Accountants ‘not quite keeping up’ with sustainability assurance demand

Accountancy practices need to take action in order to improve their market share in a growing global market for sustainability assurance, says Jeremy Osborn, global head of ESG at AICPA & CIMA.

A report conducted by IFAC and AICPA & CIMA which reviewed data from 1,400 global companies found that 64% of companies obtained assurance over at least some ESG information in 2021, up from 51% in 2019.

Additionally, accountancy practices hold the largest segment of market share at 57% for sustainability/ESG assurance engagements, but this has declined by 6% since 2019.

In countries such as the United Kingdom and the United States most assurance engagements are conducted by service providers outside of the accountancy profession such as engineering firms.

As the sustainability assurance market expands, Osborn believes there needs to be assistance for smaller firms to realise there is demand for a service line most are not currently offering.

“Obviously, they would have to be highly skilled, and they would have to understand how to use an ASC 3000, for example. But that’s no different from asking an accountant to get their heads around a new financial accounting standard,” Osborn adds.

“So I think there’s a job to be done to help the accountancy profession globally understand that there is a market here, it’s a growing market, and they have the skills to do it.”

Menzies’ finance and sustainability director, Richard Singleton, notes that accountancy practices are not shouting about their sustainability services enough.

“I think that if you are in a business, and you have been tasked with going out there and finding an assurance provider or someone to provide these services, accountants aren’t necessarily the ones coming up top on your list. If they have been, it’s been the big four,” he argues.

However, Osborn notes that it is healthy to have competition from other professions as it keeps accountancy practices “on their toes.”

“I suspect if every accountancy firm in the world wants to get involved with this, there would still be enough market share for them,” states Osborn.

Cat Schroeder, ESG assurance partner at PwC UK, says the increasing demand for assurance over sustainability-related metrics is being driven not only by business demand, but investor expectations, lending agreements, and soon, Europe’s Corporate Sustainability Reporting Directive (“CSRD”).

Hesitancy to evolve into sustainable assurance  

AICPA & CIMA have announced they will partner with the University of Oxford to offer a new executive management programme in sustainability for accounting and finance professionals.

Andrew Harding, FCMA, CGMA, AICPA & CIMA’s CEO of management accounting, said: “Our new programme will give key players in this transformation the skills they need to build trust with stakeholders and provide consistent, comparable information to develop strategies and shape decisions related to sustainability.”

If any accountancy firms feel uncertain about going into the ESG and sustainability assurance market, Osborn believes the course will provide enough of an understanding of whether to expand audit services to encompass sustainability assurance and advisory services.

While ESG assurance is a relatively new idea to many firms, big four firms like PWC have been operating in this realm for over 20 years, according to Schroeder.

Osborn echoes this view and says the larger audit firms have been anticipating trial runs from clients years ahead of mandatory disclosure.

“It’s then common practice to do something called an assurance readiness, then review whether the firm could do an assurance of its sustainability disclosures. If not, then look at what needs to be done to plug the gap,” he notes.

“For the medium-sized and smaller firms, the opportunity is there, and I certainly wouldn’t suggest they sit on the side lines and take their sweet time around what to do.”

According to Osborn, while smaller firms should not rush into new sustainability areas, they must also avoid delaying it to the point of missing out on the opportunity entirely.

Singleton adds that firms may be hesitant to provide ESG services because they may move away from the traditional quantitative approach that accountants are accustomed to.

“We feel safe with numbers because they don’t lie and they’re not open to interpretation or subjectivity.”

Menzies has recently launched its new ESG service line, claiming to be the first mid-tier firm to do so. While Singleton initiated the ESG journey 4-5 years earlier, he opines that other mid-tier firms may still be in the early stages of their diversification into ESG.

The decision to launch the ESG line is the “perfect time”, and if Menzies decided to postpone it any longer, Singleton would be worried they would be missing out.