Intro (00:00:00) - Welcome to the modern CPA Success Show, the podcast dedicated to helping accounting firms stay ahead of the curve. Our mission is to provide you with the latest and greatest insights on cutting edge tools, innovative marketing strategies, virtual CFO services, and alternative billing methods. Join us as we change the way people think about accounting.

Tom (00:00:22) - Adam, how are you doing today? 

Adam (00:00:24) - Doing great. 

Tom (00:00:25) - Good. Hey, let's introduce this podcast. Think people are going to enjoy this one? 

Adam (00:00:29) - Oh, yeah. Hi. Oh, Kai was great. I mean the topic. And the front is ESG, right. So don't think that like, gets everybody super excited ready to like, do stuff. But it's really cool. And it's one of those things that we hear about all the time. It's at all the AICP conferences. Right? I'll be honest, sometimes it just goes over my head. But the way Kai talked about it, not only did I gain a better understanding of it, but how we're going to see it and utilize it in the future. So I thought he did a great job. He's a great resource, so look forward to just jumping in and talking to him here in a little bit. What'd you think? 

Tom (00:01:06) - I agree, I honestly, I think I learned more in this podcast than maybe any other because if someone says, hey, what do you think about ESG? I usually get this sort of yeah, uh huh. Interesting. And if they were to say, can you talk about it for maybe even one minute, I'd be like, okay, maybe I don't understand it and now feel like you do. And he gave a couple pretty practical tips if you're interested in a company and how they're doing. And that part I really did enjoy. 

Adam (00:01:28) - Yeah. No. Absolutely think it's a great talk and look forward to listen in. Let's go jump in and talk. 

Tom (00:01:35) - Sounds great. All right. Welcome to this episode. In the modern CPA success Show, I'm Tom Wadelton. I am a virtual CFO, so I do business consulting with our clients and play the role of CFO.

Tom (00:01:47) - I'm co-hosting today's show with Adam Hale. Adam actually runs our practice, which is Summit Virtual CFO. By Anders Adam. Welcome today. 

Adam (00:01:56) - Hi, everybody. 

Tom (00:01:57) - Hey, we've got a great topic that that covers in addition to a little bit of accounting actually not much of accounting, but it definitely affects accountants and certainly can. And then just us as consumers and in good people. Kai Gray is with us. Kai is the CEO and founder of Motive Kai. Welcome to our show today.

Kai (00:02:14) - Thank you very much for having me. Delighted to be here. Yeah.

Tom (00:02:18) - So is I was looking through your bio and as we chat a little bit, you've worked with several well-known innovative companies. I'd love as an intro just to hear a little bit more about your career story and what you what led you to found Motive?

Kai (00:02:29) - Sure. So yeah, so. So I started out life in computer science, and from a technology background, I worked for companies like Carbonite and Yahoo and most recently Western Digital. After some acquisitions.

Kai (00:02:45) - And it was really, you know, about four years ago, I teamed up with my brother, who was a professor of ESG, had done his PhD at Oxford and spent a lot of time with him talking about this and saw a real, I would say, gap in the market. There was sort of a lot of private companies were being left out of the ESG landscape. ESG was really focused on public companies still is. But more and more private companies were being called on to supply ESG data. And so we became very focused on helping these companies effectively deal with what is what is a compliance issue today. It's, you know, around ESG data, both understanding it, responding to it, and then ultimately using it to the company's benefit. We really see ESG as a business driver for companies. And, you know, we like the idea of it moving away from compliance and into something where they can attract new business, they can strengthen current business. So that's a little bit about why I got into it when I got into it.

Kai (00:04:05) - And so we. You know, we have developed a practice that, as we say, it's software with service, not software as a service. And so we have a fairly robust software platform that helps our clients. We also provide very dedicated expert consulting to our clients.

Adam (00:04:30) - Cool. You know, I think the title of this should be what the heck is ESG? And why do we care? Yeah, because I will say it was probably honestly didn't even pick up on it the first year I heard it. But I know that whenever we go to AICP events, ESG is always a topic at the CPS, and it's like whenever they list top five issues, ESG is always up there. And for years I'm just like, what does that stand for? Again? Like I'm googling it and then I'm going, and how is this relevant? You know, so if you could just kind of because to your point and I know we'll get into it. But my understanding was and then, then I would turn it off a little bit was, was that it was for big public companies, which most practitioners are never going to run into.

Adam (00:05:18) - Right. Like this is the Deloitte touches of the world, the Ernst and Young's. And it seemed like from a consulting perspective, it was a really high end consulting thing for the top for the big four. And but over time, I think it's evolved into what you were kind of talking about, where it started to slowly, like work itself down and eventually will be a part of potentially everybody's everyday life. But if you could just kind of give us in layman's terms like explain what ESG is and why you do think that it's so relevant and important and, and how maybe it'll get even more relevant.

