As an accounting professional, you’ve heard about ESGs — environmental, social, and governance reports — and maybe you’ve even started getting requests about offering sustainability consulting to your clients.
Before you do, consider a few important items about the landscape.
Many of your smaller clients may not know much about ESG. Hopefully, most at least know the acronym. Have an initial discussion to gauge their understanding of what it is and why it matters to their customers. Provide them with some background, such as how ESG is established and formalized through the Global Reporting Initiative (GRI), and a broad overview of what each of the terms covers.
Because larger organizations are being held accountable in their approach to ESG, they may be asking about how their vendors are handling those metrics that matter to them. And note that ESG is not all about climate risk, climate change, or environmental impact. The “social” aspect covers areas such as DEI, employee development, wages, and product safety, while “governance” can include areas such as conflicts of interest, executive compensation, and
Hopefully, your clients are properly benchmarking certain data as it relates to their own businesses. In some cases, they’re being asked to provide their own ESG reports, or may be getting asked to offer up snapshots of data that matters to their customers or to private equity firms. Smaller companies may need help developing a roadmap for this, especially when they don’t have the resources for robust ESG reporting like enterprise-level businesses.
Your advisory services to clients may need to be moral support. Many smaller organizations don’t know where to start in talking about ESG reports. This can lead to indecision and a delay in writing the necessary documentation they may need to provide to investors or customers.
ESG reports are case studies in fair, accurate, and data-centric reporting. They’re not designed to present an opinion about a business but to show what is happening within that business at the time the report is written. To that end, companies you advise must be ready to present factual information about their business.
Your clients may want to treat ESG as a fad. It may be evolving, and there may have been some push-back on it in recent years, but it’s not going anywhere. The adoption rate (which we mentioned earlier) is only growing among large corporations. Smaller and mid-sized businesses may not be required to produce these reports, but they are increasingly being asked to align their businesses to the ESG goals of the companies that they service. That means your clients must understand the business impact, something you can advise on as an accountant.
Your clients may not need to have their own ESG program or prepare their own reports, but they will need to know everything. That means you will need to take some time to familiarize yourself with the top enough to where you can speak about it confidently, and in a way that allows you to help clients take their next steps.
One concept to align around here is supplier diversity. Many companies are scored highly for having a strong supply chain (where most small and midsized businesses sit). Supplier diversity is the practice of incorporating suppliers within the supply chain that are owned and operated by individuals from diverse backgrounds. It’s often seen as a way to innovate the business, as suppliers from different backgrounds bring different skills and perspectives into the business.
If your clients fit within these criteria, they stand a great chance of generating more business. But that starts with also proactively addressing the business needs that their current and potential enterprise-level customers want from suppliers.
ESG has become normalized and important enough that every accountant, and especially CFOs, should be prepared to have important and honest conversations. There are three points you can align on with your clients, regardless of where they sit in relation to environmental, social and governance reports:
It’s is a business driver. If they pursue this, they put themselves in a category of vendors that have it. That sets them apart and makes them a better candidate and supplier.
There are winners and losers. If your clients can position themselves as an ESG-forward company that’s aligned with their customers’ needs, they stand a better chance against their competitors.
It’s about data. If your customers want to be effective providers within the ESG landscape, they need to be datacentric themselves. That may mean completely revamping their internal data collection processes to make sure that, if asked, they can provide evidence of their alignment.
Finally, make sure your clients understand that as a business, they simply can’t focus on everything. This is true even for most enterprise-level businesses that are required to produce ESG reports. Help your clients focus on what’s important.
Start with what is important to their company to improve upon that would make them a more attractive service provider to company that others would invest in. There are over 20 ESG metrics, many of which are broad. The goal is to have an ESG focus, not to try to fit into every possible category, as most categories won’t matter for your clients.
For example, it may be better for a company to focus on employee development programs rather than buying more electric vehicles. Or, if that company travels a lot, their emissions will be high, so that becomes a material issue. If your client is a real estate company and has a portfolio that could be impacted by rising sea levels and storms, that’s a material issue that can be included in an ESG report.
ESG CONSULTING: ENVIRONMENTAL, SOCIAL AND GOVERNANCE INITIATIVES
THE ROLE OF ACCOUNTANTS IN ADVISING ON ESG INITIATIVES
ESG CONSULTING: A TALE OF TWO MYTHS