As temperatures rise the urgency to address climate change increases. ESG Legislation has largely focused on larger entities, however, this will change with 99% of economic activity driven by small to medium sized entities (SMEs). To achieve the government’s net zero goal, it is essential that these businesses reduce carbon emissions. SMEs need help to address these demands. As their trusted advisor, SMEs should be able to turn to their accounting firms – but are accounting firms ready? This article by Stephen Heathcote, CEO of PrimeGlobal, highlights five essential steps all firms should take to be ESG ready.

SME’s needs

Accounting firms sometimes comment that clients are not banging on their door seeking ESG support. SMEs are more concerned with day-to-day survival. However, SMEs do recognise the growing importance of ESG. They are feeling pressure through supply chains, banks, energy performance standards impact property rentals, and their staff expecting them to act. However, they are unsure if their accounting firm is qualified to help. This is a massive risk for firms as a huge range of ESG advisors have entered the market and are ready to step in.

Some partners feel they can wait until ESG services are more developed and view the opportunity as a tick box service. They worry that current guidance is directed towards bigger entities and that their firms lack expertise - they should be confident. ESG is not a tick box exercise. It involves helping a business clarify its goals and its business model. It requires support with capturing data, reporting, and auditing - core skills of an accounting firm. It should not be a question of whether to offer ESG services. The focus should be on introducing ESG into existing services, so firms are ready when the opportunities arise. Firms who are leading on ESG have taken the following five steps:

1. Fix yourself

Put on your own oxygen mask first, starting with a conversation within the firm about ESG. Teams find this empowering helping develop a strong culture. There will be team members passionate and ready to help. London based firm Buzzacott is committed to social and environmental goals, annually issuing a Corporate Responsibility and Sustainability report. James Ross, Corporate Social Responsibility Executive, at Buzzacott says “conversations with the wider team improves engagement enabling team members to explain better to clients what we are doing as a firm. Actions have included introducing reusable water bottles and encouraging involvement in local community projects. We want to avoid greenwashing but also not underestimate what we are doing already. An approach I take has been to encourage “green bathing”, a term I coined myself that means I aim for our commitment to permeating throughout our firm”.

Buzzacott track their energy and carbon reporting emissions. At this point the focus is on direct emissions (e.g., office electricity usage); however, they will increasingly focus on indirect emissions which have the biggest climate impact (e.g., business flights), although harder to measure. Once a baseline is established, targets will be set to reduce emissions.

Ross comments, “I encourage firms to look at carbon calculators such as the Carbon Trusts; however, it is difficult to track emissions so it can be worthwhile engaging an expert to help to fully understand what is most material”.

2. Start conversations

The learning from adopting ESG within a firm provides confidence to start conversations with clients. These conversations should be part of providing existing services. For example, a firm that provided payroll services started a conversation about diversity and inclusion with their client which led to a broader ESG conversation.

Scottish based firm Henderson Loggie, as part of tax advice, started conversations with clients around using super-deductions to invest in making working spaces energy efficient and offsetting the cost of purchasing electric cars against taxable profits.

3. Help clients get started

Through conversations, firms start to provide advice to their clients, for example sign posting tools to help track emissions. Ian Huggett, partner from Southwest based firm Westcotts, states “starting the conversation is critical, taking manageable steps makes a difference. The goal is to help chip away at emissions”. He uses a five-point plan to help clients on the road towards reducing carbon emissions:

i) Understand their carbon footprint

ii) Evaluate the risks of not reducing emissions

iii) Measure emissions

iv) Develop a plan to reduce emissions and

v) Do it!

4. Let clients know you can help

Firms should let current, and future clients, know that they are active in the ESG space; for example, preparing a firm ESG report, sharing news about climate issues and encouraging team members to speak about ESG.

Building an ESG brand sends a clear message to clients that help is available.

Northwest based firm HURST is the first independent accountancy firm in the UK to become part of the UN Global Compact network - a global platform which is committed to sustainability.

5. Consider options to expand services

Taking steps 1-4 is critical to be part of conversations as new services emerge, firms that wait will be left behind.

Eshuis, a Netherlands based firm, presents a vision of what new ESG services could become. They are certified B-Corp (an assessment measuring sustainability), who have developed a new service line around impact accountancy. They take an enterprise view of a client’s business understanding value, stakeholders, reporting requirements and helping clients capture data aligned to sustainability goals. Several PrimeGlobal firms are committed to becoming B-Corp and are working with Eshuis to help them. PrimeGlobal will be issuing a guide to support firms who embrace impact accountancy later this year.

Accounting firms, this is the moment to get started and be ready to support your clients – do not waste the opportunity.