Kevin O'Connell has five children, and they are a major reason why he is passionate about his role as ESG trust leader for Big Four firm PwC.
"I want to leave the world a better place for them," he explained, before adding with a chuckle that, when he told them about his ESG role, "It was one of the few times they were very interested in the work that I was doing at PwC."
O'Connell's children aren't the only ones interested in ESG reporting these days: Regulators, legislators, standard-setters, customers, investors, community stakeholders and others are increasingly pushing companies to disclose meaningful information about their environmental and social impact, as well as their governance risks, both on financial statements and in standalone reports.
This kind of disclosure is not a new idea — the closely related idea of sustainability reporting was kickstarted by the first Earth Day in 1970, and corporate social responsibility, or CSR, reporting, claims origins in the 1950s. In its newish guise as ESG, however, it has gained a level of mainstream acceptance over the past decade that it has never had before, and just recently has been developing serious momentum from the increasing consolidation among reporting frameworks that was highlighted by the launch in 2022 of the International Sustainability Standards Board — a conglomeration of a number of standard-setters under the umbrella of the IFRS Foundation — as well as the mid-year release by the U.S. Securities and Exchange Commission of a wide-ranging set of climate disclosure proposals.
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"I joke that I've been leading our [ESG] services for over a decade now, and more has happened in the last 10 months, 10 days, or 10 minutes than in the last 10 years combined," said Kristen Sullivan, the global audit and assurance sustainability and climate services leader at Big Four firm Deloitte, who pointed out that her team has grown over 65% in the last six months alone. "This is the biggest business transformation opportunity of a generation or more."
And CPAs, everyone agrees, sit squarely at the center of that opportunity, for two key reasons. First, historically, a great deal of sustainability and other proto-ESG reporting has been voluntary and self-directed, and that has led to questions about the veracity and reliability of the data companies have shared. Accusations of "greenwashing" — companies reporting overly rosy or downright false social and environmental information as a marketing exercise — have dogged the field since the 1990s. Since accountants are the preeminent providers of assurance in the world, stakeholders, regulators, legislators and others are naturally looking to them to attest to the trustworthiness of the growing flood of ESG disclosures.
Before an auditor can offer assurance on a report, however, there has to be a report for them to audit — and that leads to the second reason the profession is central to the future of ESG: No one understands corporate reporting like accountants.
Scoping the opportunity
Currently, most of the corporate reporting that accountants are familiar with is financial. But the most influential and wide-ranging proposed mandates for ESG reporting will see a flood of new information being added to financial statements.
The climate disclosures currently being mooted by the SEC will end up on public companies' financials, and Deloitte's Sullivan points to the European Union's Corporate Sustainability Reporting Directive as another example: "There are going to be 80-plus data points, industry-agnostic, that will be added to what any organization is reporting in their financial statements today. That's just one indicator as to how this enhanced corporate reporting is going to evolve."
The new types of data points will include many areas that are unfamiliar to accountants, and that are not part of companies' current reporting infrastructure. Across the three main pillars of ESG, typical disclosures might cover:
- Environmental: Greenhouse gas emissions, deforestation, biodiversity impacts, pollution generation, and more.
- Social: Employee wellbeing and safety, labor relations, workforce diversity, and customer and community relations.
- Governance: Executive compensation, board diversity and practices, DEI policies and benchmarks, and data security practices, among many other things.
Before auditors can begin to offer assurance, "What's going to come even sooner is having to put climate-related issues and carbon footprinting data and human capital disclosures on financial statements," said Jennifer Cantero, director of the Sensiba Center for Sustainability at California CPA firm Sensiba San Filippo. "So financial statements are going to read a lot more like due diligence documents and have all three — the E, the S and the G — on them."
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Once ESG data is in the financials, it can be audited, but before that can happen, it has to be gathered, organized and vetted. Setting up the systems needed to do that is a big task, and while many of the largest businesses have already begun building those reporting structures — something like 90% of the S&P 500 have been filing some sort of sustainability report for last five years or so, according to Cantero — the vast majority of companies in the U.S. will soon find they need their own.
"The SEC stuff is hitting public companies right now," said Cantero, "but there's a trickle-down effect within the reporting where it's going to trickle down to small and midsized privately held organizations." Similarly, she noted that while proposed laws in California would require various ESG disclosures from private and public companies worth $1 billion or more, many of the reporting metrics they will require will affect smaller companies caught up in larger companies' supply chains.
The nearest thing most companies have to an ESG reporting structure are the systems they use to produce their financials, and accountants' intimacy with those means they are uniquely positioned to advise on these new data pipelines. And that means that the immediate business opportunity around helping companies set up their ESG reporting might be just as big as the long-term opportunity in auditing the results.
Egg or chicken?
In fact, accounting firms that are pioneering the ESG space say much of the work they're seeing now centers on getting clients set up for ESG.
