Building Credibility for Your ESG Practice

Discussing accounting and ESG in the same conversation is more common today as firms consider not only their environmental, social, and governance (ESG) metrics, but also see value in serving clients in this space. ESG opportunities are unfolding quickly, from compliance and assurance work to strategy and implementation assistance.

Accountants have worked with financial data since the 13th century, yet working with non-financial sustainability data is still relatively new. In November 2021, the International Financial Reporting Standards (IFRS) Foundation formed the International Sustainability Standards Board (ISSB). The ISSB is working to develop global disclosure standards for the accounting profession that are expected to be finalized in 2023.

With the relative newness of sustainability within the accounting field, small- and medium-sized firms may be apprehensive about building a practice in this niche. The accounting industry is the new kid in this space, whereas business consultancies have been performing sustainability consulting and implementation for over a decade.

However, we bring a great deal to the table with our reputation for analyzing business processes, determining value, and assessing and responding to risk.

Linking ESG reporting with financial reporting points to this type of work being done by accounting professionals. The CPA profession’s integrity, professional skepticism, and responsibility for quality, as well as our understanding of the companies we serve, positions us as the ideal provider of ESG and sustainability services. 

But this is an entirely different consulting realm requiring specialized training and, in many cases, science-based education and experience.

With the relative newness of sustainability within the accounting field, small- and medium-sized firms may be apprehensive about building a practice in this niche. The accounting industry is the new kid in this space, whereas business consultancies have been performing sustainability consulting and implementation for over a decade. 

However, we bring a great deal to the table with our reputation for analyzing business processes, determining value, and assessing and responding to risk. 

Linking ESG reporting with financial reporting points to this type of work being done by accounting professionals. The CPA profession’s integrity, professional skepticism, and responsibility for quality, as well as our understanding of the companies we serve, positions us as the ideal provider of ESG and sustainability services.

But this is an entirely different consulting realm requiring specialized training and, in many cases, science-based education and experience. To begin your education journey in this field, check out the AICPA’s courses and the ACCA’s course designed for accounting professionals to understand ESG fundamentals and assurance engagements.

The definition of materiality is broadening beyond financial risk. Whether or not a client considers ESG risks, these events can affect companies’ profitability and, ultimately, their value. Finance professionals must understand not only shareholder or investor concerns, but also broader stakeholder concerns and impacts. Including this expansive definition of materiality and ESG lens decreases volatility and increases value. 

Additionally, while the proposed SEC climate-related disclosure rules affect only public companies—and the California state disclosure rules only apply to organizations with $1 billion in revenue or more—there will be a massive trickle-down effect for small- to medium-sized (SMEs) privately held organizations. This will be particularly true for businesses within the supply chain of these organizations. 

One crucial area that will impact SMEs is reporting and verification of greenhouse gas (GHG) emissions. This requires companies to disclose information about any material indirect (Scope 3) emissions. Scope 3 emissions, also known as “supply chain emissions,” often comprise the most significant portion of the total emissions footprint of any organization. Therefore, Scope 3 emissions are a critical component of any climate-risk mitigation strategy.

SMEs that supply products to publicly traded or large companies should expect demand for standardized and verified emissions reporting to trickle down to them sooner than later.

The best way to enter this practice area is to take your firm through its own ESG journey. Measuring your firm through a few frameworks provides several benefits. Doing so, for instance, helps you:

Additionally, businesses undertaking ESG reporting will value higher than their competitors. Having a higher valuation is good for succession planning if you are planning a future exit. In a recent McKinsey Global Survey on valuing ESG programs, C-level leaders and investment professionals expressed a willingness to pay about 10% more to acquire a company with a favorable ESG record.

Another key benefit of measuring these non-financial metrics is the opportunity to share them. We can highlight our industry’s non-financial metrics with the public and be transparent about our own ESG performance. In doing so, our ESG practice can build deeper trust. 

Assessing your firm’s performance through an ESG framework will allow you to look at your processes and procedures from a new perspective. This often helps you identify any common ESG practices that still need to be documented. Engaging in this work will boost employee attraction and retention, lowering attrition and increasing productivity through greater social credibility. 

Contact us for guidance in starting or amplifying your ESG practice.