Today, ESG factors sit at the forefront of many investment decisions. With ESG-related legislation and heightened investor interest, incorporating an ESG narrative is critical for businesses as they navigate the complexities and look to ensure compliance.
For tax and accounting firms, therein lies an opportunity. Forward-looking firms are increasingly moving beyond compliance by telling a compelling ESG story that sets their firm apart from the competition. Further, the ability to assist clients with ESG compliance and audit can pull your firm even further ahead of the pack.
But where should an accounting firm begin when it comes to ESG? Let’s start with the basics.
What is ESG?
Environment, Social, and Governance (ESG) is a framework for evaluating risks and opportunities related to a company’s operational impact on the environmental, social issues, and governance factors, specifically:
- Environmental risks: These include pollution of the air, water, or soil, as well as climate impact, carbon footprint, and energy use.
- Social risks: These include impacts to the local and global community, including the well-being, reputation, or privacy of customers, employees, or suppliers, as well as issues related to diversity, equity, and inclusion (DEI).
- Governance risks: These include financial reporting, fraud prevention, executive pay transparency, and overall business dealings of a company.
When you look at ESG through the lens of a tax and accounting firm, the ability to report on these factors can help companies in building trust and demonstrate their commitment to making the world a better place.
ESG opportunities for accounting firms
With a heightened focus on ESG factors, the success and reputation of an organization is intrinsically linked to its ESG strategy. As such, investors are looking closely at ESG as a way of identifying material risks and growth opportunities.
In addition, businesses across the board are facing a rising tide of ESG regulations. Customers, clients, employees and associated third parties are increasingly looking at how a company approaches ESG before deciding whether to affiliate themselves.
That said, more and more tax and accounting firms are developing their own strategies around ESG. This includes forming an ESG narrative, taking concrete steps to positively impact the community and environment, and ensuring ESG support and compliance — not only for themselves, but for their clients as well.
From a client support perspective, accountants and auditors have an expanding role to play in determining the integrity of a company’s disclosure of ESG topics. Whether its measuring sustainability or quantifying the ethical impact of supply chains, today’s accountants have many opportunities to position themselves at the forefront of ESG. This includes ESG audit support that verifies the effectiveness of ESG-related controls and activities to help companies identify gaps, assess risks, and develop a recommended plan of action.
What is an ESG narrative?
An ESG narrative is a type of story tax and accounting firms can develop to help their clients understand how they are prioritizing their people, community, and the planet. It is most effective when it tells a compelling story and fits into the firm’s vision.
To develop an ESG narrative for your firm, start by asking yourself these questions:
- How does your firm create value for your clients and the community at large? Think of helping your clients find financial stability, serving small businesses, or supporting community-based events. If you offer ESG audits or compliance services, be sure to call attention to it.
- How does your firm support staff and clients? Think work-life balance and processes that make life easier for your staff and clients.
- In what ways is the firm incorporating environmental conscientiousness? Think moving to paperless processes.
Forming an ESG narrative can be a powerful experience. As you dive in, consider your audience and what takeaways will be important to them. Incorporate the perspectives of prospective employees, clients, and potential investors. While staff and clients may focus more on a compelling story, investors may want the numbers to back it up.
Most importantly, be honest in terms of what your firm has accomplished and want you want to achieve in the future. As new ESG-related opportunities arise, be sure to incorporate them into your narrative and offerings.
Prioritizing ESG narratives
At the end of the day, ESG is a rising focus area — and it’s not going away. An ESG narrative is critical to setting your firm apart from the competition and offering your clients more.
Further, investors and stakeholders are increasingly seeking transparency in ESG initiatives. Prioritizing ESG can make your firm more attractive from an investment perspective.
As ESG disclosures swiftly move from “nice to have” to a legal mandate, the ability for accounting firms to offer services like ESG audits and compliance support will boost profitability.
As you begin your firm’s ESG journey, remember that ESG is much more than just a compliance exercise. By tying ESG to value creation, your firm can positively impact the world while driving long-term, sustainable growth.