Sustainability accounting: “The biggest disrupter”

By June 2, 2021 No Comments

As companies find that customers and investors are looking for more and more disclosures of what they are doing about environmental issues, climate change risks, and diversity and racial justice, accounting firms are starting to provide assurance and attestation services around environmental, social and governance reporting to meet that growing demand, according to Accounting Today.

While the Big Four have been providing sustainability-related services for years, smaller firms are starting to move cautiously into the space. They are leveraging some of the standards that have been developed by groups like the Sustainability Accounting Standards Board, the Global Reporting Initiative, the International Integrated Reporting Council, the Climate Disclosure Standards Board and the Carbon Disclosure Project. Those groups are currently working on harmonizing their standards and frameworks, laying the groundwork for an international sustainability standards board that the International Financial Reporting Standards Foundation has proposed creating, and which it would oversee alongside the International Accounting Standards Board.

The increasing popularity of environment, social and governance (ESG) funds among investors has prompted the Securities and Exchange Commission to focus more on the trend. In particular, the SEC has sharpened its focus on climate-related financial disclosures. The SEC issued a risk alert in April about “potentially misleading statements regarding ESG investing processes and representations” during examinations of investment advisors, registered investment companies and private funds engaged in ESG investing.

Accounting groups like the American Institute of CPAs and the Institute of Management Accountants have been encouraging accountants to get more involved in ESG reporting. The AICPA is promoting the concept of attestation and assurance services for ESG reporting.

“Of the S&P 500, 90 percent of those companies published sustainability reports in 2019, and only 29 percent of those 90 percent who reported sustainability information actually subjected it to an external assurance engagement,” said Desiré Carroll, senior manager with the Association of International Certified Professional Accountants. “Firms are really anticipating an increase in demand for those services.”

The AICPA is recommending that companies incorporate management of ESG risks into their broader enterprise risk management processes, as well as determine what key performance indicators are most relevant and important for stakeholders, and the sustainability reporting standard or framework that will be used for reporting.

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