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Regulators likely to require companies to publish audited reports on their environmental and social impacts, Sir Ronald Cohen says in University of Cambridge lecture.

Regulators are likely in the next three to five years to require that companies publish audited reports on their environmental and social impacts, Sir Ronald Cohen, the venture capital pioneer and philanthropist, told a University of Cambridge event.

Sir Ronald, Chair of the Global Steering Group for Impact Investment and The Portland Trust, is involved in the Impact-Weighted Accounts Initiative at Harvard Business School involving 1,800 companies, which has already shown a correlation between environmental damage and lower stock market valuations relative to competitors.

“Regulators can’t ignore the fact that there’s now price-sensitive data in the form of impact data which is accessed only by a small number of people” familiar with the initiative, Sir Ronald said 14 January in the first annual Trinity Hall Social Entrepreneurship Lecture, co-hosted by the Cambridge Centre for Social Innovation at Cambridge Judge Business School.

“So regulators will have to step in. I believe they will step in within the next three to five years, no further than that, and mandate that companies must publish audited impact-rated accounts that take into consider the environmental and the social impact that companies create, both positive and negative.”

The lecture – entitled “The Impact Revolution: Can Capitalism Be Reshaped to Drive Real Change?” – saw Sir Ronald being in conversation with Jennifer Howard-Grenville, Diageo Professor of Organisation Studies at Cambridge Judge and Fellow of Trinity Hall. The annual Cambridge Social Innovation Prize, first awarded in 2019, is jointly awarded by Trinity Hall and Cambridge Judge.

The conversation reflected themes in Sir Ronald’s most recent book, Impact, which was published in July 2020.

Among topics discussed was the challenge of putting such ideas into practice, including how to measure impact in a way that reflects the complexity of mapping social and environmental outcomes to business practices. The conversation also focused on social innovation, and the ways that entrepreneurs can play a significant role in enabling the impact revolution as they did in enabling technology to play a leading role in business and society in the late 20th century.

Sir Ronald said that he believes the aftermath of the coronavirus pandemic will reflect policy changes that followed the 1929 stock market crash and subsequent Great Depression of the 1930s.

“I think COVID will accelerate the change just as it’s accelerated remote working and shaken other habits and beliefs that we’ve held for a long period of time,” he said. “I believe we’re at a similar crossroads to the early ’30s – the crash of ’29 which brought transparency on the profit of companies through GAAP (generally accepted accounting principles) and auditors is similar to the crossroads we’re at today where the COVID-19 crash is making us aware that we’re investing in companies and we understand the profit they make but we don’t understand the impact they have.

“I think governments are going to emerge from this crisis with hugely magnified social issues and environmental problems that have continued to mount because we’ve taken no action,” he added.

“They’re going to realise they don’t have the means to cope with these challenges, and that the only way is to do so is to bring business and investment alongside them to bring solutions, and that you can’t do that simply by changing taxation and providing incentive. You really have to do that by measuring their impact and then shifting taxation to tax those directly who are creating the damage, rather than the system we have today – which is very unfair – where we tax everyone in order to remedy the damage caused by some.”