Environmental, Social, And Governance (ESG): Opportunities For Accountants

Environmental, Social, and Governance (ESG) issues are increasingly on the agenda for businesses.

What does this mean for leaders and how can Accountants help them?

We asked a Partner in a Manhattan-based Accounting business, which serves both public and private sector Clients. Having developed an impressive reputation as an advisor in ESG, she shared insights from her own practice and what she has observed in the market.

Here are some considerations to guide Accountants (and their Clients) in this rapidly evolving area.

Opportunities for Accountants Arising from Environmental, Social, and Governance (ESG) Obligations

What is ESG?

• ESG refers to an organization's disclosure of environmental, social and governance data to provide stakeholders with transparency and insights on how it is managing opportunities and risks related to its environmental and social impact, and its corporate governance.
• ESG strategies include how companies set goals and tactics, collect data, measure and report on progress against metrics, reporting frameworks and industry regulations.
• ESG is not 'sustainability' which refers to adoption by companies of responsible, long-term, resilient business practices to better serve customers, communities and the world at large.

What has changed?

• There has been a recent surge in ESG expectations from customers, employees, supply chain partners, investors and regulators, leading to increased needs in ESG measurement and reporting.
• It affects large companies, who may also demand transparency from their smaller suppliers, partners, etc.

What risks do businesses face?

• ESG reporting is mandatory in some fields, but regulations can be complex, vague, rapidly changing, varied across jurisdictions, time-sensitive, require extensive stakeholder engagement, and can be hard to balance with short-term financial goals.
• Leaders face a potential loss of funding, revenue, and talent due to the growing expectations of investors, insurers, customers, and employees.

How can Accountants help Clients with ESG strategies?

Materiality Assessments and Strategy

• Assess current ESG programs and develop a roadmap to identify focus areas, benchmark against industry peers, define risks, establish ESG goals and KPIs, and develop controls, policies, and procedures to track information and report on progress.
• Where appropriate, integrate ESG programs into strategy (versus purely compliance), such as in product development, supply chain management, workforce diversity, investing in ESG-focused funds or assets, setting ambitious sustainability targets, and using ESG guidelines to choose partners and customers.
• For some businesses, a highly evolved ESG strategy will be a source of competitive advantage.

Tax Planning

• The number and complexity of environmental taxes is growing and dramatically impacting organizations.
• Accountants can advise on tax credit incentives, tax transparency reporting, and quantitative ESG tax disclosure.

Human Capital Advisory

• Focus on the social elements of workforce strategy, including diversity, equity and inclusion, compensation and benefits, and talent development.
• Develop policies such as a Supplier Code of Conduct and Human Rights Policy.

Third-party Attestation

• Enhance the credibility of a client's reporting (and prevent 'greenwashing') by assessing completeness, accuracy, and appropriateness of the disclosure related to ESG programs.
• Like an audit, this involves understanding the company, their processes for collecting and analyzing information, and testing, according to the level of assurance required.

Education

• Help leaders learn the regulations (as they evolve) as a starting point for compliance.
• Since ESG is not "a leadership challenge," educate teams on obligations and opportunities.
• Notably, many universities and online platforms offer ESG courses and certification.

Manage Stakeholders

• Support clients through regular engagement and detailed reporting for customers, suppliers, the media, employees, shareholders, and regulators to overcome ESG concerns and set reasonable expectations.

Innovation / Technology

• Evaluate investments in technology which may reduce environmental impact and improve social outcomes, such as in the supply chain, where collaboration can result in more sustainable practices.

How should Accountants prepare for the opportunities and challenges ahead?

• There is an opportunity to appoint an emerging, young leader to develop skills and build a team interested in this field.
• Invest in training (such as that offered by CPA.com and Good.Lab) to build skills and capacity.
• Evaluate and acquire tools (or partnerships) to deal with, for example, data management.
• Identify clients who need to make more informed ESG-related decisions, develop ESG strategies, and reduce ESG-related risk.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.