Kai (00:05:57) - So I think the most important thing is to sort of understand that that ESG is not a measure of good company versus bad company. And this is where I think the narrative has gone off the track. Certainly, you know, as it's discussed from a political perspective, but ESG is a collection of roughly 200 different metrics around environmental, social and government governance data. And it's really, you know, the way I look at ESG is it's a measure of transparency, how much information, as an investor in a stock in a publicly traded company, do I have at to make an informed decision about a company? And so, you know, ESG asks a number of questions.

Kai (00:06:41) - You know, it's really interesting because if you reverse the order of ESG and talk about governance first, you get a much greater acceptance level from an audience when you're talking about it. Because the thing, you know, so very few people debate the need for governance and good governance of companies. And so there's questions sort of about independent board members, about policies that the board has, audit committees, you know, things that you look for in a company that you want to see, a well-run company that's the G in ESG environmental is, you know, basically a measure of emissions, largely greenhouse gas emissions data, sort of water usage, waste usage, recycling. Um, you know, and it's really, you know, the way I look at it is, is can a company, does a company understand their business well enough to, to, to have that data? Um, and it's always measured on a sort of a millions of dollars in revenue per millions of dollars of revenue.

Kai (00:07:51) - And then the social aspect is, you know, despite the name and I think this is what really throws ESG off a little bit is that people think that think, you know, the term social has taken on a bit of a negative connotation. And really it's around workplace incidents, workplace accidents and incidents. It's about employee training. How many dollars per year are allocated to employee training. The a lot of sort of health and wellness policies in place, right, to unionization, you know, those types of things. A very small number of questions deal with the what I think people think ESG is all about sort of gender, sort of the equality questions, which are important, but make up a very small portion of the ESG metric data. 

Adam (00:08:51) - And so it's like how much money they're giving to a different organization or anything like that. That's not what it's.

Kai (00:08:56) - In fact, it doesn't include anything like that. It's really not sort of a it's not trying to measure the sort of the principles or values of a company.

Kai (00:09:11) - It's not, you know, and I always say, like, you can look at certain companies like Exxon that are very highly rated from an ESG perspective. In fact, they're included in most ESG funds because they do a great job of publishing their data. It's all about disclosure. That's ESG is basically a reflection of disclosure. It's, you know, so the ESG rating agencies aren't making up their own data. What they're doing is they're taking disclosure data from companies and just sort of mimicking that back in a slightly different format and then applying a grade to that. So, and it's always based on sort of a percentile, you know, that's really what you're looking for. And so, you know, this is always a bit of a surprise to when I when I speak about ESG, most people come into the conversation if they if they don't know a lot about it, they've heard about it from, you know, from headlines and news and things like that and think it's always a bit surprising when people realize like, oh, it really has no inherent political bias.

Kai (00:10:24) - It is called extra or non-financial information. And it's starting to get reported along with financials, because a lot of these things are material to the operations of a company. And so it's stuff that investors should know. And but it's not there to. Effectively judge companies. And it doesn't. You know, there's also a difference between sustainability and ESG to two very different concepts. Sustainability is sort of inherently an environmental. Goal and sort of how sustainable you are to your stakeholders, your community. But principally about the environment ESG is, just data right across a number of different facets of your business.

Tom (00:12:06) - Okay. And you talked about. I'd love to hear this. Landscape's changing. You've mentioned public companies a lot. That's sort of where it started and maybe where they're being told they should do it. That's right. You talk a little bit about where it's going and kind of where that I believe a lot of that this is really come from outside the US initially and now more into the US where it's adopting is that can you tell us a little bit about how landscape is changing? 

Kai (00:12:28) - Sure. And so you're absolutely right. So really, um, I would say Europe is a few years ahead of the US in terms of adoption of ESG and just sort of normalization of this, just sort of understanding that, you know, a well-run company is, you know, encompasses more than just purely financials. There are other measures. And so they have a more stringent ESG perspective.

Kai (00:12:55) - It's starting to catch up in the US. And what's happening is you noted is so this started with public companies. Public companies are the only ones that have to disclose data legally. But it's it has seeped down into smaller companies. And now we end up working with, you know, much smaller companies. And by that mean companies in the 5 to $10 million a year revenue group, because they are suppliers to larger companies. And so if you think about sort of a tier one customer being, you know, take Coca-Cola, for instance, or a car manufacturer, um, they, they have pretty extensive ESG programs. Their annual reporting is very comprehensive. What they're doing is they're going back to the supply chain and they're saying, hey, we need you to comply with all of our goals. You know, we've set a goal to be net zero by net zero emissions by 2035 or something. And in order to achieve that, it means that all of their suppliers have to do that.

