Although the Security and Exchange Commission has issued a stay on its climate disclosure rules, the SEC's rules and others like the European Union's Corporate Sustainability Reporting Directive and California's Climate Accountability Package help bring the importance of transparency in corporate climate-related reporting into sharp focus.
Tax and accounting professionals can play an outsized role in guiding their corporate clients and providing assurance or other services around climate-related disclosures.
This role is becoming increasingly crucial, as a broader group of stakeholders — including investors, customers and employees — are demanding information and data about the companies in which they invest, engage or work.
They want to understand whether and how companies are addressing environmental challenges; managing operational, financial and social impacts; upholding strong governance practices. In short, they want trustworthy information.
The SEC's new rules are an opportunity for companies to engage and build trust with their stakeholders — presenting an integrated story to the market by combining climate-related information with financial disclosures.
Transparency disconnect
However, there seems to be a disconnect between stakeholders and executives regarding sustainability.
PwC's
An overwhelming majority of business leaders in the survey agreed that trust improves their bottom line. However, only 36% of executives say they disclose their impact, and even fewer reported disclosing climate-related risks.
As companies navigate the evolving regulatory landscape, they likely will transition to investor-grade and tech-enabled reporting. Holistic controls, processes and independent third-party assurance could be needed to enhance the credibility of the reported information.
Companies should approach the related climate rules and standards by aiming to bring them all under one umbrella, with similarities and differences identified instead of addressing them in pockets.
For example, although the SEC climate disclosure rules don't mandate reporting on Scope 3 emissions — including emissions generated by suppliers that source, produce and transport the materials a company uses as well as emissions from the logistics, use and disposal of a company's products — and has scaled back proposed disclosure requirements on Scope 1 and 2, many companies may still need to report this data and related information to comply with international sustainability disclosure standards, the EU's corporate sustainability reporting directive, and California state laws — as well as other state-by-state requirements in the works.
To prepare for these new standards, business leaders should conduct a readiness assessment of their organization's reporting processes. This includes understanding the requirements, assessing available information, and developing a plan to address gaps.
They also should focus on prioritizing climate-related strategies such as allocating resources for compliance and alignment with the company's narrative, managing for investor-grade data that is holistic, reliable and timely, and scaling information for multiple regulatory purposes to help enhance productivity and reduce costs.
Role of professionals
Holistic and reliable data is the foundation of effective climate-related disclosures, and audit and tax professionals' experience is essential in supporting this data's integrity. These professionals can help clients understand the interplay between regulations, encouraging consistency and reliability across various requirements, and overseeing holistic tax planning.
Audit professionals are better able to assess the reliability of data, identify potential risks and provide independent assurance of information contained in sustainability reports. This assurance can enhance the trustworthiness of the information and instill confidence in stakeholders — auditors help confirm that the disclosed data meets the relevant standards, which can contribute to transparency and reliability.
Tax professionals offer a deep understanding of tax regulations and incentives related to sustainability initiatives. Their knowledge can help companies identify tax benefits associated with sustainable practices, such as renewable energy investments or energy-efficient technologies.
By aligning sustainability strategies with tax planning, these professionals can enable companies to enhance both their environmental and financial outcomes.
Audit and tax professionals who are versed in complex sustainability reporting frameworks and standards can identify the relevant frameworks, such as the Global Reporting Initiative and the Sustainability Accounting Standards Board, and advise on industry-leading practices. Coordination between audit, tax and other professionals within organizations is crucial and can strengthen the overall governance and control environment.
ESG controllers
Sustainability efforts often have been seen as separate from financial considerations. But the emergence of the environmental, social and governance — or ESG — controller highlights the need for coordination between finance and sustainability teams.
ESG controllers are responsible for overseeing and managing the complexities of environmental, sustainability and governance reporting, including validating that reporting is consistent and comparable.
By working together, these teams can confirm that sustainable practices not only are environmentally and socially responsible but also financially beneficial. This coordination allows companies to use sustainability as a driver of long-term value and financial success.
By aligning data with industry benchmarks, ESG controllers allow companies to highlight their sustainability practices in a transparent and reliable way. This helps businesses stand out as sustainability leaders and prepares them to answer questions or concerns from stakeholders.
ESG controllers likely will have more significant roles as the sustainability landscape evolves.
By championing transparency, reliability and strategic planning, ESG controllers — along with tax and audit professionals — can empower organizations to improve the environment, society and their long-term success.
