving towards greater disclosure requirements. The United States Securities and Exchange Commission (SEC), for instance, is developing a set of climate change disclosure requirements that is expected to be issued in final form later this year.

The regulation is considered by some to be controversial in nature. In fact, it has been delayed from its original expected issuance date. Nevertheless, it is still expected to evolve into a legal requirement in the near future.

A century ago, many (if not most) of the corporate financial disclosures that are considered routine today were seen as radical and unworkable impositions on the business community. The SEC itself did not even exist one hundred years ago; it was later created during the Great Depression of the 1930s.

There’s no way to know whether these new supply chain disclosure regulations will become as routinely accepted as our longstanding financial reporting requirements. Whether or not they are embraced in the future, though, they clearly must be addressed by the business community in the present.

Sunday, August 20, 2023

Why Do Companies Use The Phrase “Science Based Targets” In Their Environmental Sustainability Disclosures So Frequently?

Moody’s 2022 TCFD Report discloses environmental performance metrics in accordance with the policies and standards of the Task Force for Climate-Related Financial Disclosures. In its 47 page PDF document, Moody’s employs the phrase “Science Based” 26 times to describe its targets or standards.

26 times? Why would a sophisticated global financial organization, noting that its measurement targets are scientifically derived, need to repeat itself more than two dozen times? Wouldn’t a single declaration be sufficient?

There is, of course, a reason for the repetition. Eight years ago, the United Nations Global Compact joined three other environmental organizations to create the Science-Based Targets initiative (SBTi). According to its 2022 Monitoring Report, the SBTi contracts with 38% of the Fortune Global 500 and 42% of the S&P 500 to certify that the companies have established – or have committed to establish – science based carbon emission targets.

The search engine on the SBTi web site, for instance, notes that Moody’s Corporation has set a near term target that is consistent with limiting the increase in global temperatures to 1.5 degrees Celsius. Moody’s has also committed to achieving Net Zero emissions by 2040.

In comparison, the search engine notes that S&P Global has set the same 1.5 degrees target. However, although S&P has committed to achieving Net Zero emissions, it has not announced that it will do so by 2040 (or any other specific year).

Does this information matter? Assuming it is valid, it may indeed matter. In fact, one does not necessarily need to care about the health of the planet to be impacted by the data.

After all, huge amounts of capital are now invested in firms that focus on reducing carbon emissions. As more organizations establish science based targets to reduce emissions, they’ll be better positioned to access these funding streams.

This assumes, though, that the SBTi information is valid. But is it truly safe to assume that 62% of the Fortune Global 500 and 42% of the S&P 500 do not use science based targets, simply because they have not sought the certification of the SBTi? And is it meaningful to include companies (like S&P) in certain reported metrics if they merely commit to achieving targets without citing any particular years, commingling them with companies (like Moody’s) that have already cited target years?

Furthermore, how many companies are contracting with public accounting firms to audit their sustainability metrics? Although the annual financial statements of Moody’s are audited in their entirety by the “Big Four” public accounting firm KPMG, its TCFD Reports are only subjected to limited assurance procedures that are performed by a pair of advisory firms (Apex and LRQA).

Are you feeling unsettled by these questions? At the very least, it is clear why companies are using the phrase “Science Based Targets” so frequently. They’re contracting with the SBTi to certify that they are employing such targets, and the SBT acronym has acquired its own distinctive meaning.

Nevertheless, it’s reasonable to raise questions about the situation. For instance, according to an article in the M.I.T. Technology Review, “the fact that a single organization is setting the standards for many of the world’s largest companies makes it essential for those climate targets to be trustworthy. A number of researchers now question whether SBTi’s corporate guidelines are adequately aggressive, equitable, and clear.”


Sunday, August 13, 2023

Environmental Catastrophe and the Risk Assessment Function

The 1975 summer movie Jaws portrayed a suburban New York beach community that recoiled from the assault of a voracious great white shark. Although the film was a work of fiction, a shark (in reality) seriously injured a swimmer last week near a New York City beach. It was the latest shark attack to strike the Big Apple during the past few years.

Why the recent increase in such events? According to environmentalists, more sharks are visiting New York’s waterfront because the ocean is becoming progressively cleaner. Apparently, though, public protection activities have not kept pace with the aggressive creatures.

There are other examples of risk management activities that inadequately address our new environmental realities. Just last year, for instance, Maui’s Bill 135 was implemented to ban certain chemical sunscreen products. Apparently, when tourists and locals swim in the Pacific water, sunscreen washes off their bodies and damages the ocean ecosystem.

