Thursday, September 24, 2020

Sustaining Families Through A Personal Crisis

Save The Date: Thursday, October 22, 9:00 am – 10:30 am EDT

Phil Strassler, Founder of the Larry Kraus Tax Institute for Family Offices, and Stanley Goldstein, Founder of the Sustainability Investment Leadership Council (SILC), are pleased to collaboratively develop and present a very special online workshop about families in crisis. Attendees will interact with a mental health professional, a leader of a non-profit that provides mental health services to teens and young adults, and individuals who have persevered in the face of tragedy.

The workshop discussion will focus on the causes and needs of young people in crisis, and on techniques for helping them access mental health resources and build personal resilience. In addition, the workshop will address specific situations where individuals must cope with the loss of young family members, and on the importance of finding hope and purpose in life under such circumstances.

Please contact Michael Kraten at and you will receive an invitation to a Zoom meeting.  The same two groups launched this project, on a more modest basis, exactly one year ago.

SILC’s mission is to educate, encourage, and expand the knowledge of individuals and organizations about sustainability policies and practices. SILC develops conference and webinar content that addresses the need to promote and support personal, emotional and financial stability within families.

Monday, September 14, 2020

Back To The Classroom: A Professor’s Experience

Editor's Note: The Sustainability Investment Leadership Council (SILC) is pleased to publish the following blog post by Michael Kraten, Professor of Accounting at Houston Baptist University. Please contact with questions, comments, or suggestions about our blog, or to express interest in our organization.

This post is also appearing on the blogs of the Public Interest Section of the American Accounting Association, and on Dr. Kraten's own blog Save The Blue Frog. We encourage you to use these links to peruse these outstanding online publications.

As a professor at a private regional university in one of America’s largest cities, I found last week’s “back to the classroom” experience to be a surreal one.

I spoke for 75 consecutive minutes through a face mask. I fidgeted while anchored to the podium, unable to move around the room while remaining within range of a video camera. And I watched with trepidation while students moved within six feet of friends, tugged down their masks to speak, and generally struggled to respect the restrictions of social distancing standards.

How can any one teach under such circumstances? Indeed, how can any teacher meet the semester’s learning objectives when students are permitted to “elect the remote learning option,” thereby eliminating the classroom entirely and opting to “attend” sessions by watching the video recordings of the live lectures?

Thus far, I only have one week of teaching under my belt. Nevertheless, I am already adapting to new realities by emphasizing certain principles:

1. EMPATHY. In unfamiliar and unprecedented circumstances, I find that I can only anticipate the needs of students by making a conscious effort to “stand in their shoes” and “see through their eyes” to identify their obstacles to learning. By making such an effort, I can recognize difficulties and develop solutions that may not have occurred to me otherwise.

For instance, consider an ostensibly inconsequential student presentation assignment. For students who are learning remotely, the physical classroom must be replaced by some type of electronic communication platform.

At first blush, a video platform such as Zoom or Skype may appear to offer an effective solution. But what if I view this assignment through the eyes of a disadvantaged student? Does that student possess a broadband internet connection at home? In more extreme circumstances, does the student live in a home at all? And in a visually “presentable” one at that?

There are various solutions to deal with this problem, though (regrettably) none is ideal. Nevertheless, by applying a sense of empathy, I may be more likely to identify the challenges that students may confront during a simple presentation activity.

2. FLIPPING THE CLASSROOM. Traditionally structured courses require students to listen to lectures and discuss cases in live classroom environments, and then to go home and apply their knowledge by completing homework assignments. For many years, though, some teachers have “flipped the classroom” by instructing students to watch video lectures at home. Then students are expected to complete their application activities in the classroom, guided by teachers who serve as coaches and mentors instead of as lecturers.

To be sure, this is not a new pedagogical strategy. However, when many students must “attend” lectures through videos because personal circumstances prevent them from traveling to their classrooms, “flipping the classroom” may evolve from an optional strategy to a mandatory imperative. Under such circumstances, teachers can embrace the “flipping” model and communicate with these remote students electronically, serving as coaches and mentors in an empathetic manner.

3. PULL COMMUNICATION. Under normal circumstances, teachers communicate with students by making verbal announcements in classrooms and video chat rooms, and by posting messages via email, blogs, and electronic announcement boards. Students then reply by verbal conversations and email transmissions.

Under pandemic conditions, teachers can continue to communicate by utilizing these methods. But imagine the discomfort that students may experience while telling teachers “I have Covid” in open Zoom chat rooms, or while reporting on students who attend off-campus “no masks allowed” parties via email messages.

New communication methods may be needed to “pull” such information from students by removing the behavioral obstacles that impede such conversations. Anonymous message systems and private reporting mechanisms may conflict with recent trends towards open and transparent group communication methods, but they may enable more effective interactions during the pandemic era.


Technology clearly plays a key role in each of these three circumstances. However, the solution in each circumstance is not technology itself. Rather, the “Path Forward” may involve the establishment of a more durable and reliable human connection between the professors and the students whom they serve.

Sunday, August 30, 2020

4 Reasons Why the “Triple Bottom Line” Has Failed Investors

Editor's Note: The Sustainability Investment Leadership Council (SILC) is pleased to publish the following blog post by ESG Researcher Jaishree Singh, MSPH. Please contact with questions, comments, or suggestions about our blog, or to express interest in our organization.

What is it?

