Marie-Laure Delarue, global assurance vice chair at EY, discusses how accounting firms can provide audit and assurance services to help companies with their ESG reporting and the formation of the new International Sustainability Standards Board.
Transcript below
Michael Cohn: (
Hi, welcome to another episode of on the air accounting today's podcast series. This is Mike cone of accounting today, and we're joined today by bar law, Deko global assurance, vice chair at ston young. Welcome lo
Marie-Laure Delarue: (
Thanks, Michael. It's uh, good to be with you today. Oh,
Michael Cohn: (
It is. It's fantastic to connect with you too. Uh, well, um, Marie Lauren, you recently attended the, uh, United nations cup 26 climate change conference in Scotland. Uh, what were you hearing there about sustainability reporting?
Marie-Laure Delarue: (
That was, that was fantastic because, uh, the ISS B, uh, was launched officially and it was really, um, a long, longer waited launch because it's really something that I think investors preparers, regulators, auditors really, really expect to have, uh, uh, you know, this very, very well known body, really preparing standardized guidelines baselines for, um, ESG reporting, focusing and starting, uh, on climate change. So it was a, a very important announcement, not only for reporting, but also for the progress of ESG, uh, in general because you know, what, what gets measured consistently gets done.
Michael Cohn: (
Yeah. Yeah. I've been hearing a lot of talk about this IB and, and it sounds like it's starting to, to come together as a global standard center for sustainability reporting. Now, I, I understand, um, that, uh, the value reporting foundation, which, uh, includes the sustainability accounting standards board and the international integrated reporting council is gonna be folded into that along with the climate to disclosure standards board, um, and, um, uh, next June. Um, do you think all this, uh, uh, consolidation around the standard setting is gonna help with, um, sustainability reporting?
Marie-Laure Delarue: (
Yes, it, it's certainly going to help. And, uh, we know also that the other standard set are working on, uh, you know, disclosures and they might not end up exactly at the same place, but having ISS be really the custodian of what, uh, we can call a global baseline will certainly provide consistently and clarity. And anyway, what is really important is that we see more and more regulators in more and more countries, really mandating ESG disclosures and really making sure that, uh, the, um, preparers the corporates, the auditors also, uh, provide, uh, you know, um, clear, um, comparable information and very often, uh, with a request, uh, to be assured by, by, uh, third parties or by auditors. So I do believe this is really, really going to accelerate, uh, not only the adoption of consistent metrics, but also the adoption of, uh, plans to really make progress, uh, toward, uh, targets that are in line, uh, with, uh, the, uh, famous 1.5 degree, uh, objective. Oh,
Michael Cohn: (
That's right. Yeah. That that's for, for the, um, uh, the, the amount of degrees, uh, that, that, uh, in Celsius that, uh, they wanna prevent the, there are from warming to, or for global warming to accelerate to. Uh, um, and you think that, that this, um, uh, sustainability reporting can help with achieving these kinds of goals?
Marie-Laure Delarue: (
Yes, certainly because once again, uh, reporting, uh, as you know, Michael is only the output, but if we are, uh, in a situation where we have to disclose the output, it'll certainly accelerate the, uh, buildup of, uh, not only announcement around bold net, zero targets, but really the buildup of, you know, real plans, milestones, and really steps that can be disclosed and measured. And we all that it is really the, uh, the beauty and the purpose of reporting to really make sure that something that is really material either to financial statements, either to broader stakeholders gets really measured consistently and reported consistently. So I do believe that it goes far beyond on reporting. It is really about, um, you know, making people accountable, making corporate companies, uh, organizations accountable, uh, on what they do, uh, to make progress towards something that is really important for society at large. So once again, uh, auditors accountants, preparers, they are going to play a very, very important role in, uh, the, um, in, in, in the progress towards, uh, a more sustainable, uh, you know, planet.
Michael Cohn: (
And I understand that UI has been doing some surveys, uh, this year about, uh, uh, sustainability reporting and, and the accept of it by companies and accountants and auditors. Can, can you tell me about some of the, the findings that, that you've been, uh, seeing, uh, for post?
