A sharper focus on ESG

July 7, 2022 9:00 AM

ESG is not new. Business and government leaders have been discussing corporate social responsibility for decades. But the heightened turbulence of the last two years has ignited a sharper focus on environmental, social and governance matters that’s shaking up every organization and industry around the world — and presenting significant opportunities for the accounting and finance profession.

This accelerating need was the focus of the AICPA & CIMA and CPA.com’s inaugural ESG Symposium held in May. The event brought together more than 50 top firm and business leaders, investors, technologists, standard-setters, lenders and thought leaders to exchange ideas and share perspectives on the critical role of CPAs and finance professionals as trusted advisors within the ESG space.

Here are four key takeaways from the thought-provoking session.

1. ESG momentum is accelerating

Environmental social governance (ESG) text on wooden signpost outdoors in nature

jon anders wiken/Jon Anders Wiken - stock.adobe.com

Regulators and standard-setters at the U.S. federal and state levels, as well as internationally, are feeling the pressure to respond to increasing ESG demands on organizations with new rules and reporting requirements.

Last year, IFRS formed the International Sustainability Standards Board to simplify the global sustainability disclosure landscape and currently have two proposed standards out for consultation.

Concurrently, the Securities and Exchange Commission released earlier this year a proposal on climate-related disclosures that would require public companies to report information regarding risks and opportunities related to climate events and transition activities, as well as report on carbon emissions. These emissions statements will require an attestation engagement, which the CPA profession is well qualified to address. These emissions disclosures are far reaching and will require public companies to report on emissions information from their supply chains which may include non-public companies.

The profession is taking an active role in helping shape the future of global ESG standards and reporting through these processes.

2. Consumers are driving demand

With issues like climate change, social injustice and racial and economic inequities dominating the headlines and social commentary, consumers are taking stronger stances on the businesses that they want to work with and for. And it’s not just the younger generations. According to a recent PwC report, 76% of all consumers say they’d discontinue a relationship with a company if it treated the environment, employees or community poorly.

As a result, investors and shareholders are looking at companies differently, too. An organization’s health is no longer evaluated solely by the numbers on the financial statement. While still incredibly important, investors now want a more holistic view of a company’s overall value. Areas such as environmental impact, commitment to social issues, and initiatives focused on diversity, equity and inclusion are being assessed in nearly equal measure to profitability. To do this, investors need a consistent and trusted source for this broader need to help them make informed decisions.

Firms and organizations that can demonstrate commitment to ESG efforts will be best positioned for ongoing success. CPAs and management accountants can not only help shape reporting standards, but also use our position of trust to instill the much-needed confidence in the ESG-related reporting that investors and consumers rely on.

Investment in ESG solutions is growing

Alex - Fotolia

The urgency that businesses feel to adopt and demonstrate strong ESG practices to remain successful can really be seen through the rapid acceleration of funding being funneled into ESG technologies and solutions across all industries and professions. In the climate technology sector alone, investments reached $23.2 billion in 2021, more than double the amount invested the year prior, according to PitchBook Data Inc.

And that’s only one component of the much broader ecosystem — including accounting and finance. We’re proud to have expanded the AICPA and CPA.com Startup Accelerator program in 2022 to include a cohort of five companies dedicated specifically to ESG technologies and solutions. This expansion represents the growing opportunity for finance leaders, CPAs and firms to elevate their roles in this space.

4. Firms and finance leaders are well-positioned to deliver on new needs

CPAs and management accountants are equipped to meet marketplace demands with the innate skills, experience and systems to assure the performance of quality services and core values of independence, integrity and competency. Firms are already building on their existing services to help clients with their ESG strategies, reporting and assurance needs.

At the same time, corporate finance leaders are beginning to lead internal efforts to gather and report on ESG efforts to improve decision-making and demonstrate value creation. But there’s more to be done. Accounting and finance professionals must keep building their understanding of environmental, social and governance areas and ways to apply existing skills in new ways to extend their value into this new and critical area for their clients and employers.

A sharper focus on ESG

1. ESG momentum is accelerating

2. Consumers are driving demand

Investment in ESG solutions is growing

4. Firms and finance leaders are well-positioned to deliver on new needs

What’s next?