Kai (00:14:02) - And so, you know, first it was tier one suppliers, then tier two suppliers. And now and now, you know it's down to I call them the mom and pops. They're bigger than that. But that's the idea. And so that's what's happening. In fact, when we first started really the companies that that um, approached us first were not public companies. We really thought we were going to be helping just public companies, but it was companies that that came to us and some of them quite large and said, hey, you know, we can't bid on this project unless we submit an ESG report. And this, you know, this customer represents 30% of our revenue. So we have no idea what to do, but we know we have to do this. And that has been the case sort of over and over in in different ways. But it's always sort of the same thing, which is, hey, we have to do this if we want to participate and think we're going to continue to see that.

Kai (00:15:07) - I know that there's I think public comment is closed, but there's some regulations that are going in the Federal Acquisition Regulations, the FAR for GSA, DoD, and NASA that are starting to stipulate certain disclosures if you would like to be a supplier to them. So if you make widgets that go into a vehicle for GSA or go into a vehicle for DoD, you're going to have to start submitting disclosure data that's, you know, largely environmental based, a lot of climate stuff, but gets into hiring practices, gets into the structure of your company. So I think that this stuff is starting to really federate its way into all businesses.

Adam (00:15:59) - Yeah, it seems like this is going to be you know what I what I heard probably most from it, um, early on, once I started to kind of get to know it a little bit better. But appreciate your explanation because I too was kind of maybe a little mis had a misunderstanding there, especially on some of the social stuff, but it did seem like what I was hearing, especially as it relates to the accounting profession, is that it's going to open up a lot of doors for us to hire and work with people that are not CPAs or traditional accounting firm people like, we're going to be working with engineers.

Tom (00:16:33) - We're going to, you know, all these different specialties. All of a sudden we might find within larger firms, medium CPA firms kind of going forward, or at least having to work with consultancy agencies that didn't exist five, ten years ago, you know, those kind of things.

Kai (00:16:50) - You know, I think so. So our experience with CPA firms has been there's two, two groups that companies call when they don't know an answer to something. You can call your lawyers. You call your CPAs, right. Both are trusted. Right. So whatever those groups say is what you're going to do. And

so what happens is when you know, when these smaller private companies are faced with this, their first call will be to their CPAs and say, hey, I just, you know, I don't know what to do. I need help with this. And so, you know, I think it really, you know, it's to the benefit of the CPA firms and really think it's almost approaching sort of the requirement that the firms are able to deliver a knowledgeable answer, say, hey, I know what this is.

Kai (00:17:39) - Here's how we're going to respond. Don't worry about it. Right. We have this effectively, I look at ESG as a as another product in the portfolio of CPA firms.

Adam (00:17:51) - Yeah. And I would say that, you know, most of them outside of large firms. And it eventually it'll kind of trickle itself down to medium firms. It's going to be hard for them to create that department, especially with all the complexity, the software, those kind of things. And so for our role as VCFOs, what we've always told our clients, it's not for us to be a subject matter expert in everything, but because our expertise really lies on forecasting and strategic planning. But we are expected to kind of know everybody. So meaning we understand what ESG is. And I should always be able to say, and I got somebody that can help us with that. You know, I know somebody Kai can come in and help us with that. So like, you know, even smaller firms that think, hey, this is still way out of my league.

Adam (00:18:39) - As you mentioned, if they pick up government contracts or things like this, they might all of a sudden get this like mini report. And so that needs to be done from a compliance standpoint. And so knowing somebody that can fill that gap that has created a business around that is really important. So can you talk to us about because I know you do these kind of things. Is there is there a is there like a heavy medium, you know, like small or light version of this reporting? And you know what, what is that kind of cost structure look like, you know, for a client.

Kai (00:19:16) - Sure. So, um, yeah. So it really, you know, there is that sort of large, medium, small type thing depending on the disclosures. So when we work with a large public company, um, it's, you know, doing their annual reports. So it's a lot of work I mean it's basically putting together sort of, you know, similar to the financial side where, you know, it's a six-month effort.

Kai (00:19:44) - You know, you start really in the planning stages now with some of our clients for their January dates, you know, to get everything ready, unlike financials is a bit more marketing. And we'll get into that in a bit about, you know, sort of what goes into the reports. But then on the smaller side, I mean, so, you know, we offer something we call the virtual ESG manager, which is which is a lighter touch, you know, some software, some expert sort of consultation for companies who don't want to hire a full time person. They need, you know, a few hours a month, and they need some resources occasionally. Right. And so, you know, the prices range from, you know, $1,000 a month to large engagements that are, you know, 50 plus 75 plus that are, you know, pretty heavy consulting engagements to the smaller $1,000 a month. And, you know, everything I will say, because there's not a lot of standardization in ESG.

