PricewaterhouseCoopers has expanded its alliance with the cloud-based financial reporting technology company Workiva to handle environmental, social and governance reporting and services.
Both PwC and Workiva have partnered for several years on using Extensible Business Reporting Language (XBRL) technology for financial reporting and filing with the Securities and Exchange Commission. But with the increasing demands for ESG reporting, and the SEC’s apparent plans to require companies to disclose more information about their climate change risks, the expanded alliance that was announced in December will enable them to focus more on sustainability reporting.
“The markets have a thirst for high-quality, comparable information on ESG,” said Wes Bricker, vice-chair and Trust Solutions co-leader at PwC US, who is also a former chief accountant at the Securities and Exchange Commission. “With Workiva’s capabilities supporting that reporting, their technology, software and experience, together with PwC’s professional services and discipline, we’ve really created something new.”
Workiva is seeing growing demand for sustainability reporting as investors flock to ESG funds, and regulators in the U.S, and Europe begin to ask for improved disclosures of what the funds actually are investing in, and how companies are responding to the accelerating pace of climate change.
“We’re a small software company with a little over 2,000 people, and we serve several different markets,” said Workiva CEO Marty Vanderploeg. “We’ve had customers doing sustainability reports on our platform for years now and a lot of really big companies doing sustainability reports on our platform. But the emphasis on a trustworthy set of ESG metrics and reports is really a more recent phenomenon. The situation we found ourselves in is we had a perfect platform for doing this, but we didn’t have the scale. We have domain expertise, but a very small number of people, relatively speaking. We started selling software very rapidly for ESG reporting without the scale to help customers understand how they should actually implement it. That’s why PwC, who’s been a partner of ours for quite some time, was just a natural fit. It wasn’t a long conversation when we decided to do this. It was pretty obvious. The scale PwC brings, their reputation, their knowledge, their ability to deliver tech solutions, made it a no-brainer for us.”
The expanded alliance will help clients and customers of PwC and Workiva handle the anticipated increase in ESG reporting.
“We see this meeting a market need,” said Bricker. “There's a market need for high-quality, comparable ESG data that can be used to inform decisions. Workiva is bringing a world-class technology platform to that discussion. PwC brings the world’s largest trust platform. We think the market needs both of those together to really meet the demand.”
PwC and Workiva have tightened their collaboration in recent years. “We’ve gotten much closer as two organizations, and we lean on each other more,” said Vanderploeg. “We committed even more resources to help train their people to deploy our solution, and they’ve committed more resources into actually deploying it. Our technology teams are working hand in hand. Some of the core expertise that PwC has is going to start molding how our product works and how we address different types of issues. For instance, we’ve talked about how to deal with all the frameworks and very detailed technical things. We’re going to invest whatever it takes because we see this as such a big need for our customers. Many of these companies are already customers of PwC or Workiva, so we really need to solve their problems for them.”
They are working with various ESG standards and frameworks that are starting to converge, with the Sustainability Accounting Standards Board and the International Integrated Reporting Council merging together to form the Value Reporting Foundation last year. They’ve agreed to become part of a new International Sustainability Standard Board, along with the Climate Disclosure Standards Board, in June. Other standard-setters like the Global Reporting Initiative have announced plans to cooperate with the new ISSB as well (
“Right now we support the majority of the relevant frameworks, and we have technology that lets you go between them,” said Vanderploeg. “It’s not exactly a one-to-one match, but there are ways you can move between them. We’re watching very carefully how this is going to manifest itself into one or two standards. I hope it’s one, but regrettably, it's probably going to be two or three. We’ll support all of those and we’ll work together with PwC and discuss how we should support those and advise our customers on what to do. But clearly you will see convergence.”
The climate crisis is forcing companies to set goals for reduction of greenhouse gas emissions in response to growing calls from investors and government regulators for urgent action.
“The thing that’s interesting about this whole market now is that you look at financial reporting, and it took us a hundred years to figure that out as a society, but we don’t have that long to do ESG,” said Vanderploeg. “Obviously, we’ve learned a lot about financial reporting, how to assure it, what standards to use. Rules and all that stuff just took a long time. We have a very short amount of time to do this ESG problem. That’s why the resources that PwC brings to bear and experience both of our organizations have had are going to be able to figure this out for our customers. Frameworks are part of that. We've already got a framework guide built in, and they can get the beginnings of that tutorial in our software. If they have more detailed questions, they can reach out to Wes’s team or ours and get more answers around what they should do from a framework point of view. But frameworks are just the beginning. There’s going to be a tremendous amount of reporting requirements from different governments that are going to be different all over the board, and they’ll need guidance on that too. Then, just how to collect the data and what’s actually material for what they’re doing is a really robust problem where us working with PwC is a natural.”
XBRL taxonomy
Like U.S. GAAP, the sustainability standards can be translated into XBRL. PwC has been working with SASB to translate its standards into XBRL, and other ESG standards can also be translated into XBRL.
