The call for more disclosure by companies on their environmental, social, and governance (ESG) performance and strategies is getting louder.
Driven by the widening range of stakeholders calling for ESG prioritization, an influx of laws and regulations pertaining to ESG, and a rise in ESG investment products, companies are increasingly setting their sights on ESG-related initiatives, such as audit certification.
In fact, an article by global management consulting firm McKinsey and Co., stated that more than 90 percent of S&P 500 companies now publish ESG reports in some form, as do approximately 70 percent of Russell 1000 companies.
While ESG reporting can help strengthen trust with stakeholders and the reputation of corporations, this can only be done when the ESG information is of high quality and reliable. This starts with solid reporting by company management and presents a significant opportunity for auditors.
Why are ESG audits important?
Much like the audits of financial statements, third-party assurance from an audit firm can help solidify trust in a company’s ESG reporting.
Underscoring this point, a survey by McKinsey and Co., found that investors are often uncertain about corporate sustainability disclosures because too few of them undergo third-party audits. In fact, nearly all the investors surveyed — 97 percent — said that sustainability disclosures should be audited in some way, and 67 percent said that sustainability audits should be as rigorous as financial audits.
Stated the Center for Audit Quality (CAQ), “Although assurance over ESG information is not required, leading ESG raters, rankers, and data providers assign a greater value to ESG information that has been assured. Trust and confidence in the information companies disclose are essential to a healthy economy; an independent assessment of that information can contribute to its reliability.”
Auditors possess the required expertise and have a big role to play in the flow of reliable ESG-related information presented by companies to investors and other stakeholders.
According to CAQ, auditors, especially public company auditors, are ideally positioned to enhance reliability of ESG reporting. These reasons include, but are not limited to:
- They are required to maintain a system of quality control;
- Have extensive experience in gaining an understanding of business processes and assessing and responding to risk;
- Are experienced in reporting on compliance with various established standards and frameworks; and
- Have expertise in evaluating internal systems and processes for collecting, analyzing, and reporting information.
Auditors who can signify their knowledge, skills, and experience in ESG-related areas can further differentiate themselves from the competition, and ultimately help drive firm profitability.
What is ESG audit certification?
ESG audit certification is third-party verification confirming that a company has completed key sustainability initiatives and demonstrates their commitment to drive change and make an impact. Because formal certification is audited and verified by a third-party, this sets it apart from ESG reporting.
For firms, providing ESG audit certification is a great way to differentiate, expand their clientele base, and better meet the growing needs of clients.
Examples of ESG audit certifications include, but are not limited to:
- Leadership in Energy and Environmental Design (LEED) by the U.S. Green Building Council (USGBC): This is a well-known green building certification system in the United States.
- B Corp Certification: This is an international certification that verifies companies meet the highest standards of overall social and environmental performance, public transparency, and legal accountability.
What are the benefits of ESG specialization?
ESG audit certification not only benefits clients but also represents a significant growth opportunity for firms. In an effort to further differentiate, a growing number of firms are specializing in specific industries or niches, including ESG.
Research by CPA.com, Bill.com, and Hinge Research Institute found that when buyers (individuals within organizations who are in decision-making roles regarding accounting firms) were asked what they would change about their accounting firms, 27 percent said they wanted more familiarity with the business and its industry.
“While in the past, many accounting firms offer the same general services to clients across all industries, today’s firms are increasingly specialized, attracting clients in specific or niche industries,” researchers stated.
As noted in our white paper, “Top four strategic priorities for accounting firms,” taking a closer look at your current book of business and focusing on your passions is a good way to begin your quest for additional revenue-generating opportunities.
For example, do you have a passion for ESG-related issues? If so, pursuing that passion and marketing your firm’s ESG audit certification services is a significant opportunity to differentiate your firm and better serve clients.
The future of ESG audit certification
ESG audit certification presents an important opportunity for auditors as companies are sharpening their focus on ESG-related initiatives. As the call for ESG prioritization further intensifies and more ESG-related laws and regulations emerge, the demand for such services will only gain momentum.
Those auditors who can signify their knowledge, skills, and experience in ESG-related areas and further differentiate the firm through ESG certification services stand to reap the benefits.