Kai (00:20:56) - Everything is we take it all on a case by. Case scenario because there's definitely, um, you know, the industry is still fairly bespoke. And so the requirements of company A might be vastly different than company B, even if they're the same size. Right? Depending on their industry, depending on what their goals are, it might be very, very different. So some companies were involved in where we're working with them on a weekly basis. Other companies it's sort of quarterly check ins. Right. And they call us when they, when they have a customer that has a demand from them and they need to know what to do. So it really varies. Sometimes I wish there was more standardization was our, you know, just from a pricing perspective, I'd like that. But right now we have found that we can't, you know, it's very hard for us to offer a sort of rack rate pricing without talking to the customer and finding out what they're trying to do.

Tom (00:21:58) - Kai, do you find so a small company maybe.

Tom (00:22:02) - Doesn't matter. The size company comes and says, my customer wants this. Does that usually end up with an ongoing engagement with your company, or do you tend to be in a hey, there's a project mode, I'll get you up. But then, like, is there a portion that get themselves kind of independent after that?

Kai (00:22:17) - Yeah, I mean, I would say, you know, our goal is actually to get companies independent, right? Where, you know, we always want to grow with companies. And of course, as a business, we want sort of long term relationships. But I think that, you know, in our experience teaching people what to do, even if it doesn't result in sort of, you know, immediate reoccurring revenue is a good long term practice for us. And so, you know, we if we have a small company who comes in and, you know, they have a customer request or there's some contract that they're working on that requires it, we can get them over that hurdle.

Kai (00:22:58) - We teach them sort of what the strategy is, what to do. And, you know, I would say nine out of ten times they do come back and say, oh, we have another project that's similar. We'd like your help on it. But, you know, we feel like we've always armed them with the information that they need if they wanted to, to go at it alone, that they could.

Adam (00:23:21) - Yeah. But mean armed with that, then, you know, you can't do it right. Like so that's the thing. It's like obviously selfishly, I'm a big proponent of outsourcing, you know, specialties and stuff like that. It's just hard to be a subject matter of expert, of everything. And again, for me, it's like you want to educate them for sure, right? Like you want to make sure they know what they're doing that makes your life easier and it ultimately will save them money. But yeah, but it would be nice to always be able to I mean, if it was me and I was engaging you, it'd be like, oh, instead of having to harass you for 20 hours a month, education means I just need you for a couple hours a month.

Adam (00:24:00) - But yeah, you know.

Kai (00:24:01) - And I think that that's where we get our clients. And, you know, the irony is the more we educate them, the more that they trust us and the better the relationship is, you know? And so it always ends up ends up being beneficial to us in the firm. But, um, you know, and I think the companies grow and the strategy changes we have, we have a client who they've seen an enormous amount of success from their work around ESG and sustainability to the point where it's started a whole sort of movement within the company and a marketing pivot to really just to lead with it. And so when we started, it was just to do an ESG report for them. And now it's, you know, I mean, I feel like we talked to them every day, but, you know, it's because it's just, you know, they went out with the message. It had such a high return for them.

Kai (00:25:02) - They said, oh, we want more of this. And that's just, you know, it sort of doubles every month. And so we could never have predicted that. Right. So and even just like the sort of fractional CFO, I think that the idea is, you know, you're there's no sense in hiring a chief sustainability officer or head of ESG for $150,000 a year or whatever, when what you need is you need five hours a month, or you need ten hours a month from someone. So.

Tom (00:25:34) - You know, I wonder some of the people listening might be thinking, I don't hear about this from my clients. Maybe it's not impacting me. I can tell you my own story. Ten years ago, integrated reporting was being talked about a lot as it is now. I worked for a fortune 100 pharma company, so as a big company, I happened to be in the external reporting group annual reports, that stuff. I was also on the Indiana board of directors for the CPA society.

Tom (00:25:59) - Integrated reporting is big. They asked us, hey, in your own companies, figure out where it's going. So long story short, I did some interviewing internally, the external reporting group and said, are people asking for this? And at least to the finance people, it was no one's asking and we don't want to do this kind of stuff. And I also talked to our auditor. Same thing in doing my Google research to kind of put this all together. What I found was my own company had just published its third integrated report, never even talked to finance.

Kai (00:26:25) - Interesting.

Tom (00:26:27) - The auditor, Ernst and Young, who had said we would be doing the assurance, was like, what the heck? They didn't call us. And I talked guys like we didn't need finance. We found an engineering company to do it. So what it brings me back to.

Kai (00:26:38) - Interesting.

Tom (00:26:39) - We could ask our clients to learn about this, because we all thought we knew what was going on and didn't even realize they didn't need financing for this kind of stuff.

Kai (00:26:48) - Yeah, well, and, you know, it's interesting. So I think integrated reporting for public companies is the sort of the next big thing. I do think ESG is going to take on sort of a soc2 type thing where if you say this, it has to be true and you're going to sign here and someone's going to be accountable for these numbers, and which sort of brings that back into, you know, it makes integrated reporting a very logical thing for companies. If you're if you're going to present it in that way, you know, sort of the soc2 sort of compliance way, you might as well just bundle it all together. And a lot of people look at ESG as being, you know, truly material to the company, which is important. I mean, the CEO of Coca-Cola, I forget when he said it, but it was fairly recent, and he was talking about the sort of political backlash to ESG. And he said, you know, because understand, if if the term ESG becomes too toxic, we will simply call it something else and do the same things, he said.

