ESG, or environmental, social and governance, is one of the hottest trends in business. Whether imposed and applied internally or externally, ESG practices and standards define how organizations perform in areas like sustainability, resource allocation, diversity and inclusion.
If you’re a regular reader, you know my mission is to help CPA firms achieve strategic, sustainable growth. That’s why I’m helping them successfully launch ESG services. ESG represents one of the most auspicious developments in our industry. What’s more, the work aligns more closely than you might realize with what you’re doing today.
Your firm exists to meet the needs of clients in accounting and financial matters, right? The good news is that clients who rely on you to ensure their competition with state, federal and international guidance and regulations are the same ones who will need you to guide them through ESG consulting and compliance services.
New beans, new opportunities
Historically, accounting professionals have dealt in fiat currency—coins and paper money; let’s call it navy beans. As the nature of assets changed, our capacity expanded to include the counting and assurance of digital currency — kidney beans, to keep the analogy going. Now, as accountability stretches to encompass carbon footprints, diversity and other nonfinancial business priorities, we have the promising opportunity to add lima beans in the form of ESG! The potential there is almost limitless.
Mary Tressel, ESG leader at Top 100 Firm Armanino makes the case powerfully when she says, “Business owners need to make the right decisions to address market trends and take advantage of the new opportunities out there …. Tomorrow’s successful leaders will seek to authentically engage with investors, customers, vendors and the community through an ESG strategy woven inextricably into their organization’s growth strategy.”
Like any strategic realignment, ESG did not appear on the horizon fully formed. For much of the last decade the concept has evolved, gaining steam especially over the past couple of years. While CPAs are an intuitive choice for ESG consulting and attestation, other professionals are also stepping in to fill the void. However, the traditional CPA role is perfect for this important work.
The push for ESG is coming from multiple directions. Society at large is embracing notions of diversity and sustainability like never before. Investors are providing momentum. Governments and standard-setting groups are focusing on the issues, with Western Europe in the lead and the US slowly catching up. All things considered, it’s an ideal time to act.
Currently we are seeing requirements for ESG reporting appear at the top end of the market. Large, publicly held companies will be subject to regulation sooner than later. Beyond that, the midmarket is beginning to see concerns and expectations from investors and other segments of society. Midmarket accounting firms ready to pursue ESG will most likely start with consulting services, followed in the future by attestation.
I recommend firms start by learning the language and precepts of ESG, and begin to create a growth strategy that leverages them. Start with internet research, followed by an orderly pursuit of focused research calls with peers, thought leaders, providers, representatives of standard-setting bodies and likely buyers. Clients inquiring about ESG may serve as early adopters down the road.
A telling indication of a company’s priorities is where an ESG initiative resides. Interestingly, ESG is springing up within companies in the marketing department, investor relations, human resources, operations and other functional areas outside the CFO or internal audit domain. More than once, a CPA firm heard third-hand that someone from the client organization had an ESG initiative percolating. While the CFO at your client may not be the one who petitions the board for action on diversity or safety, they have ultimate responsibility for the fiscal well-being of the organization, which is certain to be influenced by ESG-related risks.
Based on your exploratory initiative, you’ll identify the services you wish to offer various buyer groups and industries. If your client is in real estate, for example, the concerns might be around energy use by property owners. For a nonprofit, social responsibility issues may predominate. You’ll find that industry use cases will differ by geography. As you are formulating your strategy, concurrently identify ESG early adopters to help perfect your offerings and provide essential feedback.
ESG is clearly visible on the horizon, perhaps the most potent force I have seen in a decades-long career of practice and consulting. Don’t let current capacity issues distract you from this powerful presence. Keep your eyes on your future, and the potential ESG role may play.