About 25 years ago, John Elkington, co-founder of the consulting firm SustainAbility, coined the term, “Triple Bottom Line” (TBL). This framework pointed out the multiple costs of doing business, namely “People, Planet, and Profit.” Elkington argued that corporations can no longer ignore their societal impact and must account for it in their business. Instead, they should take responsibility for the underlying systems on which they depend, such as human stakeholders (e.g. consumers, suppliers, community) and the environment (e.g. ecosystems, atmosphere).1
The TBL has led to numerous other frameworks for tracking progress against sustainable goals or scoring company performance, such as the Global Reporting Initiative (GRI), Environmental, Social, Governance (ESG), and the Social Return on Investment (SROI).2,3 Investments in sustainable funds and companies have also burgeoned. The U.N. expects that sustainable investing will amount to $12 trillion annually by 2030.4
During black swan events (like COVID-19), ESG and impact portfolios are better able to withstand economic shocks and generate positive societal outcomes.5 According to Morningstar, in Q1/2020, global sustainable funds made money ($46 billion) while non-sustainable funds lost money ($385 billion).6
TBL Strengths: A Foundation for Long-Term Investors

When asked about the value of the TBL framework in a recent interview, asset owners (AO) and managers (AM) said companies that perform well along TBL are likely to grow faster and sustain longer than companies that don’t take “People, Planet & Profit” into consideration. Also, TBL scoring helps de-risk companies and provide more accurate valuations. In the same interview, AMs stated there really is “just one bottom line.” The TBL simply brings attention to material risks/opportunities that affect all industries (either today or tomorrow).7
TBL Weaknesses: The “Profit Problem”

In a 2018 article by the Harvard Business Review (HBR), Elkington spoke out against the misuse of the TBL framework, saying that it wasn’t meant to be an accounting/reporting tool, but a means for redefining capitalism.8 His vision was to change the DNA of value creation, revive economies, societies, and the global ecosystem.9



He said that investors don’t need to be reminded about the “profit” prong - businesses are meant to make money. Instead, Elkington proposed changing “profit” to “prosperity,” stating that this word better reflects that idea that company money should ultimately funnel back into society.10

Other weaknesses of TBL and sustainable reporting methods include:[2]

  1. Mutually-Exclusive: The belief that companies/investors must sacrifice one value over another (Profit vs. Planet vs. People) when these values are synergistic.
  2. Non-Specific: Companies can hide bad behavior behind diluted reports that highlight sustainable initiatives and omit less favorable information.
  3. Non-Standardized: Businesses can use the fact that there are so many reporting frameworks to justify inaction against sustainability.

 Case in Point: Global Reporting Initiative (GRI)

The Global Reporting Initiative (GRI), a collaboration between the U.N. and CERES, is one of the largest purveyors of sustainability standards based on the TBL. In 2017, 75% of G250 and 63% of N100 companies used the GRI framework to report their sustainability.[3]

Companies highly regard GRI in that they can choose to disclose Environmental, Economic, and Social information based on what they consider “material.” They cover issues like climate change, human rights, governance, and social welfare. Signatories must adhere to certain reporting principles, but companies find the framework to be highly flexible. GRI’s standards are free to use, updated often, and created with the help of many stakeholders/partners.[4]

However, the weaknesses of GRI mirror those of the TBL itself. High GRI scores don’t correlate with sustainability performance. Companies can exploit the framework to highlight only their strong points, provide incomplete information, and “check a box” - not challenge what’s possible or curb human exploitation of nature. In short, The GRI framework is yet another marketing tool that enables greenwashing and blocks corporate accountability.[5],[6]

Impact Measurement & Next Steps

Investment professionals can take more proactive steps to better track and demand corporate sustainability. One call to action involves standardizing science-based impact measurement, requiring that companies report on all material issues using a single format. Collaboration between investors, companies, and scientists could lead to better compliance and non-dilutive reporting. While TBL has given birth to almost all of the sustainability frameworks used today, it must be revised in order to reflect a critical business component: societal value.


1.  Investopedia

2.  Forbes

3.  HBR

4.  HBR

5.  Wealth Professional

6.  Seeking Alpha

7.  Seeking Alpha

8.  Forbes

9.  HBR

10.  Forbes

11.  Forbes

12.  HBR

13.  van de Wouw, Seline, and Natali Bremer. "All That Glitters Is Not Gold: An exploratory study into converging and diverging stakeholders perceptions of sustainability reporting." (2020) (pg. 33-34 - in “top” bar.

14. van de Wouw, Seline, and Natali Bremer. "All That Glitters Is Not Gold: An exploratory study into converging and diverging stakeholders perceptions of sustainability reporting." (2020) (pg. 33-34, 35-36 - in “top” bar).

15. van de Wouw, Seline, and Natali Bremer. "All That Glitters Is Not Gold: An exploratory study into converging and diverging stakeholders perceptions of sustainability reporting." (2020) (pg. 35-36 - in “top” bar)

16.  Mähönen, Jukka. "Comprehensive Approach to Relevant and Reliable Reporting in Europe: A Dream Impossible?." Sustainability 12.13 (2020): 5277 (pg. 7-9).

[3] Bremer & van De Wouw, 2020 pg. 33-34 - in “top” bar

[4] Bremer & van De Wouw, 2020 pg. 33-34, 35-36 - in “top” bar

[5] Bremer & van De Wouw, 2020 pg. 35-36 - in “top” bar

[6] Mahonen, 2020 pg. 7-9

Saturday, August 1, 2020

Integrated Reporting and Risk: A Helix and a Spring

Editor's Note: The Sustainability Investment Leadership Council (SILC) is pleased to publish the following blog post by Michael Kraten, Professor of Accounting at Houston Baptist University. Please contact with questions, comments, or suggestions about our blog, or to express interest in our organization.

