Accounting for a Better Future

Professor Jeff Hales’ research on sustainability found a home at McCombs, thanks to donor support that endows distinguished faculty excellence funds

When Jeff Hales asks his students questions, they are not the ones usually addressed in accounting classrooms or on financial reports.

“What is this company’s strategy on climate? Is the leadership team assuming a 1.5-, 2-degree C, or a higher rise in temperature? If so, by when? What changes are they anticipating in regulation and customer preferences under various scenarios? Or is management not tracking warming at all?”

Accounting standards are not top of mind when thinking of sustainability — how a company can balance its longevity and future value while acting as a good steward of the environment, community, and society at large. But Hales, a McCombs professor of accounting, has done research on the importance of accounting standards that consider future generations when assessing a company’s profitability. That’s at the core of sustainability. As Hales puts it: “How can a company thrive now without sacrificing the long term?”

His work attracted UT’s attention, and in 2019 he accepted the Charles T. Zlatkovich Centennial Professorship of Accounting. He also holds the Bake Chair in Global Sustainability Leadership and is executive director of the Global Sustainability Leadership Institute.

McCombs relies on donor support to endow distinguished faculty excellence funds so it can compete for top-flight faculty members
such as Hales.

“While the students are the lifeblood of a business school, the faculty are the heartbeat,” says McCombs Dean Lillian Mills. “Our faculty change the career trajectories of students by exposing them to new frontiers in business. They attract other talented students and faculty, and they enhance a school’s reputation.”

Hales wasted no time bringing his trailblazing sustainability expertise to the classroom. In fall 2021, he launched the Corporate Sustainability class for graduate MBA and MPA students and a few undergrads who competed
for slots from across the Forty Acres. A waitlist formed immediately. Despite increasing the graduate enrollment over 40%, the waitlist
did not go away.

“Having somebody who’s at the forefront of his field like Hales gives me a front-row seat to what’s happening in the world right now,” says Josh Costo, a graduate student in the Integrated MPA Program. He took the Corporate
Sustainability class during the fall.

Whether it’s the latest discussions at the United Nations’ COP27 (climate change conference), the EU’s adoption of the Corporate Sustainability Reporting Directive, or simply something he learned in a board meeting, Hales brings to the classroom leading-edge issues that are “relevant, eye-opening, and fun,” Costo says.

“The SEC’s recent proposal to require businesses to add climate-related disclosures to their audited statements will likely encourage companies to seek strategic alliances or find better ways to produce clean energy,” Costo
says. “What might be seen as ‘mere’ accounting data have real-world consequences. This is both exciting and hopeful.”

Hales’ inspirational instruction is paying off for Costo. After graduation, Costo will spend a year at the Financial Accounting Standards Board (FASB) as a postgraduate technical assistant, a prestigious opportunity offered to
only a dozen or so people at any given time, according to Hales. Afterward, Costo hopes to land a job with a ‘big four’ accounting firm. He plans to keep sustainability a focus, a passion for which he credits Hales.

“Hales’ research has helped me to define my interest in accounting. He’s definitely had a major impact on my academic and professional
trajectory.”

Hales’ research centers on accounting standards and regulation. He has been a research fellow and advisory council member at the FASB, which determines the rules for how U.S. companies create financial statements. Moreover, he has spent the past decade on the Sustainability Accounting Standards Board (SASB), serving in various leadership positions, including as chairman. Those standards are now used by thousands of companies, including more than 70% of the companies in the S&P Global 1200 Index.
His research on sustainability has appeared in the leading academic journals of accounting.

Sustainability disclosures need to vary by industry, according to Hales, because each industry uses different resources, and each can have
different environmental and societal impacts. Take, for example, car manufacturers, most of which are now making hybrid and/or electric
vehicles. Investors are increasingly interested in questions such as what is the average fuel efficiency of those cars and what percentage are zero emissions? Energy companies and their investors, on the other hand, will be more concerned with greenhouse gas emissions, efforts at carbon sequestration, and investments in renewable energy. None of that was reported in traditional sales or financial disclosures.

“I’m a believer in information as a public good,” Hales says. “Capital markets serve an important function in society — and help generate economic well-being. But they require robust information to function well. Adding
sustainability data to supplement the financial reports about a company’s operations paints a much more complete picture. It’s essential for both good business and for society, and it is long overdue.”

Traditional accounting standards were not designed to address the issues facing today’s companies, Hales says. Most were created a century ago in the wake of the stock market crash of 1929, which became a clarion call for
financial transparency and accuracy. Investors needed to verify a company’s revenues and expenses to ensure that its claims were not
being manipulated and that its resources were being used efficiently.

Hales says it’s high time that accounting standards reflect the modern era. The subject matter is so new that few textbooks cover the material, and many business schools tackle it with only a lecture or two. That McCombs
students can take advantage of a full-blown, 14-week class from a sustainability standards guru explains the waitlist for his classes. Hales
is in demand as a guest lecturer at the likes of the Georgia Institute of Technology, Emory University, Columbia University, and the University
of Southern California.

Hales shared a thank-you note from a former student who took his sustainability course in fall 2021 and now works at IBM Corp. in sustainability software. “I find it really fascinating how life tends to come full circle, as I took your course not knowing what to expect and ended
up loving it. It introduced me to the world of ESG (environmental, social and governance standards), and now I have the privilege to
work in the industry every day.”

Hales grew up in Midland and earned a doctorate in management at Cornell University. He taught briefly at McCombs before rising quickly
at Georgia Tech, where he was named a full professor in 2016. When UT came knocking, he wanted to make sure sustainability would be a major part of his work.

Alexis Greco, a second-year MBA student, calls Hales’ Corporate Sustainability class “a stand-out.”

“It has literally been the best class I’ve taken at McCombs,” says Greco, who has an extensive background in environmental policy, sustainability, and political campaigns. She chose McCombs because of the Global Sustainability Leadership Institute and Austin’s strength in technology. She targeted Hales’ class early on.

“It’s one thing to be excited about sustainability,” Greco says. “But Hales’ class actually gives me the tools to interpret a company’s sustainability report.”

Greco co-chaired ClimateCAP, a global MBA summit on climate, capital, and business that McCombs hosted in the spring. She sees a huge demand for product managers and software engineers who understand sustainability performance metrics and accounting standards. Hales sits on the ClimateCAP program committee and continues to infuse his expertise
into new course offerings.

In fall 2022, he debuted Global Business Sustainability for undergraduates. He designed the class as a cornerstone for Leadership in Global
Sustainability, a new 17-hour minor aimed at business and communication students.

Lindsey Black, an inaugural student in the class and the minor, finds the subject matter “new, exciting, and awe-inspiring.” A junior finance major, she was familiar with trends such as impact investing but had no idea that
sustainability reports even existed.

“You don’t think climate and accounting would have anything to do with one another,” she says. But Hales’ class has shown her what now seems obvious: Natural disasters don’t affect only livelihoods; they have an immediate impact on business and the economy.

“If businesses incorporate sustainability ideas into their operations and strategy, they gain resiliency,” she says. “It’s simply good business.”

This story appeared in the Fall 2023 issue of McCombs magazine.

Take Action
Learn how to help attract distinguished faculty members to McCombs or to support the Global Sustainability Leadership Institute through an endowment. development@mccombs.utexas.edu