Kai (00:27:59) - It's not, he said. It's core to our business. And so it's important. It's not something we can abandon just because the political winds have changed. And I think that, you know, when you start to get ESG is very much about materiality. What's important to this, this business, in this industry. And so from an investor perspective, for a public company, this becomes, you know, really important information to have if you're making an investment to understand, is this company a well-run company? Are they going to, you know, they're going to end up in the front pages for all the wrong reasons? Or are they going to be heavily invested in industries that are controversial, are going to go away? You know, there's a number of aspects. So I think integrated reporting makes a lot of sense. And I think that that's absolutely where we're going to see the fortune 500 move to over the next couple of years.

Tom (00:29:01) - Yeah. So if you're this accountant saying, okay, so I'm not hearing about it, what are some questions you might ask your clients if you're curious if they're dealing with this and you're just not in the loop, or are you thinking of.

Kai (00:29:15) - Well, yeah, I mean, I would um, I would ask, ask really about sort of their customers who their customers are. And have they asked, have they talked to their customers about this and did their customers have, you know, so if I'm, if I'm a small company and I mean, I'm a 50-person manufacturing firm and I'm supplying parts to, you know, to Toyota, for instance. Right, you know, you can go to Toyota's website, you can download their ESG report, and you can read about all the things that they're trying to do. My next conversation with Toyota is going to be how I support that. Like, not only is my product better or cheaper or things like that, but we are more aligned with you from an ESG perspective than our competitors. And so this is where I start to see ESG as being a competitive advantage, because I really do think that, you know, you're going to see this bifurcation of of sort of the early adopters and the laggards, where the early adopters are the people that are doing this are starting to use ESG as part of the sales cycle.

Kai (00:30:33) - Right? They're saying, okay, all things being equal, we're much better aligned. We support your current initiatives. We're in line with them, you know, as part of the do no harm type thing. And, you know, and then pointing at their competitors and saying, you should ask them about that, see how they do. Right. And that's what we're actually seeing. I mean, not only do we advise our customers to do that, but we've seen it in real life. And so I think, you know, putting that we I'm not willing to argue that ESG is a standalone sales method, but I think it's one of these. It's another arrow in in sort of the, you know, the pack of, of of for a sales person or a business development person who's out there talking to and, you know, if I'm talking to my customers, I'm going to make sure I know what my customers cares about. And, you know, if I'm aligned with that, if I'm doing stuff that supports that, I'm going to lead with that, right? Say, hey, I know this is important to you.

Kai (00:31:40) - I know that you know, your net zero policy is important to you. I know you're hiring your supply chain code of conduct, all of these things. Here's our stuff. Just so you know, we think about it too. We're aligned with you. We're better partner for you than X, Y and Z.

Tom (00:31:59) - Yeah, I like that. Is it reasonable to assume if you lead with that on sales, that you might get the request back? Since you use Toyota, they may come back and say, okay, that's great, here's some data. And then that's going to prompt you to say, okay, I do need to provide that data now. Yeah. But yeah, if it leads more sales then you're happy with that right.

Kai (00:32:17) - That's right, that's right. It's a great problem to have. Right. If you're having you know, if you're beating your competition it's a relatively. Um, will light lift for you to supply that information in order to sort of cozy, cozy yourself up with, with some of these really important customers of yours and, and, you know, and I think that it's definitely there's enough companies that are going to be very late to this game that the ones that are doing it now absolutely have an advantage.

Kai (00:32:56) - Right? They can sort of they can establish the yard marker. Right. When they talk to their, their customers say, hey, make sure you ask our competitors, I know you're talking to, you know, four of us. You should make sure you ask them about these things, knowing full well that they're not going to have anything. Right. You know? So, um, and I think, you know, it, it leads to. You know, it ends up being a sort of an economic gain. And that's where I think ESG is important, right? That, you know, it is it is a business driver. It is something that people can see return on. It's not purely a compliance thing now. As much as you know, I'm clearly an evangelist of ESG, but I understand for most companies, most companies hate it. Right. Like it's an overhead compliance thing. Right? And they suck it up. And our goal is to just make it easy and sort of make the problem go away.

Kai (00:33:59) - But I do think that there's a real opportunity to sort of change that mindset and say, okay, we're going to lead on this. I made good, I'm here in Alabama. There's a scrap metal company that we talked to, you know, years ago who was really adopting sort of sustainability and ESG companywide. And they were not a very large scrap metal firm. I mean, you know, think they had 11 or 12 plants. So not small, but, you know, big picture, not huge. And, you know, scrap metal is not an industry that jumps to mind when you think of like, early adopters and innovation and these sorts of things. And, and so I said at one point, I said, I'm delighted to work with you guys, but I have to ask, what caused this? What's the catalyst for you guys actually thinking about this? Because they really they rebranded their website. Everything was different. And they said they said we're in a commodity business.