This post has also appeared on the blogs of the Public Interest Section of the American Accounting Association, and on Dr. Kraten's own blog Save The Blue Frog. We encourage you to use these links to peruse these outstanding online publications.

Three years ago, COSO updated its Integrated Framework for Enterprise Risk Management (ERM). It was a noteworthy event in the business community, given that the Committee of Sponsoring Organizations of the Treadway Commission (COSO) is the leading authority that promulgates guidance about internal control and enterprise risk management systems.

Prior to this update, organizations utilized a cubic ERM framework that COSO first promulgated in 2004, following a scandal plagued era that featured the collapses of Enron, Arthur Andersen, and WorldCom. The original cubic ERM model emphasized the practices of event identification, risk assessment, control practices, and response capabilities.

After years of widespread use, the 2004 COSO Cube became synonymous with the practice of ERM. In its 2017 update, though, COSO presented a new “Focused Framework” with five components: (a) Governance and Culture, (b) Strategy and Objective Setting, (c) Performance, (d) Review and Revision, and (e) Information, Communication, and Reporting. To emphasize the “interrelated” nature of these five components, COSO designed a visual framework that weaves the five together in the form of a multi-colored Helix.

The designers of the Integrated Reporting <IR> Framework may have taken this Helix into account when they defined their own framework development goals earlier this year. Since 2013, issuers of integrated reports have used the International Integrated Reporting Council’s (IIRC’s) colorful Six Capitals model to structure their presentations. Some even referred to the framework as the Octopus Model, given its vaguely mollusk-like shape.

Like COSO, the IIRC felt the need to update this original framework. Its design project remains in progress, but the organization recently issued a model entitled “From String to Spring” that features an extension of the Six Capitals model.

Each of the six capitals of the <IR> Framework, like each of the five components of the ERM framework, is represented by a colorful String. Whereas the five “interrelated” Strings of the ERM framework are woven into a colorful Helix, the six “integrated” Strings of the <IR> Framework are woven into a colorful Spring.

Given the obvious similarities between the Helix and the Spring, it is hard to believe that the two design teams were oblivious to each other’s efforts to update their original Frameworks. Indeed, by presenting such similar models, COSO and the IIRC remind us of the significant “interrelationships” and “integrations” that link the functions of enterprise risk management and integrated reporting.

Friday, July 31, 2020

SILC 2020-21: Welcome to the Show!

Before the Covid pandemic changed history, the Sustainability Investment Leadership Council (SILC) planned to present its Fifth Annual Conference on Sustainability on May 14, 2020. Grant Thornton agreed to host the event in its midtown Manhattan conference facilities. PKF signed up to sponsor Continuing Professional Education credits for Certified Public Accountants. Alston & Bird opted to sponsor Continuing Legal Education credits for attorneys. And Con Edison agreed to return as the primary sponsor of the event.

Although the pandemic forced the cancellation of the Conference, SILC refused to pack up its bags and “wait ‘till next year.” Instead, during the following two months, SILC converted three of its planned conference sessions into a series of free webinars and podcasts. One of the podcasts was offered in partnership with the New York Alternative Investment Roundtable, and another was the product of a similar venture with PKF.

Never content to rest on its laurels, the SILC Management Committee is now scheduling a Zoom call to commence its development of new programs for the 2020-21 year. If you wish to join our call on Tuesday, August 4 at 9:30 am US Eastern time, please reply to this message to express your interest. We will be delighted to welcome you to the show!

Monday, July 6, 2020

'Bring the problem forward’: Larry Fink on climate risk

Editor’s Note: The Sustainability Investment Leadership Council (SILC) is pleased to publish the following interview of BlackRock CEO Larry Fink. We thank our colleagues at McKinsey for agreeing to our publication of the content; it originally appeared in McKinsey Quarterly at:

Are you interested in accessing additional high-quality information and perspectives regarding the sustainability sector? You are welcome to attend our July 14 webinar entitled “Business Strategy and Risk in the Pandemic Era.” Ropes & Gray Partner Michael Littenberg, PKF O’Connor Davies Financial Services Partner-in-Charge Marc Rinaldi, and COSO Chairman Paul Sobel will join Houston Baptist University Professor Michael Kraten for a lively discussion of this timely topic.

One hour of complimentary CPE and CLE will be available to individuals who qualify for credit (see Notes at the conclusion of this message for additional information). Simply reply to this message if you wish to join us on July 14.

And now, without further ado, we present the interview with Mr. Fink.

The physical impact of climate change will lead to a major capital reallocation, says the head of BlackRock, the world’s largest asset manager.

During a 40-year career, BlackRock CEO Larry Fink has learned that financiers seldom ignore risks to their businesses: “Once they recognize a problem,” says Fink, “they bring that problem forward.” Fink himself has made a practice of bringing problems to the fore in his yearly letters to CEOs and clients. When he focused on climate risk in his 2020 letter to CEOs and a related letter to clients from BlackRock’s global executive committee, citing work by McKinsey and others, he sought to advance a discussion that he’d seen accelerate during the previous year—and to spur executives and policy makers to act. In this commentary, adapted from an interview with McKinsey’s Rik Kirkland in February 2020, Fink expands on certain themes from his 2020 letters, including the threats that climate change poses to the poor and vulnerable, the diverging interests of advanced and developing countries, the importance of fair policy solutions, and the value of better nonfinancial reporting.

