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By SEO National
The recent rise in environmental, social and governance (ESG) disclosures presents an opportunity for CPAs to chime in since such disclosures draw more attention from stakeholders and are becoming the new norm for businesses.
ESG reporting has been a requirement for many organizations in developed countries globally but is just now gaining traction in the U.S. In those countries with ESG reporting obligations, auditing firms and their affiliates provide the majority of assurance services.
A 2021 report by AICPA & CIMA and the IFAC (The State of Play in Sustainability Assurance: Benchmarking Global Practice) revealed that a small percentage of U.S. companies report on their ESG sustainability, and the majority of those doing so use non-CPAs for their disclosure and assurance standards.
ESG: An opportunity for CPAs
This revelation points to an opportunity for CPAs to educate their clients and the public about their critical roles in this holistic organizational view. As organizations develop (or resist developing) their ESG reporting standards, the knowledge and skill sets that CPAs bring to the table will be crucial in guiding, advising and auditing companies along the way. CPAs will be creating a more sustainable business for their clients and themselves.
ESG disclosures on the rise
Globally, sustainable investments have increased by 68% since 2014. Shareholders are looking to ESG reporting to clue them in on safe investments.
While environmental pollution and social savvy may not have been a thought in an investor’s mind 20 years ago, the public and organizations alike have realized you can’t successfully isolate the bottom line from ethical responsibility forever. There’s been a shift to an all-encompassing, holistic view of a business, and a chink in the armor of one area will eventually weaken the entire economy of an organization.
ESG improvements needed
ESG disclosures have the downside of being a cost burden to small businesses. Plus, they lack a global standard, making it difficult to know what to compare against.
Further, practices for reporting benchmarks are inconsistent. Some organizations include ESG reporting in their annual report, while others publish a stand-alone release; some rely on multiple standards, while others use one or more better-established metrics.
Working towards global standards
While the IFRS works towards global standards for ESG disclosures and assurance reporting, many questions still need answering if there is to be one set of metrics to cover all companies in all geographic areas. It won’t be a quick and easy fix on the path to global standards with challenging questions like, “What disclosures are most useful for financial decision making?” “What’s the best way to assure disclosures?” “What standards could be global?’ and “How can we prevent false or misleading claims?”
Incorporate ESG disclosures sooner than later
Despite the inconsistency, cost and various metrics of ESG reporting, there are several reasons why organizations should consider implementing environmental, social and governance disclosures in their financial reporting: 1) company growth, 2) reduced expenses, 3) encouraged investors, 4) boosted regulatory and legal cooperation, 5) attractive talent pool and 6) optimized investments.
Partnership opportunities can become beneficial relationships as organizations gain more confidence, putting their trust and funding into businesses that reveal more about their sustainability and performance. An organization can gain additional resources needed to grow from such alliances.
Organizations can reduce dependence and save money on overhead costs like electricity and water.
When potential stakeholders see an organization making financially, socially, lawfully and environmentally sound decisions, they are more likely to invest.
Regulatory and legal cooperation
An organization can score government support and more significant freedom through deregulation.
Attractive talent pool
A business aware of its ESG impact will attract a larger talent pool of applicants who want to work for a company with brand social power.
Poor investments can have a negative return due to unforeseeable social or environmental issues that come to light in the future. Furthermore, a business can better allocate funds towards environmentally-friendly equipment and processes now in anticipation of future increases in environmental regulations.
ESG disclosures are here to stay, and CPAs can lead the way
ESG disclosures and assurance will eventually be standard, worldwide reporting as businesses look toward sustainability in a world that becomes more conscious of the impacts companies have on finite resources.
Sound ethical decisions point towards longevity and investor funding, making ESG disclosures a critical next step for companies. These organizations will need advice, guidance, analysis and reporting help from expert CPAs. From strategy to reporting to governance, CPAs are essential to ESG efforts and to helping businesses ensure sustainability and resiliency.
Accounting continuing education courses
Build your ESG power skills and fine-tune your accounting credentials with The Ohio Society of CPAs’ (OSCPA) free CPE courses for members. You’ll gain access to valuable education and the latest news affecting accounting in Ohio and worldwide. You can also get in on quality seminars like our upcoming ESG workshop and our Fall Accounting Shows, featuring talks from the best in the business to boost your accounting knowledge. The event is virtual, and tickets are discounted for OSCPA members.