The 5 pillars of a high-growth ESG practice

The focus on environmental, social, and governance issues is becoming more urgent as both private and public capital markets companies are being asked to disclose more about their ESG performance. As this movement gains momentum, the need for ESG solutions for the middle market has skyrocketed. Accordingly, so have the ESG-related service offerings of the Top 50 CPA firms.

Firms that have made significant investments in this practice area are now reaping the benefits, especially given the pending Securities and Exchange Commission proposal to mandate climate-related disclosures that would require assurance services to verify the integrity of the data.

There are also firms that have made little investment and subsequently little progress in getting an ESG-focused practice off the ground. Upon deeper inspection, we found that this is not a coincidence. There are certain patterns that appear across high-growth practices that have successfully expanded their business to include ESG-related services.

Given the increased focus and oversight on ESG, smart executives should consider these five tenets when setting up a new ESG practice area for success. 

Appoint a strong leader with executive sponsorship 

The newly appointed leader of your ESG practice should be an existing practice builder or a high-potential, ambitious leader with the talent to become a business-builder over time. The skill set required to deliver ESG services is similar to the intrinsic skill set of a CPA or management consultant. Quick learners will grasp the lingo easily and should surround themselves with subject-matter experts to advance credibility.

Direct support from the highest organizational levels to nurture the new practice, go-to-market planning, and the development of thought leadership to drive demand are essential.

Set the practice up outside of service or industry lines 

ESG is an evolving business function that incorporates strategy, data collection and management, risk management, reporting and disclosures. Setting up your ESG practice outside of functional capabilities or industry verticals will enable your new business leader to collaborate in an interdisciplinary way.

ESG performance improvement projects tend to be carried out in their respective departments. For example, a diversity, equity and inclusion initiative may be carried out by HR, but the data collection and reporting efforts increasingly sit with the CFO.

By setting up your practice outside of industry and function capabilities and pulling in technical experience from across functions as needed, you can mirror your customers' needs.

Meet the market where demand exists

The majority of middle-market companies are just getting started with ESG measuring and reporting. Helping customers to define and build their ESG program is the biggest pain point in the market today.

The starting point is typically an ESG diagnostic or assessment to determine which areas of focus are most relevant to the business and where they can move the needle on impact before acting. Therefore, the needs on the ESG strategy advisory side currently outweigh the assurance needs once the data is collated. Eventually all customers will need assurance services; however, program development is the primary need for the middle market.

Leverage tech partnerships 

High-growth practices deploy a technology-enabled ESG go-to-market strategy. Successful firms partner with technology vendors that focus on both the middle market and the accounting profession's ESG needs.

The right partnership enables firms to present a holistic solution that combines expertise with technology while demonstrating ESG expertise in sales cycles. They also rely on the technology platform and training to quickly close any knowledge gaps that arise as delivery demands grow.

With the extensive amount of ESG data that companies must collect, analyze and integrate into their strategies, middle-market companies are looking for accounting firms that can help them build out ESG programming, in addition to tracking performance. The right technology partner should provide your practice with a comprehensive offering that combines ESG expertise with technology.

Offer an end-to-end solution

Given that the ESG journey for most middle-market clients starts with program-building, successful firms offer a technology-enabled solution that supports the full ESG journey. A strong solution offering includes support for early ESG program building, in addition to solutions for customers' reporting needs around specific ESG topics, such as emissions measurement or climate risk planning, and ultimately support them with data assurance products. An end-to-end mindset helps shift practice efforts away from one-off projects to a comprehensive market offering for ESG.

ESG and corporate sustainability will be an ongoing business function, similar to procurement, recruiting, legal or risk management in the future. Given this, demand for talent and expertise in ESG will continue to be a bottleneck for middle-market customers wanting to scale up quickly. Your ability to help customers at any step in their ESG journey is the surest path to building a high-growth recurring revenue ESG practice.