The Quarterly: Why did you choose to concentrate on climate risk in your CEO and client letters this year?

Larry Fink: Throughout the year, and more frequently as the year progressed, the question of climate change was raised by all our clients throughout the world, whether in Saudi Arabia or in Houston or in Sacramento or in Europe. And it was raised not just by our clients but by regulators and government officials. At the same time, we were witnessing more evidence of the physical impact from climate change. All this really hit me when I was sitting down to write my CEO letter, which I generally try to do right after the August break.

I was just writing down all the themes that I wanted to talk about. Climate risk was actually not a major component of the first draft. But then, in September, when I had meetings with the UN [United Nations] in New York City and then with the IMF [International Monetary Fund] in Washington, the urgency of the conversation became very clear to me.

The Quarterly: What were you hearing from your clients? What keeps them up at night?

Larry Fink: As finance now starts looking at potential climate risks, it raises so many different capital-allocation questions. One great question was asked by a client—I’d say among the smartest clients we have worldwide. This client said, “We never think about climate change as a risk. And yet we’ve been great investors over the long run because our time frame is ten to 15 years. Now, through the lens of sustainability and climate impact, how do I think about our strategy for today? Can we expect the same type of positive outcomes and liquidity? Should we factor in the physical impact on some of our investments—whether physical investments, like real estate, or municipal investments in cities and states?”

They raised many large questions about whether they should think about investing differently and whether they should add the lens of climate risk to their long-term investment strategy. And the answer is yes.

The Quarterly: A key point you made in your letters is that we may see a “fundamental reshaping of finance,” with a significant reallocation of capital “in the near future.” How will that happen? Can you give an example?

Larry Fink: Well, if 5 percent or 10 percent or 20 percent of our clients are starting to ask these questions and trying to design strategies to effectuate the climate theme over a long horizon, that in itself is a capital reallocation. We’re hearing this in our conversations with insurance companies, which are looking at climate change and how they should insure. That represents a major societal issue that’s unfortunately very regressive. We don’t talk about how regressive this could become.

In the United States, insurance rates are generally set by state insurance commissioners. It’s very hard for an insurance company to raise rates extensively even if it thought a jurisdiction may have real, physical climate risk. So, suppose you buy a house, and you think you’re going to live in that house for 20 years. Your insurance has to be renewed every year. But the house is in an area where the insurance company does not have the ability to raise rates unless reinsurance rates are raised. Ultimately, it’ll be able to raise rates. In the interim, it may say, “I can’t provide you with coverage anymore.” Then you have this long-term asset that you want to protect, but the insurance companies may not insure you. That is another form of capital allocation and reallocation.

And we’re starting to see more evidence of climate change and its impact on capital allocation. I do believe that if you’re a long-term investor, you’d better frame all your investments through that lens.

The Quarterly: Are investors able to do this now? And if they can’t, why not?

Larry Fink: Investors need more transparency. This is why in my letter I asked for greater disclosure, using SASB [Sustainability Accounting Standards Board] and TCFD [Task Force on Climate-related Financial Disclosures]. The key is gaining the ability to compare and contrast different companies. We could use that transparency to assess company A with respect to company B, or industry A with industry B, and try to come up with a better strategy.

Most investors are not going to abandon hydrocarbons, but they want a portfolio that will be more persistent in a more sustainable way. If it’s possible to score how every company is doing, investors are going to look to us to be actively investing and searching for a better portfolio composition with higher sustainability or ESG [environmental, social, and governance] scores. That’s what we’re going to do. And that’s where I do see huge movement.

The Quarterly: You make the point that most investors won’t abandon hydrocarbons. Why not? And what are the implications of that?

Larry Fink: If we believe we can stop using coal today, we’re fooling ourselves. There are more coal plants being built—countries are adding new coal plants right now. We don’t want to talk about that. We don’t want to think about it, but that’s the reality. The answer is not to think that we can just run away from coal worldwide. It is to create better science and technology to find ways to help make coal cleaner.

As much as we may change our behavior in the United States as a very wealthy country, and as much as Canada and Europe might change their behavior, there are many parts of the world that are just beginning their growth curve and their wealth creation. It’s very hard for us to be judging them on their economic path. And there lies the problem. We could do all that we are potentially able to do, and even that will not be enough, because so many other parts of the world are just adding more and more carbon to our air. That’s not going to change anytime soon. So we need to be fair and just. We need to be open-minded.

The Quarterly: The need for “fair and just” policy solutions is something you wrote about in your letters. What do you mean by that?

Larry Fink: One of the biggest tools that governments could use—one of the biggest tools the environmental groups are recommending—is a carbon tax. A carbon tax is an incredibly regressive way of taxing people. The wealthy are not impacted as much as the less fortunate, who are trying to meet their budgets every day and have to pay higher heating bills. A carbon tax makes their lives much more difficult. This is why I’ve said we need to work with governments to try to minimize how regressive the impact of climate change is going to be.

We need to make sure that if there is a carbon tax, all the money is going to renewables and redistribution. And there should be some type of credit back to those people who cannot afford to pay the tax. The problem is that in so many states, a component—if not all—of the carbon tax would be used to fill a budget gap. This is where we need the combination of public and private working together. We should have a plan so that all that added tax would not go to fill our deficits, but would go for infrastructure spending, renewable technology, and redistribution.