Marie-Laure Delarue: (
Yes, we, we've done, we've done two surveys, um, investor survey, and also, um, you know, CFO survey. And it's really interesting, Michael. The first thing is that it's very clear that the pandemic really accelerated the, uh, focus on ESG metrics, just because prob was a wake up call for all of us that, you know, uh, our planet matters and we really need to, uh, take care of it much more. And also that the private sector, uh, plays a role. It's not only government, it's not only NGOs, it's also private sector. That is very important. And so in, in the, in the first, uh, survey, the investor survey, it's very clear that investors have really radically changed their approach towards ESG, uh, metrics. They now really take it, take them into account. They have built much more, uh, sophisticated risk management approaches. They have changes their skills.
Marie-Laure Delarue: (
They have also adopted the methodologies. So it's a, it's, it's very encouraging. Many of them, 89% of the invested we surveyed want ESG disclosure is to become mandatory, which I think tells something about how eager they are to, uh, really be able to receive, uh, you know, standardized and comparable metrics. So it's, it's very clear that, uh, it is the view of investors from a CFO, from the preparers, the CFO, it's also, um, an increase. We see an increase awareness on the fact that in their finance, in their reporting, uh, in their controlling role, they need to adopt ESG after, after some pushback, I must say, but now they acknowledge it, but there is a disconnect between the investors view and it prepares prepares you it's clear that investors need more and need also finance, uh, organizations to focus on what is really material. While when you survey finance organization, they believe they already for the Metro part, provide the information that invest as need.
Marie-Laure Delarue: (
So there is a gap. And I think that the first objective of CFOs is really to close this gap, to sit down with investors, to look at future standards and to make sure that they really, uh, produce the, uh, information, the metrics that really investors need and take into account. So that's the first gap. The second thing is that finance organization must take the lead in really bringing this ESG agenda at the core of the, uh, corporate strategy. They need to be here to really accelerate this adoption and they need also to, um, upscale and, um, really, um, you know, uh, hire new talents because eventually they will be the custodians of all these measures. This is very clear. We had also, uh, at EY, uh, very broad engagement with, um, um, audit committee chairs and board members. And it's very clear that more and more board members see the finance organization, the controllers really at the, at the spare head of, uh, ESG measures and ESG, um, adoption in the strategy of corporate. So once again, it's finance and finance cannot do everything, you know, finance, they are very good at measuring and reporting, but they have to be really, I think the catalysts of, uh, a broader awareness, a clearer adoption by corporates are very concrete, uh, targets and measures beyond board announcements.
Michael Cohn: (
Oh, that sounds great. We're going take a short break and we'll be right back with, with more, uh, of our interview with mercury law gall crew of EY. Hi, um, back with, uh, on the air from accounting today, and we're we joined, uh, once again by Mar Deru of EY. Uh, thanks, Marie Lord. Well, we've been talking about, uh, sustainability reporting and, and, uh, some of the findings, uh, from this, uh, uh, survey, uh, or surveys by EY and, um, wanna talk with you a little bit about, uh, the role of the accountants, um, and, and auditors in this. Um, what kind of role do firms like UI play and, uh, what kinds of services do do you offer to your clients and what can other firms, uh, do to, uh, play a role in this, uh, sustainability reporting and ESG?
Marie-Laure Delarue: (
Yes, it's, it's interesting because, uh, there is a lot of, um, press and media around the fact that, uh, auditors, uh, should be the warriors for ESG adoption. And honestly, I think this is a fantastic challenge for us and a fantastic opportunity. So first of all, we are currently all of us in the profession supporting the, uh, standard settles in really defining and designing the right standards. So I think this is, this is very important, uh, you know, to really support the standard centers. We are also getting ready to provide more assurance because we are currently engaging with investors, and it's very clear that investors see financial and non financial reporting, you know, being equally important and as such, they really expect, you know, auditors to provide assurance to make sure that these metrics are really, um, you know, uh, serious that they are reliable, uh, and that they are consistently measured.