Kai (00:35:00) - And this gives us a competitive differentiator that our competitors don't have. And they said, furthermore, a majority of our workforce is under 35 and they're asking about this. And so we have to respond to it. If we want to hire people, we have to actually be thinking about these things. And so for them, it was a very strategic move, right? It was that we were going to they were going to give themselves a competitive advantage and they were going to, you know, be able to recruit new talent into the company, which and I always say, you know, if scrap metal firms are thinking about ESG, we've crossed the chasm. Right. Like it's yeah it's you know, it's got to be mainstream at that point.

Tom (00:35:48) - That's impressive. 

Adam (00:35:50) - Yeah. So I mean think the I think the takeaway there is too is like, so what you're saying is not only are our clients going to start to feel this downward pressure from all the suppliers, but it does present an opportunity for a competitive advantage. If we have some of these light studies, and we know that some of our big customers are prospects, have these to be able to do it. But there's also another thing that we need to consider and think that this has been true. And I know we've done some discussions on like the new generation and what they want out of firms and what they want out of the company that they work for. And it has shifted to a lot of like, maybe not formal ESG metrics, but it's really centered around a lot of those topics. So I do see a place in where if you have this, you can, you know, kind of multipurpose the data to act as a bit of a driver for, you know, acquiring good talent, acquiring and retaining talent, showing them that that's important.

Kai (00:36:48) - Yeah. No doubt at all. I think that, you know, the interesting thing about ESG data that I find particularly fascinating is that it's very, it's multifaceted, right? 200 metrics across sort of a wide spectrum of things.

Kai (00:37:02) - And, you know, one, it leads to a complication within a company because it has many different owners or perceived owners. And so we have conversations with, you know, sort of accounting things. They should own ESG, you know, accounting, finance, legal things. They should own it. Compliance thinks they should own it. So there's a lot of, you know, a lot of parents.

Adam (00:37:26) - Who do you think should.

Kai (00:37:29) - I think it naturally it ultimately the word financial ends up in ESG, you know, as even if it's non-financial and I think as it becomes part of integrated reporting, I think it ends up in finance. That's where yeah, it pull it together, you know. But again you know so like of our customers we, we work with in different companies. Chief legal counsel head of compliance CFO. Chief human resource officer right. You know so marketing gets in there. You know, they in my example.

Tom (00:38:12) - It was corporate affairs, right? That was the group.

Tom (00:38:14) - It was.

Kai (00:38:15) - Corporate communication. And there's.

Tom (00:38:16) - They're the ones who did.

Kai (00:38:17) - It right. Like investor relations is you know so you sit down a group of people and everyone can make a very valid claim like, no, no, this is, you know, this is my domain, right? This is something this is an investor relations thing. This is a finance thing. Um, some companies, a few of those roles roll up into the same, you know, to the CFO largely. But you know that that can lead to complications, right? Where you have you have many people who have this sort of, you know, justified ownership of it, but it also makes it particularly interesting. Right, because it's one of the few. Data groups that span an entire company that you can look at on one sheet and get, you know, very similar to sort of profit and loss in your financial statement, you can look at ESG data and say, oh, this is a really good snapshot of a company from, you know, from beginning to end.

Kai (00:39:22) - This is how well a company is run or not. And I always think that that's a very impressive thing, but, you know, there's different groups that are pulling for the pulling out this data, right? One a big segment is, is employees, you know, Gen Z is going to have this very powerful effect on, on all of this, right? As they as they enter the workforce and become sort of managers in the, in the workforce, as you noted. Like there the expectations are very, very different than, you know, my brain sometimes has trouble with it, but it's it doesn't make it not real, you know, and even, you know, my son, a 13 year old son. And the stuff that he talks to me about is when I was 13, I was not thinking about, you know, like.

Tom (00:40:15) - Right.

Kai (00:40:16) - You know, like the renewable energy coming into this house, like, you'll ask me these questions and, you know, like what? You know, what are you thinking about? You haven't.

Adam (00:40:25) - Done your you haven't done your ESG study for your house in the same order you have not.

Kai (00:40:32) - Am a I'm just a I'm a bad person, a bad parent. But no, he you know, like he shames me plenty for lots of stuff. And I think that, you know, we were talking about, you know, next year he'll be able to get a job and he's you know, we're talking about places that he would like to work ultimately as he grows up. Right. So he's out of the I want to be a fireman type thing. And he said he said, well, I just want to I want to place it like treats people really well. Right. And said, well, so you don't have to work a lot. It's like, no, but I think that, you know, people being happy with, you know, is important. I said, well, you know, and also my ESG ring goes on and I'm like, okay, well would you prefer more money or more happiness? And he's like, oh, more happiness, no question.