Like the Atlantic waters near New York City, the Pacific Ocean surrounding Maui undoubtedly became cleaner as a result of the law. But this week’s devastating wildfires across the Hawaiian island suggest that local lawmakers may not have adequately prioritized other environmental risks.

During times of resource scarcity, risk management professionals emphasize the function of risk assessment as a means of establishing priorities among competing concerns. But when resources are overly allocated away from the highest priorities, the risk of catastrophic losses may soar.

To be sure, ocean health is an extremely important priority. And yet, because we live in an integrated global environment, it is not always ideal to fully invest in our waters while potentially under-investing in our people and our land.

Saturday, August 5, 2023

How Sustainability Metrics Can Help Preserve A Historic Parisian Business Community

The Opening Ceremony’s Parade of Nations may prove to be the most unique event of the 2024 Paris Olympics. Instead of situating the event in a stadium, the Olympic Committee will place the athletes on boats and send them down the River Seine.

The plan, though, isn’t without controversy. For more than 500 years, the banks of the Seine have been the site of 900 tiny wooden bookstores. This locale of the Bouquinistes de Paris (i.e. Booksellers of Paris) is recognized as a UNESCO World Heritage Site.

The Olympic Committee, though, has decided to remove the Bouquinistes to make room for the Opening Ceremony. It claims that security considerations necessitate the removal, but booksellers, book buyers, and historical preservationists are protesting the action.

So how can the booksellers support their case for preservation? They may find help in sustainability metrics. For instance, the Global Reporting Initiative (GRI) and the United Nations (UN) publish two of the most widely used sets of standards.

GRI 413 (Local Communities) contains two disclosure requirements; the first one is called 413-1 Operations with local community engagement, impact assessments, and development programs. And UN Sustainable Development Goals 4 (Quality Education) and 11 (Sustainable Cities and Communities) contain several relevant target indicators, including 4.6.1 Proportion of population …. achieving at leased a fixed level of … functional literacy …

The Bouquinistes are undoubtedly arguing that their book stalls engage with the local community and help support the functional literacy of residents. Such arguments are significantly strengthened when they are supported by quantitative evidence that is compiled in accordance with universally respected standards.

That’s why sustainability metrics from organizations like the GRI and UN are so helpful. They provide the standards and define the metrics that help organizations measure their value.

Sunday, July 30, 2023

Why Is It So Difficult To Write An Effective Mission Statement?

The writing of a mission statement should be an “easy enough” task. Why can’t we simply state what we want to do? Once we decide on a path, our mission statement should briefly describe it. That shouldn’t be a difficult job.

Or should it? How many ineffective mission statements have puzzled you over the years? Some, for instance, assert an intention to “be the best” without describing what “best” means to the firm. Others express a desire to “make a difference” without defining the nature of the “difference” or why it is necessary.

Amazon, for instance, states that it “strives to be Earth’s most customer-centric company, Earth’s best employer, and Earth’s safest place to work.” Timberland, meanwhile, says that “Our mission is to equip people to make a difference in the world. We do this by creating outstanding products and by trying to make a difference in the communities in which we live and work.”

Are those statements helpful? It’s difficult to understand how Amazon could ever possibly expect to achieve its mission. As for Timberland, it’s hard to explain why Timberland’s statement about “making a difference” is any different than the missions of all organizations on Earth. Don’t all entities attempt to “make a difference” in some manner?

So why is it so challenging to write an effective mission statement? The difficulty often originates in the fact that a well-written statement is actually one of a set of three corporate messages.

After all, to describe “what we want to do,” we really need to answer three questions. One is: what do we want to achieve from a “big picture,” long-term perspective? Another is: what do we want to achieve in a concrete, short-term sense? And a third is: what steps do we need to take to attain these achievements?

As a general rule of communication, we should always ensure clarity by not “smushing” multiple answers to discrete questions into a single statement. Thus, while answering these three questions, we should call our first answer a vision statement, our second answer a purpose statement, and our third a mission statement.

Think about a military operation. A battalion is sent on a mission. The mission has a purpose. And the purpose represents an interim step towards a broader vision.

With this in mind, Amazon’s text can be considered an effective vision statement. Timberland’s, perhaps, is a hybrid vision and purpose statement. These are important foundations for an effective mission statement; however, they do not, themselves, represent a comprehensive mission statement.

That’s why it can be difficult to write an effective mission statement. We tend to write a single statement when three are truly needed.