Accelerating Success in Your ESG Practice

The growing influence of ESG is unmistakable. ESG-related assets are set to make a fifth of global assets under management by 2026. Most investors (76%) claim that they will stop investing in non-ESG products in the next two years, and 70% of US CEOs claim that their ESG program improves their financial performance.

It is not just large public companies driven by ESG disclosure mandates that are investing in ESG practices today. The bigger and more strategically important middle market of our economy, mainly consisting of private companies, is facing increased supply chain pressure from large companies to quantify and share their own ESG performance data.

Subsequently, private companies expect to spend 27% more on ESG and sustainability initiatives in 2023 than they did in 2022. As a result, these companies will need a variety of ESG-related services, including strategy, data collection and aggregation, non-financial reporting, and attestation services to fully execute their ESG programs. Accounting firms are in the perfect position to tap into this growing market need.

Leading accounting firms deliver on four key ESG services

The big four accounting firms, and others in the top-tier, including Withum, Anchin, Elliott Davis, Schellman, and Armanino, today offer a range of ESG services. They’ve built on their existing skills to assist companies in building and managing robust ESG programs. The ESG services that all leading firms offer fall under four major buckets:

1. ESG Reporting Services: This includes the preparation and auditing of ESG information in line with any upcoming ESG disclosure regulation or with any ESG reporting standard. Similar to what accounting firms already do with financial information.
2. Strategic ESG Services: All of the big four now offer consultancy on climate and other sustainability strategies to help companies manage ESG-related risks and opportunities and build long-term business resilience.
3. ESG Tax Advisory: With the Inflation Reduction Act in the US and carbon taxes in other jurisdictions, companies need to know how to exploit and reduce the impact of tax levies and incentives, which is why accounting firms now offer ESG tax services in addition to existing tax advisory.
4. ESG Operations: Accounting firms now offer proprietary or partner technology to ensure companies can effectively measure and manage performance and risks related to ESG.

ESG reporting for compliance with upcoming regulations, ESG tax assessments to help clients understand carbon and other sustainability tax strategies, building climate strategies, and data assurance are just some of the service capabilities large accounting firms now offer. As the big firms continue to dominate the ESG space with new offerings, other top-tier firms will need to move quickly to capture this ESG market with new, innovative service offerings that keep pace with a fast-changing industry.

84% of accounting firms are likely or very likely to start performing sustainability or ESG related data assurance services in the next three years.

AICPA Firm Survey, 2022

How accounting firms can accelerate their ESG practice area 

With most firms paying close attention to ESG, the AICPA is encouraging firms to further prepare for ESG proficiency. Keeping up with this quickly evolving field and accelerating offerings will be key. Common patterns have emerged as best practices for effectively scaling this new practice area, including:

Secure ESG Program Sponsorship

Designating the right leader who has the full support of the C-suite is paramount to accelerating ESG offerings. Buy-in from company leadership is critical to ensuring the ESG practice is nurtured in the right way and that the ESG lead will have the required resources to deliver on demand.

Be Agile and Follow the ESG Demand

With most companies still early in their ESG maturity, barring the Fortune 500, firms will need to offer a flexible range of solutions that meet clients wherever they are in their ESG journey:

• Low ESG maturity companies often start with an ESG assessment to gauge what impacts affect their company most and are reasonable to begin addressing. This often takes the form of a multi-stakeholder materiality assessment that accounting firms can offer to clients as the foundation for building their ESG strategy.
• Medium ESG maturity companies need tools to measure GHG emissions and plan reduction targets. This is the most commonly requested ESG data metric for reporting and disclosure today and accounting firms should offer services related to climate data collection, integration, auditing, and reporting either through a proprietary technology or a partner solution.
• High ESG maturity companies require in-depth ESG strategies that can be embedded into their operations. They also likely need to comply with formal reporting of assured data for ISSB, SEC 10-K, EU or other requirements. To achieve this, accounting firms can provide end-to-end ESG services starting from materiality assessment, on through building water-tight strategies to mitigate ESG risks and opportunities, to reporting into ESG standards, frameworks, and surveys.

Leverage Existing Accounting Expertise

Data collection, reporting, and auditing are already common practice for accounting firms. The key is to use what has worked for your firm with regard to these services and replicating that in your ESG practice. This is becoming increasingly clear with the emerging standardization of ESG disclosures, as defined by the ISSB – an arm of the International Financial Reporting Standards, and the SEC climate disclosure rule that stipulates reporters file their climate data in their 10-K. This approach to including non-financial reporting in financial statements means that accounting firms are uniquely positioned to apply their expertise to services for ESG reporting and attestation.

Embrace ESG Technology Partnerships

ESG data management and reporting can be complex and time-consuming, with a mix of qualitative and quantitative data across different parts of a company and deep into its value chain. Without some level of data automation in this process, it would be a huge undertaking. Gaining access to expertise and technology, such as ESG software from a trusted partner, can enhance accounting firm’s ESG offerings and speed up client deliverables. Using an ESG software partner also allows firms to uncover unique insights for clients, track their progress in real-time, and develop better data-driven strategies. Additionally, utilizing technology accounting firms already have expertise in, such as AI, will enable them to further differentiate themselves.

Provide an End-to-end ESG Solution

Companies new to ESG will seek out solutions providers that not only help them to collect ESG metrics and report on that data, but one will provide guidance for the entirety of ESG strategy, measurement, management, reporting, and assurance. A comprehensive ESG offering can ideally support companies at each stage of their ESG journey and will enable firms to build high-growth practices around these services offerings. As ESG reporting becomes an annual repeating cycle, much like financial reporting, clients will need ongoing support and data assurance each year during their ESG reporting and compliance cycles.

Don’t Let Your Firm Get Left Behind On ESG

In the coming years thousands of companies will be affected by ESG disclosure requirements. Whether directly mandated by the SEC (~6,000 companies) or EU regulations (~50,000 EU and ~12,000 non-EU companies), or indirectly through business partners (200,000+ mid-sized US companies), or even voluntarily reporting in accordance with the ISSB, the market demand for related services will only increase.

In the coming years thousands of companies will be affected by ESG disclosure requirements.

Andries Verschelden, Co-founder & CEO, Good.Lab

If they’re not already, the core of your client base will experience downward pressure from their buyers to report on their ESG data. While compliance will be important for growing, private companies, the commercial opportunity of improving supplier relations and marketability will be the driving reason these companies will want to scale up quickly on ESG. They will be looking to their trusted accounting partners for the proper guidance.  

Leading accounting firms have recognized this opportunity and are tapping into the evolving ESG market. The big four are scaling up quickly to onboard ESG professionals in the next decade. Other firms are wise to act on ESG now to secure their firms’ position in the future with best-in-class ESG advisory and assurance services. Good.Lab empowers accounting firms build highly effective revenue-generating ESG practices. If you’re ready to accelerate your ESG offering today and stay ahead of the curve, get in touch to discuss how we can speed up your go-to-market time for your ESG practice.