Marie-Laure Delarue: (
So as auditors, we also need to, uh, update our, uh, auditing stand out so that we are very, and also that we provide, uh, uh, adequate level of assurance. We also need to, uh, really, um, you know, develop, uh, new skills. And at EY, for example, we have currently 1800 professionals specialized in climate change and sustainability, and we plan to, um, really, uh, have 3000 at the end of the fiscal year in, uh, June, 2022 and even 7,000 at the end of the fiscal year 25. So it's very important because these experts, many of them are PhDs engineers, you know, uh, they really help us really, uh, reskill auditors and our finance, uh, professionals to help and support our clients really prepare reliable reporting, starting with collecting the right data, and then really measuring the, uh, impact on ESG metrics and something Michael, that perhaps is interesting for you.
Marie-Laure Delarue: (
And I, I, I just, uh, discovered, um, you know, uh, not very long ago is that for the moment when we come, when we talk about, uh, greenhouse, uh, gas emissions, very often, we don't really measure them. We calculate them, you know, corporate companies, they calculate how they should emit under certain, you know, assumptions and conditions. They don't really report what they really, you know, emit. This is the difference between calculating and measuring. And I think we should really encourage, um, um, this move towards, you know, uh, coming from calculations really, uh, shifting to, um, measuring because at the end, what really impacts, uh, the planet is really, you know, measurement and calculation. So I think this is an important step and we auditors using technology using our people. We really help, uh, the ecosystem to, um, really, uh, shift towards real measurements.
Michael Cohn: (
Oh, and with these measurements, um, do you think that this new international sustainable standards board that, that they're setting up, uh, is gonna help make the, those kinds of measurements more comparable? Uh, we've had all these different standards out there from different standard centers. Is this gonna, can consolidate them and make it easier for investors and auditors to be able to, um, you know, com compare like the different measurements that they're seeing across companies across their clients?
Marie-Laure Delarue: (
Yes, yes, absolutely. And none, this is essential. This is the essential, because, uh, for the moment there are a lot of initiatives, you know, but very often those initiative are, are, you know, called this famous alphabet soup with a lot, a lot of companies, you know, in, you know, for, for, for the good, okay. Really trying to, to move the needle, but having a, a, a standardized reporting regulators that really align the metrics, uh, around the common common framework is, is really important. And also to, to make sure that we really not only, uh, discuss about calculation on measurement, but also include the targets and how do we really measure progress to our targets, both, you know, uh, in the, um, in the, um, in, in what they call the physical risks and also the transition risk, you know, very often investors that's really where they focus.
Marie-Laure Delarue: (
They won't cooperate to disclose much more on where their physical risks are. Okay. And what their transition risks are. And on those two times types of risks, having much more, uh, common standards and measurements, and also auditing standards to provide assurance is absolutely absolutely essential to make sure that we are really all collectively making progress. And Michael, this is not trivial. This is not easy when you really deep dive into those metrics, you know, those ESG metrics, you really realize that some of them are quite complex okay. Quite difficult to really get right. And, and so it's important, uh, to be precise and quite prescriptive on how you should, uh, you know, measure them and disclose them. Because I, I always say, you know, um, a qualitative description, um, just, just gives way and flexibility to the preparer, uh, for narrate and really to explain the plan, a number is a number, and you have to be very clear on how you should really prepare this number so that it can be reliable.
Marie-Laure Delarue: (
It can be, um, compared, and it can be audited. And so yes, you have financial numbers and you have non-functional numbers. And of course, the literature around financial numbers is, is, is, is, is for much more advanced than the one on non-financial numbers, but still we need this standards to be precise, prescriptive to really allow us to all measure the same thing and the same progress. And this will take time. But I think that we have seen a fantastic acceleration with the support of a very, very, um, you know, large number of, uh, stakeholders. And I'm very confident that there will be, um, an UN unprecedented acceleration in, uh, ESG reporting reporting over the, the next months.
Michael Cohn: (
Oh, that sounds great. Well, uh, thanks so much. Um, we've been talking today with Marie Laura de who, uh, global assurance vice chair at EY. Thanks for joining us on our podcast today, Marie Laura.
Marie-Laure Delarue: (
Thank you. Thank you, Michael, for your great questions and, and your time spent with me
Michael Cohn: (
And thank you everybody for listening to the, on the air podcast with accounting today, this episode of on the air was produced by accounting today with audio production by we whi show market, please rate and review us on your favorite podcast platform and see the rest of our content on accounting today. Dot com. Thanks again to our guest marking lo de of EY and you for listening.