Kai (00:41:23) - I was like, oh, interesting. Right when I was 13, that was not the case. Right when I was 35. That was not the case. That was, you know, and so, you know, I said, boy, you know, and I think he's not exceptional in that sense that this is like there's a whole workforce that's coming up that's thinking about this balance. Right? It's like, okay, am I working for a company that that is treating people fairly, that is educating people, you know, or actually providing, you know, training dollars to people or are they good for the community that I, that I live in? You know, there's a number of factors, and we're living in an age. I think the big difference people always ask me like, why is this different? Is that the information is now available, right? You can find out about, you know, you can find out about just about any company you want, right? Private or public.

Kai (00:42:20) - You can go to Glassdoor and read the reviews just like they're on Amazon. You can, you know, you can read their all of their disclosures. Right. So think in today's world, there's just a lot more information that consumers, employees, investors can use at their disposal to make these decisions. And companies have to react to that.

Adam (00:42:46) - Yeah. I think that you made an important note there though is yes, there's a ton of information out there, but unfortunately a lot of it's self-reported. And so by being able to make this more compliance and validated by a third party, the better. So companies can get ahead of, you know, somebody that's, you know, some disgruntled employee that says, oh, they do this and it's terrible, or they do that. It's like, you know, of course we'll see how we'll see how tested the ESG reporting gets, you know, over time. Just like financial reporting. Right and run. Yeah. You know, it's like, you know, so there will be those.

Adam (00:43:24) - But it'll be, you know, but it would be good for somebody to be able to promote that and put it out there, as opposed to just allowing the general public just to be social warriors and just throw stuff out there. That might not be true.

Kai (00:43:40) - You know? And I think it's a great segue into the topic of greenwashing, which is along with sort of the political debate, you hear about greenwashing as sort of the next hottest topic. And greenwashing is basically when people try to put forward positions from a marketing perspective that aren't actually true. They try to make their company look a lot better. I mean, this is a bit of a time honored tradition in all aspects, but it's particularly acute when it comes to disclosure data and around an unregulated, um, standardized body of data around ESG and sustainability data. And, you know, there's. Because there's no standardization, because there's no regulation in the in the United States. I think it's a particularly, you know, worrisome problem.

Kai (00:44:34) - I. The. So in the EU. The EU has begun much greater enforcement around greenwashing. Now they're leveling big fines. You know they have a they have a regulatory body. They published the taxonomy that basically said, if you know, here are what the metrics mean when you report them, they have to be in this format. And you know, if you're not telling the truth and you know, we find out you're going to pay a penalty, there's sort of a punitive aspect to this. The US is still very much it's a voluntary market and still self reported. And people always say, well, how can I how can I spot greenwashing. And I think when it comes to ESG, it's really about the comprehensiveness of the data. Right. So if it's quite easy for me to read an ESG report or a CSR corporate social responsibility report, which they're often called and. You know when companies. I'll give people some examples. So if your listeners go to Ikea and read IKEA's ESG report, it's extremely comprehensive to the point where it's probably going to, you know, put some people to sleep.

Kai (00:46:03) - But it is, you know, they've assembled a team of scientists who audit it. That and you can drill down on the data and you can really understand what they're doing. You can I won't shame any companies. But there's the converse of that is you. You go in and it's just it reads like a piece, right? It's, you know, we gave out 5000 masks for Covid, and we have, you know, employee bring your kid to work days and you know, like that's the level of sort of the disclosure. And I think that that's the first sort of sign to me that this isn't being taken seriously. They're just, you know, the reports are mostly pretty pictures of trees and, you know, sunsets and things like that. And it's, you know, they're feel-good pieces. They and most importantly, I would say that the big difference is they don't publish a roadmap or they don't say, this is what we're trying to get to.

Kai (00:47:08) - This is how we've done along the way. Whereas if, you know, if you look at Ikea, if Toyota is another good example that has a very good report where they publish what their goals are and how they're tracking to their goals, and what you'll see is, yeah, they haven't hit them yet. They're very they're very upfront about, you know, why they didn't hit them where they are, what they're doing to get there. If you don't see that in a report, you're probably looking at some form of greenwashing. And, you know, it's really funny.

Adam (00:47:43) - Oh no. No. Mean think the consistency is important. Mean. So you mean to tell me that my lucky charms aren't healthy for me, even though they provide their whole grain and provide vitamins and minerals all over the front of that thing, right? You know, so it's kind of like the FDA or whatever, like making sure on the back of the ingredients, it actually lists everything out and it's all at the same like 2000 calorie, you know what I mean? So people can actually tell what's in their food.

Adam (00:48:11) - So same kind of thing having.

Kai (00:48:12) - That in this box. Yeah

Adam (00:48:13) - Yeah. Exactly. So having that same boilerplate does make sense for being able to compare data. And then of course we do need to make sure that it's not all marketing on the front of the box. 