There’s another issue we haven’t even spoken about. If the science is right about climate change, the impact on the subtropical and equatorial parts of the world will be devastating—the density of the population is so heavily oriented to the equatorial parts of the world. That’s also going to be the area that’s most harmed. We have to have this conversation. We have to be thoughtful about it. And if I’m right about finance moving this forward, this problem is probably coming sooner than later.

The Quarterly: What will it take to address these issues? Are we ready?

Larry Fink: I’ve witnessed five or six different crises in my career. Some of them were quite severe. All of them were financial in nature, whether it was the high-yield crisis or the dot-com crisis or the Thai crisis of 1997–98, the real-estate crises, and the Great Recession. We were able to mitigate these crises and reduce their severity through monetary policy. In unison, all the central banks tried to correct these financial difficulties. In most cases, the duration of these crises was short. Sometimes they were very severe. Many families were impacted. But the crises were short.

When you start thinking about climate-change impact, whether you believe in 5 percent of the science or 100 percent of the science, it becomes apparent that we don’t have a global government body to arrest this problem. This is going to require every government, small and large, to start finding ways of mitigating it.

About the author(s)

The remarks here from Larry Fink have been adapted from a February 2020 interview conducted by Rik Kirkland, a partner in McKinsey’s London office.

Notes Regarding CLE and CPE Credit Regarding the July 14, 2020 Webinar:

Alston & Bird is the Attorney CLE sponsor of this program. A&B is approved to provide attorney CLE credit as an “Accredited Provider” in Georgia, California, New York, North Carolina, Texas, and many other jurisdictions beyond where A&B has offices.  Upon request and where applicable/allowed, A&B will seek credit in any additional jurisdiction that we are not readily an Accredited Provider.

PKF O'Connor Davies is the Accounting CPE sponsor of this program. For information regarding complaint and/or program cancellation policies, please contact the PKF O'Connor Davies CPE Firm Administrator at 914.381.8900. PKF O'Connor Davies is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State Boards of Accountancy have the final authority on the acceptance of individual courses for CPE Credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website:<

Tuesday, June 23, 2020

The Historical (And Yet Contemporary) Importance of Behavioral Accounting

Editor's Note: The Sustainability Investment Leadership Council (SILC) is pleased to publish the following blog post by Michael Kraten, Professor of Accounting at Houston Baptist University. Please contact with questions, comments, or suggestions about our blog, or to express interest in our organization.

This post has also appeared on the blogs of Econvue and the Public Interest Section of the American Accounting Association, and on Dr. Kraten's own blog Save The Blue Frog. We encourage you to use these links to peruse these outstanding online publications.

The field of behavioral finance studies the behavior of the investment markets. Similarly, the field of behavioral economics studies the behavior of the global economy and the numerous national, regional, and local economies.

But what of the field of behavioral accounting? How does it resemble the fields of behavioral finance and economics? And how does it differ?

Behavioral accountants, like their colleagues in the other financial professions, focus on elements of human characteristics that can be identified in aggregate data sets. They recognize that organizations, like markets and societies, are composed of individuals who make personal decisions in often-predictable ways. Thus, because behavioral researchers can understand and predict individual decisions in various situations, they are also able to understand and predict the impact of aggregate decisions.

Accountants, though, specialize in the development of organizational reports that describe the conditions of organizations. Internal and external users of their reports rely on them to make important decisions that impact the well-being of those organizations. Thus, at times, accountants feel inherent tensions between the goals of “measuring and reporting data accurately and objectively” versus “measuring and reporting data that persuades the user to make decisions that help the organization.”

Individuals study to become public accountants to learn how to implement measurement and assurance procedures in support of the first goal. Separately, they study to become behavioral accountants to learn how to support the second goal. These goals overlap, but they are not mutually exclusive. In certain situations, they are perfectly aligned. In other situations, though, they have little in common, and they may even conflict.

A Controversial Example of Behavioral Accounting

A prime example of controversial behavioral accounting is commonly known as “greenwashing” in sustainability circles. Organizations cherry-pick data that appear to portray them as responsible guardians of the environment, and then present that data to persuade readers that they are responsible stewards of the natural world.

Volkswagen’s notorious collection of falsified emissions testing data is an obvious and egregious illustration of greenwashing behavior. Other illustrations are more subtle in nature, generating healthy debates over whether the content is misleading at all.

Consider, for instance, the pledge that was made by E. Neville Isdell, Chairman and CEO of The Coca-Cola Company. In 2007, he declared that “Our goal is to replace every drop of water we use in our beverages and their production.

On the one hand, the firm produced data that indicated the successful achievement of that goal. But on the other hand, investigative reporters have noted that “… ‘every drop’ includes only what goes into the bottle. The company does not count water in its supply chain — including the water-guzzling sugar crop — in its ‘every drop’ math.

Indeed, a public accountant may be able to provide assurance that the “drop for drop” phrase is (technically speaking) an accurate description of Coca-Cola’s water utilization patterns. But a behavioral accountant may protest that the vaguely defined phrase invites selective interpretation.

A Universally Admired Example of Behavioral Accounting

Ben & Jerry’s provides a contrasting illustration to the controversial food and beverage example of Coca-Cola’s environmental accounting practices. The ice cream manufacturer is often credited with producing the world’s first Corporate Stakeholder report (i.e. Integrated Report) more than two decades ago.