“There are preliminary taxonomies out of Europe, and we’ve looked at some of those and they're making very good progress,” said Vanderploeg. “At the end of the day, you want machine readable reporting metrics. We can analyze them much faster as humans, and then we can also put AI to work against it. I think it’s inevitable there will be some type of structured data format for all of this data, be it financial, which is in XBRL already, or in all the other forms of non-financial data. Certainly that’s the goal the European Union has made, and that’s the noise the SEC is making. None of that’s cast in stone, but it’s pretty clear XBRL is accelerating really fast in terms of its adoption as a machine readable business language.”
PwC sees usefulness in employing XBRL data-tagging technology. “I think XBRL has enabled us to accomplish the network effect, that there’s general acceptance of the usefulness of the XBRL taxonomy across capital markets, financial markets and regulators, whether it’s the SEC or a banking regulator or an insurance regulator or even within companies,” said Bricker. “The standards and the structured digitization are important for taking the discussion from theory into practice in a tangible way so that business leaders get the information they need, and users of disclosure — whether it’s stakeholders, investors, employees or members of the supply chain — get the data in a practical, useful way that they understand and can consume at scale.”
Auditors can play a role in providing assurance on the ESG reporting, making sure the numbers add up when some observers see mismatches between the emissions reductions that are being reported by companies (
“Stakeholders want information that they can trust, and outside assurance brings trust,” said Bricker. “In order to earn that trust, companies that prepare the information have to start with a set of systems and processes and controls that enable assurance providers to evaluate its quality. We have this experience. Audit has a heritage of 100-plus years. The scope of that is moving to non-financial information. What we know from audits of financial statements is that it starts with good process, good technology, good controls, the expertise to prepare it or use it. Those are the things that we see as the future for high-quality ESG information that rightly earns the confidence of the market.”
Carbon offsets
In recent years, many companies and firms have been making commitments to reduce their greenhouse gas emissions to net zero at some point in the future, but there may not be enough carbon offsets available to help them live up to those commitments. Companies will probably need to reduce their own emissions and not rely on the carbon credit market to buy their way out of the problem.
“Increasingly business leaders are focused on transforming their businesses, products and services rather than offsetting the impact,” said Bricker. “Both transformation as well as offsets have an important place, but increasingly we’ll get to where we need to go as a society when businesses transform rather than just offset.”
Accountants will still need to help companies identify the true costs of their materials and energy, even if they do purchase carbon credits. “Offsets do create some good behaviors in the near term in terms of preserving areas that are capturing carbon,” said Vanderploeg. “But long term and even near term, businesses have to transform or else we’re just sort of rearranging chairs on the deck of the Titanic. We really need to change how these businesses function and how they view things, and we have to get the pricing right for these industries. The true cost of the fossil fuel industry has never been put on those companies, and many other industries too, like plastics. All this stuff has to be accounted for, and behaviors have to change more than offsets. There will be a shortage of offsets — that’s for sure — but I’m glad that will help force companies to make transformational changes in their business.”
The soaring rate of inflation is likely to have an impact on those costs as well. “As inflation impacts the cost of human capital, it makes transformation and transition an imperative,” said Bricker. “It's important to have a tech-enabled platform to do the reporting. What's not negotiable for many investors or stakeholders is not getting the information they need to make decisions about their relationships or investments with a company. For business leaders, CFOs, controllers and external reporting directors, they have to find a way to deal with the rising cost of human capital to get the job done in a faster, more efficient, higher-quality way.”
Accountants can help companies see the impact of inflation on the costs of energy and the strained supply chain. “Transparency obviously is good for society,” said Vanderploeg. “With reporting, that’s what we’re doing, trying to bring a lot of transparency. But if you’re managing an organization, the more knowledge you have about your cost structures and how to change those, the more visibility and granularity you have and the ability to look at that quickly, know that it’s right and be able to put all sorts of computer tools against it, you can manage your business better and adjust for inflation.”
Accountants and auditors can help organizations present their ESG metrics in a more verifiable, trustworthy way. “PwC’s purpose is building trust in society, solving important problems,” said Bricker. “This is one of today’s most pressing problems, getting high-quality information that the marketplace needs, and doing so in a way that they can trust the information. Trust in information is at a low point in society. There’s confidence in financial reporting because of all of the investments in technology, process, controls and a strong audit. That’s what we need to bring to ESG with Marty and the Workiva team.”
“That’s the business we’ve been in for 13 years in terms of financial reporting, providing information that you can track all the way to its source, that you can audit at any time, that multiple stakeholders can assess and look at and understand where it came from, and just building tremendous transparency to help the organizations and to help the third parties like PwC audit them and give them professional advice,” said Vanderploeg. “That’s what we do is build the tools that allow organizations and their third parties like PwC become as good at financial reporting as they can, but now also take ESG quickly to that same level of trust that we have in financial data. PwC and Workiva are on the same page in all this.”
