Accountants diversify advisory services to fulfil ESG targets

EY’s latest Global Climate Risk Disclosure Barometer indicates that despite companies increasingly reporting on climate-related risks, many may be doing so as a “tick box” exercise, with just three percent of organisations surveyed receiving a perfect score in terms of quality.

Quality ESG reporting requires consistent accounting, with accountants playing a vital role in supporting companies to embed disclosure of non-financial information into their organisational strategy, says Yen-pei Chen, corporate reporting and tax subject matter expert at the Association of Chartered Certified Accountants (ACCA).

“Accountants can collaborate, communicate and provide expert leadership,” she says. “They can put climate and ESG risks and their disclosures on board agendas by expanding their advisory offerings to these areas or by asking questions as part of the audit and assurance engagement.”

Accountants can drive meaningful action by helping boards and management understand the link between sustainability and financial performance, as well as assisting with the integration of ESG into decision making from a strategic and operational perspective, adds Chen.

Mark Taylor, regional managing partner at RSM UK, notes the increasingly ambitious ESG goals set by business leaders and the role of accountants to translate those into measurable, reportable targets.

“The array of frameworks available to use for ESG disclosures creates confusion as businesses translate these goals to measurable and reportable targets,” he says. “With companies lacking in-house specialists, accounting advisory teams are well placed to help organisations navigate the regulatory landscape.”

ESG factors are also an increasing concern for socially responsible investors. William Hughes, sustainability services lead at Mazars, offers his tips to refine advisory services to help businesses meet investors ESG expectations.

“Firstly, ensure that the services are relevant for all size organisations as ESG is not just for the large and listed. Secondly, it is important to demonstrate the strategic value of ESG and how engaging in ESG is not only good for the planet and society but is also good for the organisation.”

Stephen Farrell, ESG Assurance partner at Deloitte, also noted the importance of ESG disclosures in assurance projects.

“To borrow a quote often used – ‘if you can’t measure it, you can’t manage it,’” says Farrell. “Whether it’s reducing carbon emissions or improving diversity, assessing social impact, or addressing health and safety performance, every corporate ESG action starts with the ability to measure accurately.”

With non-financial reporting increasing demand for advisory services, accountants’ remit is expanding significantly, says Chen.

“Many accountants work in-house, within businesses. For them, we think nothing should be outside the remit of accountants. They need to get executive-level buy-in for climate action. If they are advisors in a firm, then the organisation ultimately makes the decisions.”

However, there are limits, according to Hughes, noting that accountants shouldn’t assume management responsibility – their role being to support management to embrace the cultural shift needed to embed ESG into their organisation.

“Assurance providers should not be making management decisions, or acting on behalf of management, in the setting, monitoring and management of ESG strategies,” says Farrell. “This includes the reporting and disclosure of these.”

For accountants working in audit and assurance, there must be clear standards and frameworks against which disclosures can be reliably assessed. The International Auditing and Assurance Standards Board’s (IAASB)recent work on extended external reporting, the IFRS Foundation’s ongoing effort on sustainability reporting standards, as well as initiatives proposed by the EU via its Corporate Sustainability Reporting Directive, will all help achieve this goal.

Guidance from regulators will also define the role of advisory services in non-financial reporting.

“The Financial Reporting Council’s (FRC) statement of intent on ESG challenges shows the regulator’s commitment to ESG related disclosures sitting within annual reports,” says Taylor. “This is a move away from PR-focused sustainability reporting to provide quantifiable, reliable and consistent information which demonstrates the environmental and social impact of the business alongside the financial performance.”