"We're seeing lots of opportunities for consulting and advisory right now, because a lot of companies don't have this data yet," said Cantero. "They don't even know how to approach the data. They don't know what metrics are material to their organization and industry."
According to Maura Hodge, the ESG audit leader at Big Four firm KPMG, "A lot of companies will come to us and say, 'We want assurance,' or 'We've had assurance from an engineering firm, but now we want sort of a higher level of rigor,' but then we start to have conversations with them, and we recognize that they maybe not quite ready for a Big Four accounting firm to do the assurance of their information. So then we take a step back and say, 'OK, well these are the things that you need to think about. These are the things you have to have in place in order to be able to have the assurance,' and they say, 'Oh, OK,' so that's where we're able to bring in the consulting component."
While regulatory mandates are in the pipeline, the majority of ESG reporting remains voluntary, which means companies that are looking to explore the area will need help figuring out what they want to accomplish, and how.
"I think there is a huge space for companies to determine what they want to do right now, and so that's just by nature more consulting work," said Colleen Rozillis, a consulting partner and leader of the ESG consulting practice at Top 25 Firm Moss Adams. "And then what we see is, as organizations get more mature, it's in Year Three to Five of their program that they're really thinking about wanting to do assurance or wanting to do some more detailed reviews, because they've got both longitudinal data that they could look at, but also they're more confident in what their program actually is, and how they're talking about ESG, and all those things that naturally come along when you to launch a new initiative and then try to institutionalize it."
"I'd say the inquiries we're getting currently are slightly more weighted to the advisory side," said Justin Neff, an assurance partner and leader of Moss Adams' ESG assurance practice. "Having said that, in the past year we've received a significant number of requests for proposal on assurance as well. It's driven largely by customer requests — you know, some of the larger companies asking for their supply chain to start reporting to them. They are Scope 1 or Scope 2 in some cases, some Scope 3 emissions as well as companies looking to report their carbon footprint … . But it really comes down to the fact that this is new for a lot of companies and they're just looking for help to get started."
Those mandates from larger business partners are what will drag many companies into reporting, according to Bruce Klein, a partner and financial services and ESG lead at CrossCountry Consulting. He recalled the case of a small client, an advertising firm with less than 25 people: "They don't have an ESG person. They don't know how to spell ESG, right? But they are an advertising firm for a large drug company and one day, the large drug company says, 'Hey, you're in our supply chain. We have reduced all our emissions as much as we can, and we are now looking at our supply chain vendors. So these are the 10 things we're going to need you to do.' And they let out a collective gasp and say, 'We don't even know what these things mean.'"
Of course, even when they're working as consultants, good accountants recognize that the systems they're consulting on will ultimately need to be audited.
"I equate it a lot to when SOX was required to be implemented," said KPMG's Hodge. "There's a lot of consulting up front to get things in order and to understand what processes need to be put in place … . And there's still obviously maintenance for SOX today and still consulting around it. But the auditors have to test SOX compliance as well."
So as they help build these systems for clients, ESG consultants need to make sure they'll stand up to the eventual scrutiny of an audit.
ESG work often starts with reporting expectations, Sullivan acknowledged, "so clearly that emphasis on putting an infrastructure in place that will instill rigor and drive efficiency in reporting is critical, but I do think, though, that attestation increasingly is viewed as not just the end of the process. We have to get this all right before we proceed with attestation and assurance. Assurance-readiness is really a valuable tool to help our clients establish this infrastructure, so there's sort of a nuance there, but I do think that it's an important distinction that it's not as though attestation is just at the end of the process."
Klein agreed on the importance of bearing assurance in mind from the start: Even though his firm doesn't do audits, "We're going to help companies get attestation- or audit-ready, because … if the auditors come in and they are ready to attest to your climate data and you can't show them where you got it, you're not going have a good audit."
As regulatory mandates increase and companies build reporting systems that can withstand professional skepticism, the opportunity in auditing can only grow — but that doesn't mean that the consulting work will slacken.
"I think they're both going to be significant aspects for the accounting firms," said PwC's O'Connell. "Certainly the need to audit investor-grade information from ESG will be really important in the future. … We'll continue to see work on the consulting side, as people move from reporting into decarbonization into tax incentives and credits. And those decarbonization projects will go on for years, as companies work to figure out how to take emissions out of the environment and rework all of their business, processes and operations."
As Cantero describes it, the initial consulting process of getting a client company up and ready to report against a particular ESG framework is only the beginning.
"It's not like you brush your teeth once and you're done," she said. "It's a recurring thing. They're going to have to calculate their carbon footprint every year because they're going to have to put it on their financial statements every year. Organizational shifts don't happen overnight; you may get through a framework and get this huge implementation plan, and a lot of people don't have internal resources to work their way through an implementation plan, so there's lots of opportunity to work side by side over a long period of time to go through a lot pieces and parts and work on that, and the more you dig in, the more pieces you find to consult on."
