In celebration of Earth Day, PrimeGlobal gathered a panel of experts to discuss the global imperative for addressing environmental sustainability, social justice and corporate governance (ESG) and the unique opportunities accounting firms have to help clients adapt successfully in what will become a more closely watched and regulated environment.
This past year has shed a critical light on a wide range of environmental and social issues and the existential threat they pose to global business operations, including, trade logistics, employee safety, reputation management and profitability. The rise of social media, social activism and instantaneous communication has demonstrated the heightened risks businesses face when they misstep or fail to take any action on top-of-mind issues, such as climate change or racial and gender inequality. Just one tweet from an employee or negative article shared on social media can be as damaging to a client’s bottom line as any of the risks auditors already review from a shareholder investment standpoint.
On the climate front, more than 190 countries have committed to achieve net-zero carbon emission by 2050, with the U.S, recently committing to cut its carbon emissions in half by 2030 and Britain pledging a 78 percent reduction in greenhouse gas emissions by 2035. Yet, the harsh reality about climate change is that governments alone cannot achieve these aggressive goals. Instead, effective, measurable change requires a commitment from businesses large and small to take immediate responsibility and hold themselves to the highest standards when developing plans for achieving measurable targets of sustainability and resource efficiency. Those entities that fail to plan for the coming sea change will undoubtedly fall behind, risking reputational damage and lost profits, especially as consumers increasingly demand corporations align their dollars with ESG metrics.
While it has always behooved businesses to be corporate good citizens, now it is viewed as a necessity among a growing audience of stakeholders. Today, both external and internal audiences are making critical decisions based on a company’s ESG efforts. Investors are looking at companies’ ESG ratings to determine where to invest their dollars; prospective employees are choosing to work at those companies that meet their individual standards for environmental sustainability and social justice; and businesses are making operational decision, including supplier selection, based on this information.
Increasingly, ESG is becoming a standard metric of business evaluation in the same way that investors evaluate a company based on its P/E ratio or market cap. No longer may companies simply check a box and promise they are committed to ESG issues; consumers are already demanding businesses total transparency and proof of ESG claims with hard facts, concrete plans and measurable action. It is just a matter of time before regulators step in to mandate standardize reporting and authentication of ESG practices.
It is here that accountants can demonstrate their value as trusted advisors while expanding their existing client relationships with a new, credible service line. After all, accountants are already adept and helping businesses navigate change, whether that be new tax laws, reporting regulations or risk assessments. Now is an opportunity to shift your firm from a purely transactional service provider to an advisory service that businesses need for long-term sustainability and survival.
Like most corporate initiatives, the decision to adapt an ESG strategy begins with conversations and education. You may be surprised to learn how many of your firm members already have an interest in these topics and a basic level of knowledge. Harness that passion and begin talking about these issues internally at first by looking at your firm’s own policies around ESG issues. While you may need to do the invest in some expertise to improve your credibility, the good news is that there is not a lack of talent in this space, and many of the skills required are similar in nature to those with which accountants are already accustomed. If you fail to lay the groundwork to build your firm’s knowledge base now, you will lose credibility and revenue when the ESG practices are mandated in the future.
Once you get comfortable with these topics, begin discussing them with your clients, some of which may have already begun the process of adopting ESG practices into their business plans. You can start by explaining the current business environment and the risks they face if they do nothing to prepare to move forward with the times. Ask your clients their thoughts on these issues, how ESG practices apply to their business strategies and what they do better to make an impact and essentially futureproof their companies for long term viability and survival. They will need your help to navigate the process of identifying their current risks and prepare for where they need to be in the future.
If there is one thing the accounting profession learned from the COVID pandemic, it is that we have the ability to pivot our firms on a dime and help our clients do the same to sustain and even improve their performance and profitability through changing times. Your firm does not need to become ESG experts or go from zero to 100 overnight. Instead, take the time now to lay the groundwork, planning and researching systems, processes and technology to help clients gather data and maintain reporting compliance. The efforts you make today will ultimately pay off in the future in terms of deeper client relationships and an expansion of your firm’s non-core financial capabilities.
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The advisors and accountants of Berkowitz Pollack Brant have provided comprehensive tax planning and compliance, forensic and litigation support audit services and business consulting to entrepreneurs, companies and individuals for nearly four decades. Our strength is establishing inter-disciplinary teams comprised of CPAs, finance and valuation professionals, senior tax professionals, technical audit specialists, information technology resources, and financial and estate planning experts. The firm has earned a reputation for integrity, collaboration and technical skill.Learn more