Investors, customers and key stakeholders continue to seek reliable and transparent information on a variety of environmental, social and governance (ESG) metrics. The accounting profession has a key role to play. Accountants within organizations play an important role in integrating critical business information; implementing and maintaining relevant processes and controls; making and enabling business decisions; and reporting to stakeholders in a holistic, integrated way. Public accountants play a critical role in providing assurance and advisory services to organizations to enhance confidence in the reported information. As influential members of almost every business, government and non-governmental organization, professional accountants are uniquely positioned to make a difference.Recently, we shared six ESG trends that will affect the accounting and finance professions in 2021. We also released five steps companies can take to prepare for ESG reporting and assurance. These trends are based on conversations with Association members, as well as global standard setters and executives at CPA firms and other organizations who lead ESG reporting and accounting efforts.
Top ESG trends affecting the accounting profession and CPA firms’ clients in 2021
- Demand for ESG reporting is rising, particularly under the Sustainability Accounting Standards Board (SASB) standards and the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Various investors, investor organizations and certain jurisdictions around the world call for reporting that follows these standards and frameworks.
- As reported ESG information continues to make its way into mainstream financial reporting (e.g., SEC Human Capital disclosure requirements and the SEC’s renewed focus on climate-related disclosures), responsibilities for ESG reporting are shifting from being the sole responsibility of sustainability and marketing teams to include accounting and finance professionals.
- Reducing environmental impact is a priority, with companies placing a high importance on waste and plastic reduction in their supply chains and setting ambitious goals with accelerated timelines for achieving carbon neutrality.
- ESG’s social component is also growing, with organizations emphasizing diversity and inclusion in hiring practices throughout their supply chain and in equal pay and fair labor practices.
- Demand for CPA assurance services continues to increase as companies try to enhance stakeholders’ confidence in the reported ESG information.
- There is continued movement toward a global set of sustainability reporting standards.
Steps organizations can take to get ready for ESG reporting and assurance in 2021
With significant investor interest in reported ESG information, the credibility and reliability of that information are essential. To that end it’s critical to apply the same rigor to the measurement and reporting of ESG information as is applied to financial reporting. Here are five steps organizations can take to get ready for ESG reporting and assurance in 2021:
- Incorporate management of ESG risks into broader enterprise risk management processes.
- Determine what key performance indicators are most relevant and important for stakeholders and the sustainability reporting standard or framework that will be used for reporting.
- Assess the types of data sources and determine whether policies exist that ensure the data is reasonable and accurate, comes in a timely and reliable manner and is derived in a way that produces consistent and comparable results.
- Establish appropriate board oversight over critical ESG matters and develop and document internal controls over the data gathering and reporting processes to ensure accuracy and completeness of reported data.
- Consider engaging a CPA firm to perform a readiness assessment to help prepare for an assurance engagement over the reported ESG information.
To enable audit practitioners to prepare for and leverage these trends, we partnered with the Center for Audit Quality (CAQ) to develop ESG Reporting and Attestation: A roadmap for practitioners. It provides tools to help auditors inform clients’ approach to ESG disclosures, help clients determine whether to seek an attestation report on ESG information and help determine how to report ESG information in a Securities and Exchange Commission (SEC) submission. The roadmap complements AICPA’s suite of ESG reporting, assurance and accounting resources. There are more resources here.
The roadmap also examines the history and evolution of ESG reporting and the latest developments driving toward including ESGs in SEC filings. It also looks at current practices of disclosure and attestation over ESG information disclosed in SEC filings and provides insight into the risk and legal considerations associated with performing assurance engagements over such information. The report has examples of Vornado Realty Trust and Etsy, including, or referring to, attestation of an ESG report in their SEC submissions.
Desiré Carroll, CPA