So while it may take a few years — and some more regulatory requirements — for the assurance side to hit full speed, it seems safe to say that there will be plenty of work for both consultants and auditors in the not-so-distant future.
A 'typical' engagement
Between the large number of reporting frameworks available, the different ways ESG concerns manifest themselves in different industries, and clients' wildly varying capabilities and strategies, every ESG consulting engagement in the field will look different to some degree, but a broad set of commonalities has emerged.
Generally, they start by assessing the client — understanding their ESG goals and requirements, what kind of policies and procedures they might have in place or need, and their internal capabilities.
"Most organizations both don't know where to start and they already have a lot going on in this area," explained Moss Adams' Rozillis. "They might be gathering climate-related data, they're gathering data on the demographics of their employees around recruitment and retention goals. … And so we're going to do a big scan and see what we are already doing. Could that fit under that ESG umbrella? Where are the gaps? And then where do we need to go from there?"
The next step is creating a strategy and an implementation plan. As Rozillis described it, "What do we need to do to get where we want to go? Where do we want to go? … There are so many different standards and frameworks, and there's nothing out there telling us exactly what to do for every organization. It really is about, 'What are our values? How do we want to define this? How are we going to walk the talk? And then, how are we going to communicate that to our stakeholders?'"
A common final step, naturally, is the actual reporting — setting up the systems and making sure they deliver the necessary information in compliance with the chosen framework. This might involve walking a client through a framework certification, as well as building dashboards to help them make sure they stay compliant.
Sensiba's Center for Sustainability adds an important extra stage to its version of the ESG consulting engagement. "We divvied up our services into three categories: Assess, Act and Articulate," Cantero explained. "The Assess phase is where we run a company through any of the myriad of frameworks that are out there, and we build them a full implementation plan based on the results from the Assess stage. In the Act phase, we help them build action steps, break it down into easy, bite-sized projects, and help them build a budget, so they can actually implement it."
"And then there's the Articulate phase, because one of the biggest places that companies can mess up is in articulating their journey and their plan, and making grandiose claims without backing it up first," continued Cantero, who actually started her career at SSF as director of marketing before discovering her passion for sustainability. "That's the greenwashing and 'brandwagoning' where you are going to get canceled in this cancel culture because you've spoken out of turn about how sustainable your organization really is. So we help our clients take whatever actions and the journey that they're about to head upon, and articulate that in a smart way, in a realistic way, and in a genuine and authentic way."
At CrossCountry Consulting, meanwhile, Klein breaks down their engagements by client size. For larger public companies, they help create an ESG roadmap, starting with their capabilities. "I don't mean decarbonization," he explained, "but I mean your ability to collect and report and have faith in your ESG reporting: What does that look like today, and where do you need to get to? What tools or technology do you need to get there?" After that, they might help a large client pick a reporting framework that fits their strategy and start reporting against it, and finally, they'll focus on risk, controls — and making sure the client's reporting can stand up to a little professional skepticism.
"OK, you're reporting against all these frameworks, you're putting some things in your website in terms of reporting, but that's actually exposed you now to more risk because you've disclosed," he said. "So, what are the controls and how do you know how people know it's not greenwashing? How do you substantiate that, and how do you make it audit-ready?"
Though CrossCountry is not an accounting firm, many of its executives have backgrounds in accounting and with the Big Four, and the firm is alive to the importance of assurance. "When the client does decide to attest — and not everybody's doing that yet — it's important that when an auditor does come in, there are work papers, and there are the things auditors like to see on the other side of the house, that somebody else who's coming in on ESG [might not know about] because that's not the world they come from."
For smaller, non-public companies, Klein says his firm's most common engagements involve helping them respond to stakeholder requests and inquiries or surveys. "So they may need to respond to a bunch of questions from a firm like EcoVadis, or they may be asked to submit for the first time to the Carbon Disclosure Project, or they may be asked to set Science-Based Targets. … It's getting bubbled down to the smaller guys and those are the ones who really need the help because they don't have anybody focused on this and they don't know how to do it; they don't know what it is."
Staffing and skillsets
As with any service offering, accounting firms that are working in the ESG space face two questions: How many people do you dedicate to it, and do they have to be accountants?
Some firms, like Moss Adams, have "go-to" teams for ESG engagements: "I wouldn't say that those people are exclusively working on ESG assurance engagements," said Neff. "We take a very industry-focused approach. So many times, regardless of whether it's ESG or accounting, we try to have the industry experts in the room. That translates well for these types of assurance engagements. But we have something of a semi-dedicated team that stays up to speed on frameworks and developments and regulatory issues, but is not generally exclusive to ESG."