Using an internally developed proprietary format that the firm called Social & Environmental Assessment Reports (SEARs), Ben & Jerry’s published sustainability data on its web site for many years until concluding the practice in 2018. The reports employed colorful graphic imagery to express its core values, its focus on its social mission, its multiple year planning processes, its goal setting practices, and its outcomes. It also hired an independent public accounting firm to prepare annual independent review reports on the information.

The playful graphics, the earnest social messaging, and the metrics all served to reinforce the impression of Ben & Jerry’s as a socially conscious firm that made business decisions in support of the public interest. The behavioral impressions that were produced by the SEAR Reports undoubtedly supported the decision by Unilever to purchase the firm on friendly terms.

From The Past To The Future

Why did Abraham Lincoln begin his 1863 Gettysburg Address by noting an event that occurred “four score and seven years ago,” instead of simply beginning with the phrase “in 1776”? He must have known that his audience would have leaned into the arithmetic calisthenics of computing the year, thereby placing them in an appropriate frame of mind to focus on his intellectual argument about the war’s threat to democracy.

And why did he end his Address by vowing to protect the “government of the people, by the people, for the people”? Why didn’t he simply vow to protect “democracy”? Once again, he must have anticipated that the repetitive rhythmic triadic cadence would be more memorable to his audience. It’s also why Martin Luther King repeated “I Have A Dream” nine times in his immortal address, and “Free At Last” three times at the very end of the speech.

Lincoln and King both knew that the levels of the persuasiveness of the information that they conveyed to their audiences were just as important as the objective validity of their logical arguments. Such knowledge continually inspires today’s behavioral accountants to redefine traditional profitability measurements into more esoteric metrics like Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) and Adjusted Consolidated Segment Operating Income (ACSOI).

From Abraham Lincoln to the Chief Financial Officer of Groupon, the principles of behavioral accounting have been widely used to influence the decisions of stakeholders. Indeed, it is not sufficient for an accountant to simply “get the numbers right.” It is also important for an accountant to “persuade the user of the numbers to behave in a desirable manner.”

Sunday, June 7, 2020

Our Bonus Webinar: How To Maintain A Healthy Portfolio During Covid

The Sustainability Investment Leadership Council (SILC) is delighted to announce that it has finalized its plans to offer a bonus webinar this week! On Thursday, June 11 at 11:00 am Eastern time, Valerie Grant of AllianceBernstein and Martin Whittaker of JUST Capital will join Sarah Tomolonius of SILC to discuss “How To Maintain A Healthy Portfolio During Covid.”

There is no charge for SILC members to join the webinar. Simply reply to this email and let Michael Kraten know that you wish to do so. Instructions will be forthcoming to view our Zoom conversation.

Please keep in mind that you are also welcome, at no charge, to attend the upcoming webinar that SILC is jointly producing with the New York Alternative Investment Roundtable. It will feature a conversation with Erika Karp of Cornerstone Capital Group and Professor Michael Kraten of Houston Baptist University. If you have not yet informed us of your interest to join that event on Tuesday, June 16 at 1:00 pm Eastern time, please reply to this email message and let Dr. Kraten know of your interest.

Likewise, you are also welcome to join us at our July 14th conversation with COSO Chair Paul Sobel, PKF Partner Marc Rinaldi, Ropes & Gray Partner Michael Littenberg, and Dr. Kraten. As always, you simply need to send Dr. Kraten a message at to express your interest.

As you can see, even though Covid forced SILC to cancel last month’s annual meeting, we are simply not permitting it to stop us from serving our members! We look forward to welcoming you at our upcoming webinar events.

Thursday, May 21, 2020

Once Again, A Lost Generation

Editor's Note: The Sustainability Investment Leadership Council (SILC) is pleased to publish the following blog post by Michael Kraten, Professor of Accounting at Houston Baptist University, about the social sustainability implications of the coronavirus pandemic. Please contact with questions, comments, or suggestions about our blog, or to express interest in our organization.

The piece has also been published on the Blog of the Public Interest Section of the American Accounting Association (see, and on Dr. Kraten's professional blog (see

Precisely one century ago, Ernest Hemingway was living in Chicago and attempting to readjust to civilian life after experiencing the horrors of service as an ambulance driver for the Italian Army in World War I. F Scott Fitzgerald was drinking excessively and wooing his future wife Zelda while attempting to transition from an unsuccessful career in advertising to a lucrative one in writing novels and short stories. And the United States, as a nation, was struggling to recover from its loss of human life during the Spanish Flu pandemic, its failure to permanently “make the world safe for democracy” in World War I, and its inability to prevent the economic collapse of the 1920 Depression.

Hemingway’s and Fitzgerald’s subsequent tales illustrated the plight of The Lost Generation, the demographic cohort that came of age at a time when national leaders and the general public were asking serious questions about the sustainability of American society and its capitalist economy. Although the 1920s are now remembered as a time of prosperity, the decade also represented a time of escalating income inequality, debt-fueled business transactions, racial and religious bigotry, and political turmoil.

Today, much praise is bestowed on America’s Greatest Generation, the demographic group that came of age during the Great Depression and World War II. Much less attention is paid to the Lost Generation, though, the preceding generation that (according to Hemingway) believed that “if you have a success you have it for the wrong reasons. If you become popular it is always because of the worst aspects of your work.”

What caused such a pessimistic, fatalistic, and almost nihilistic perception of American business and society to be adopted by an entire generation? It could not have been a mere single catastrophic event; after all, many American generations experience such events. Perhaps, instead, it was the impact of a wide variety of catastrophic events that generated such cynicism, catastrophes that affected many different types of institutions that supported American society.