On the assurance side, Neff said that's upward of 10 to 15 people; on the consulting side, Rozillis estimates it's between 25 and 30 people — or about half her team. "We don't really have anyone absolutely dedicated to ESG, so we go to market by industry," she said. "We also have our specific specialties, so it depends on what it is — if it's real estate advisory, we're going to bring those folks in, or if it's capital programs."
At SSF, Cantero reported, "We currently have seven people on staff that are just focused on our sustainability department; we have a few other people in our audit team who can shift over if needed because they are FSA-certified, but they are predominantly in the audit department." That, she said, means the firm can move them over to ESG work during the summer months, when audit is slow.
She also firmly believes that firms will need to look beyond just accountants: "This is definitely one of the consulting areas where you're going to be hiring a lot of non-CPAs. We have on staff a marine biogeochemist to help us with our soil samples and carbon footprinting. That's not something I would ever have thought to have had at an accounting firm — a marine biogeochemist." The firm also has people with MBAs in environmental science, as well as "a couple" of accountants who are certified in the SASB standards (though she lamented the current lack of coordination between environmental sciences departments and accounting departments at colleges and universities).
CrossCountry, however, has no intention of adding a lot of outside experts. "We know the Big Four hire climate scientists and are doing things that maybe help you measure your climate risk in different geographies, but we're not going to be that — we're not hiring climate scientists," Klein said. "We're staying where we're good at — we're not going to produce the greenhouse gas number, but we're going to help you report it and get it into the disclosures."
Like many of the Big Four, PwC mixes it up, combining accounting and audit staff with outside subject matter experts. "We've taken some of our core financial statement audit folks that understand financial reporting and processing and controls, and upskilled them on ESG," said O'Connell. "We've also combined them with external hires from engineering firms and other boutique ESG consulting firms to really deepen the ESG expertise that we have."
While he sees a continuing need for non-accounting expertise, particularly as ESG reporting moves beyond climate to areas like water and biodiversity, "I still think it will be an accountant-led model, though."
Having been active in sustainability for two decades, KPMG has hired its shared of specialists — engineers and engineering consultants, and so on — but the firm is aiming well beyond that, according to Hodge.
"We are educating our entire workforce around ESG, because it's so integrated into the business of our clients," she said. "At a minimum, everyone needs to be able to speak about ESG and understand how it affects the business and use that as a lens over which we offer all of our services."
To get a sense of what that effort looks like, consider this: KPMG staff received more than 33,000 hours of ESG training in 2022.
Interestingly, apart from noting the value of having at least some staff who are certified in the SASB standards, there is not much emphasis among pioneering firms on learning particular reporting frameworks — in part because there are so many of them, and in part because more consolidation is expected.
"Once you understand the basics around frameworks, you really can work with any framework," said Cantero. "If you need to be certified for a specific framework in order to run someone through it, that's a whole other ball game. Then we would have to get certified, and if a client approached us with that, then we would say, 'Oh, let's investigate this; let's see if this is something we want to add to our menu of services.'"
Added Moss Adams' Neff, "We have yet to encounter a framework that we haven't been able to give assurance against. Most commonly for carbon footprint, you're looking at the Greenhouse Gas Protocol. It's definitely widely adopted, and most reporting companies are following that. For actual general ESG disclosures, many times it's the company's own criteria that they determined to be appropriate and meaningful for their stakeholders, and as long as there are robust disclosures around that framework and how they're measuring and recording their KPIs, we can generally give assurance around that."
Passion projects
ESG isn't just a business opportunity for firms — though it certainly is that, with Cantero noting that a basic framework and strategy and engagement can bring in the same revenue as "a really hefty audit." It's also an opportunity for accounting as a whole to position itself at the forefront of a movement that graduates and young employees are passionate about.
"Whether it's my kids or our staff, it definitely does resonate with the younger generation," said O'Connell, "and they're going to make a really concerted effort here to right the world to make it a better place."
"This is the future of the profession," added Rozillis. "I think it's a really great opportunity to engage younger folks who are thinking about accounting as a career, and really thinking about how do we help our clients and make an impact."
It's not just students and recent graduates who are excited about working in ESG, either: "We have internal initiatives and working groups," said Klein, "and usually you're pulling people and saying, 'Who can I get?,' and with this, we're turning people away -- everybody wants in."
In the end, it represents not just an opportunity for more revenue; it's also a chance to expand the accounting profession's traditional public service role.
"I personally can't think of a higher purpose than applying my skills and experience and training as a CPA to help companies measure what matters to operate their businesses in a more environmentally efficient manner, and really deliver meaningful impact to people in society," said Deloitte's Sullivan, "and I think keeping that broad mindset of long-term sustainability and resilience of business and a thriving capital markets and society — it's just an exciting place to be for any organization."
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