And what of today’s youthful generation? What of Gen Z, the demographic cohort that was born after 1996 and is now entering the work force? Their collective memories encompass the national security failure of 9/11, the military quagmire of the Middle Eastern wars, the economic collapse of the Great Recession, the radicalization of contemporary political movements, and the social and medical convulsions of the coronavirus pandemic.

Today, some citizens are calling for dramatic new investments in national programs, arguing that the failure to make such investments will result in severe economic losses. Others reply that massive increases in federal debt will be required to finance such investments, and that excessive spending will impose even more severe economic losses in the long term. 

But neither side is factoring the risk of the emergence of a new Lost Generation into its Return On Investment analyses. If we believe that the potential cost of a climate collapse must be factored into analyses of proposed environmental sustainability investments, perhaps we should likewise conclude that the potential cost of producing another Lost Generation must be factored into analyses of proposed social sustainability investments.

After all, a century ago, the Spanish Flu pandemic helped to produce a group of “Lost” authors who shaped the generation that stumbled into the Great Depression. What will the Coronavirus pandemic do today?

Tuesday, May 12, 2020

Webinars: A Different Deal

We hope that you and your family, friends and colleagues are staying healthy and safe during these challenging times.

Due to COVID-19 restrictions and the continuing uncertainty regarding in-person gatherings, the Sustainability Investment Leadership Council (SILC) will not hold our fifth annual conference on May 14th. However, please do not despair! We would like to offer you a different deal.

Drawing upon the wealth of informative content that we planned to present on May 14th, we are developing a series of free webinars to be web streamed throughout the year. During next month’s webinar, Cornerstone Capital Group Founder and CEO Erika Karp will converse with Houston Baptist University Professor Michael Kraten.

In July, the following month, Ropes & Gray Partner Michael Littenberg, PKF O’Connor Davies, LLP Financial Services Partner-in-Charge Marc Rinaldi, and COSO Chairman Paul Sobel will speak to Dr. Kraten.

To join our conversation, please send an email message. He will be delighted to register you for the webinar(s); we hope that you will be able to join us there.

We are now arranging to reverse the credit card charges of any individual who has already registered for our May 14th conference. Please review your credit card statement at the end of the month; then let us know if you do not see the appropriate reversal.

Most importantly, please be healthy and stay safe. We may not be able to welcome you in person on May 14th, but we look forward to seeing you in cyberspace!

Sunday, April 19, 2020

Economic Sustainability and “Coronashock”

Editor’s Note: We are delighted to publish the following essay from Economics Professor Ellen Clardy of Houston Baptist University. Dr. Clardy shares thought-provoking insights about the trade-offs between social and environmental sustainability, and between short-term and long-term considerations.

Please keep in mind that the situation is evolving on a moment-to-moment basis. For instance, certain Federal government assistance programs have run short of funds, although Congress is now negotiating to replenish them.

As always, we welcome reader comments. Please contact with comments about Dr. Clardy’s post, or with suggestions about future posts.

"May you live in interesting times” is a phrase from the 20th century that is often incorrectly attributed to an ancient Chinese expression. Surely, though, it does seem to ring true today, as we are facing the coronavirus, a pandemic that originated in Wuhan, China. Barely 10 years past the Great Recession, a calamity that required unprecedented fiscal and monetary policy interventions into the economy, we are now facing the Great Cessation.[i]

This downturn is unlike any other because the decrease in aggregate demand is not originating from a pessimistic swing in animal spirits; instead, it results from government mandates to shut down or vastly curtail large segments of the economy in the name of public health. Meanwhile, the negative productivity shock is due to many in the labor force being told that they cannot go to work. Because the underlying economy was strong before the Great Cessation, we may expect a quick recovery when we restart the economy. However, we must take steps to limit the damage.

For a system that can be successful in the long term, we need policies to promote social, environmental, and economic sustainability. Needs in one area, however, will inevitably clash with those in other areas. Protecting public health has caused us to sacrifice short term economic sustainability to serve the needs of social sustainability. Putting aside the debate on the wisdom of that decision, we must now focus on policies that promote long-term economic sustainability. In times of crisis, the Federal Reserve is intended to be the lender of last resort.[ii] Originally, the Fed’s primary tool was the ability to make loans to banks, but they innovated many other tools in response to the Great Recession. They are doing so again to respond to the coronavirus shut down and to restore the economic system.

The failure of the credit markets is a primary threat. If businesses cannot access credit, and if panic spreads over their inability to do so, the ripple effect may seize up the banking system. It may even cause a depression. The first step for the Federal Reserve is lowering the Federal Funds Rate (FFR). The FFR is the interest rate that banks charge for overnight inter-bank loans. However, other rates are also influenced by its level, so mortgage rates, auto loans and the like should decrease accordingly. The usual goal of lowering the FFR is to lower the cost of borrowing and thus encourage consumption and investment. In these circumstances, though, this reduction is more about keeping credit available.

The Fed’s Federal Open Market Committee (FOMC) meets regularly to set monetary policy and issue press releases about their decisions; the Minutes of their meetings are released weeks later. As recently as their regularly scheduled January 28-29 meeting, their assessment was that “all is good.” They voted to keep the target range for the FFR at 1.5% to 1.75%, given low unemployment, low inflation, strong household spending, albeit weaker investment and export spending.[iii]

However, preemptive actions by the Fed obviated the need for the regularly scheduled March 17-18 meeting because the Fed recognized the threat that the coronavirus poses to the economy. On March 3, the Fed announced a 0.5% cut of the FFR to 1% to 1.25%.[iv] It was a dramatic move, ahead of schedule, with a cut that was double the typical 0.25% change.

Then the drama increased. On Sunday, March 15, ahead of the Asian markets opening, the Fed announced a massive cut that changed the target for the FFR to 0% to 0.25%. In its press release, it stated that the US economy is coming into this period on “a strong footing,” but it expected the coronavirus to cause problems for both the global and the domestic economies, with the energy industry facing particular stresses.[v] The FFR had last reached such depths in 2008, in reaction to the Great Recession.

Because this rate tool was also near zero and thus “maxed out” during the Great Recession, the Fed learned a lot about creating other tools at that time. Once again, it is turning to some of those tools.

Indeed, it is now time for the return of Quantitative Easing (QE), born of the Great Recession.[vi] “Normal” Fed open market operations that target the FFR involve the purchasing of short-term Treasury notes, but QE involves the buying of longer term government bonds, mortgage backed securities and other assets. The Fed thus becomes a buyer of last resort, enabling access to cash for those who need to sell such assets.

A new tool, the Temporary Corporate and Small Business Liquidity Facility, is an innovation by which the Fed uses money from the Treasury to buy loans from banks, thereby supporting bank loans to businesses.[vii] Similarly, the Fed has announced steps to support the SBA’s Paycheck Protection Program and the Main Street Lending Program.[viii] While the Fed does not lend directly to businesses, this is a workaround to keep the credit markets functioning.

In addition, the Fed lowered the discount rate, which is the interest rate that banks pay to borrow at the discount window. Typically, banks avoid using this tool because it is perceived as a sign of bank distress. However, the actions of the Fed have encouraged banks to borrow from it without an implied stigma, and the Fed reports an increased use of it.[ix] Additionally, the Fed has established other access points to credit, including Commercial Paper,[x] Primary Dealer Credit,[xi] and the Money Markets and Mutual Funds.[xii] More may be introduced as the Fed deems necessary. Indeed, the Fed is pursuing many methods to maintain the flow of credit to households and businesses and to prevent panic in the financial markets.

Finally, the Fed is addressing the rising global demand for dollars that has been triggered by a flight to safety. It is lowering the cost of dollar liquidity swaps, thus preventing shortages of dollars by providing credit lines to foreign central banks. The Fed announced a reduction in the cost of the swaps in concert with five central banks on March 15,[xiii] and then announced additional temporary arrangements with nine other countries on March 19.[xiv]

Clearly, the Fed is taking action to ensure that the financial markets continue to function; it will continue to innovate tools as needed to support the credit markets. However, it is aware that monetary policy is a blunt instrument that cannot directly address the impact of the shut down on individuals and businesses. Government fiscal policy is the tool that must provide targeted help to people and businesses.

While it is usually slow to pass laws and slow to implement them, the federal government moved very quickly last month. The Coronavirus Aid, Relief and Economic Security (CARES) Act[xv] was signed into law on March 27. Along with two other bills that were passed earlier in the month, CARES injects money into the economy through expanded unemployment insurance, direct payments to taxpayers, and additional money for the hospital system, certain industries, and state and local governments.

However, the recovery will be delayed if many businesses fail because they cannot make payroll with little to no revenue. The Treasury Department has innovated a system to extend loans to businesses with 500 or fewer employees to cover payrolls through July. The loans are processed through the current banks of these businesses; the borrowers will be forgiven if they retain their employees. There is even talk of a fourth stimulus bill that provides for a long-discussed infrastructure package.

These extensive interventions should preserve our financial markets and help people who are hurt by the cessation, thus restoring long-term economic sustainability.[xvi] But at what cost? Obviously, our government debt will increase. And what about the increase in the money supply? In the long run, a money supply that grows faster than the real economy causes inflation, but the Fed demonstrated after the Great Recession that it can prevent excess money from flooding the real economy by adopting the Interest on Reserves tool. It pays banks to keep excess reserves at the Fed instead of lending the capital into the real economy, while still assuring the system that credit will be available if needed.

The damage from the Great Cessation is yet to be measured, but bright spots are already visible. We are now aware, for instance, that our Chinese offshore supply lines for key pharmaceutical ingredients leaves society vulnerable. Businesses and government officials are likely to initiate future moves to bring this industry back to America, along with the jobs that will follow it. Other industries may pull away from China too; for instance, the Department of Homeland Security and other Executive Branch agencies recently called for the FCC to revoke China Telecom’s authorization to provide telecommunication services in the United States.[xvii] And even though many people are losing jobs, some industries have seen demand grow and are hiring rapidly, such as grocery stores, delivery services, and warehouse distribution centers.

In addition, the amazing ingenuity of the American economy could diminish net economic damage. For example, components of the food supply chain that served restaurants froze when their customers’ dining facilities closed. But grocery store chains like Texas’ H-E-B have reached out to these food distributors to help meet increasing grocery store demand, thereby salvaging food that was trapped in the supply chain.[xviii] Restaurants, too, have shifted from serving meals to selling groceries.[xix] Albeit anecdotal, such efforts will help limit net economic damage, especially if the economy returns to life in the near future. Indeed, the innovative, hardworking people of America, working within a capitalist system, is our most valued asset that can ensure our economic sustainability.