Tom (00:48:24) - Yeah.

Kai (00:48:25) - So I mean it's very interesting. There's one then I sort of tell the story, which is there's a there's a public company and they're responsible for building more schools in Africa than any other, any other company there is. They spend an enormous amount building elementary schools. Their entire story from a ESG perspective, is about this is community engagement. They're heavily invested in that company's Philip Morris. Um, and so if I don't tell you the rest of the story, like, if I don't tell you who they are, you think, boy, that's a great company. Like, that's it, you know? Sure. And then and then the minute I say, here's who it is, it's like, oh, oh, they do something that's pretty destructive, right? Like, you know, this is not traditionally known as a great company.

Kai (00:49:16) - Um, but they do a very good thing. Right? Like they happen to do a very good thing. It's slightly self-serving, you know, it's they need a workforce that has a certain amount of education and, and, but, but think that, you know, another aspect of this is taking a look at the entire company, right? And not getting sucked into one particular narrative. It's very easy to do because even like I read Philip Morris report and was like, maybe they are you know, like, this is they're really doing good work on this, on this one front, as someone pointed out, like, yeah, but they didn't talk about anything else. So that seems.

Tom (00:49:59) - So. Yeah.

Kai (00:50:01) - What's missing? Yeah.

Tom (00:50:03) - I was going to say I have a daughter who's older than your son, but she's very socially aware. But she'll make comments if you all wear an athletic wear the brand name. Did you know they're just a terrible this and that. And I've often wondered, so where would I go to find out if that's true? And if I look at like their ads, they may say we're making one of the most sustainable products and we treat our workers really well.

Tom (00:50:23) - But it sounds like you've given me a really good source of saying, what if I did look at their CSR and say, is it a one page with a bunch of cool pictures? You're like, oh, there's a lot not being said here versus others. So that's very helpful to think of.

Kai (00:50:36) - That's right. And you know, there's lots of philosophical debates about can, you know, can a bad company do good things? Can a good. If they do bad things. I mean, think that this will be a sort of a there's no answer to this. But I do think that, you know, today there are services that that also exist where you can look up companies from a, you know, not even in perspective, but just on like worker rights. And I think I'm trying to think of like, you can go to how good I believe and you can look at a lot of supply chain data. I believe that a lot of it's public is another good site.

Kai (00:51:17) - So I think, you know, again, there's a lot of the internet has really helped us. So we can look these things up and know for a fact that, you know, these companies do things that align with your values, which I think is important. Yeah. Again, that is, I don't want to muddy the waters between ESG and sort of impact investing and socially responsible investing, very different things. And we're very focused on ESG and reporting and ESG program building. But I do think, you know, the two everything is born from the same, uh, the same idea originally that ultimately. You, your values are what you what you consume.

Tom (00:52:18) - Yeah, yeah. We've gone through a lot of different topics. I'll ask you and Adam and then I'll go. Okay. One thing that you would want people to take away from this. So thinking of an accounting audience and I'm guessing the majority didn't walk in saying I'm an ESG expert. So just love kind of what's the maybe one thing you're saying.

Tom (00:52:35) - Please walk away understanding this.

Kai (00:52:38) - Oh you know, so walk away. Understand that ESG is going to be important for your clients. And at some point in the trajectory of their business, it's going to come up. And it's valuable for you as an accounting firm or an accountant, to be knowledgeable about it, to be able to approach your clients about it. And in many cases, I think it's a valuable revenue stream for your listeners.

Tom (00:53:07) - Yeah. Oh that's excellent Adam, how about how about for you? 

Adam (00:53:12) - Yeah, I agree, I mean think the big thing is, is that, you know, for the past few years I've just kind of put it on the back burner. So knowing that it's increasingly becoming more and more a part of what we do, making sure we have a knowledge for it, but then also reaching out and finding the resources think is an important thing. Just knowing that there's, you know, people out there, like they can help you so you don't have to be, you know, the subject matter expert is important.

Kai (00:53:37) - Yeah. I mean, that's how we're involved with accounting firms is, you know, a lot of them don't have the wherewithal or desire to ramp up a consulting firm within them. And so we love working with accounting firms as strategic partners and working under their brand or sort of directly with their customers.

Tom (00:54:02) - Yeah. Yeah.

Tom (00:54:04) - And I think the way you said we could have the conversation with our clients is just a great thing that I can I know some of the biggest customers I can glance and see if they have strong CSR reports and have that conversation and maybe introduce it, or may find out. They've been looking at this for a while and they just didn't feel a need to include me in that.

Kai (00:54:19) - So that's right.

Kai (00:54:21) - This, if nothing else, you sound much more knowledgeable. I think even a customer says, yeah, it never comes up. Our customers aren't doing that. It's still it's still adds to your credibility.

Tom (00:54:34) - Yeah, yeah. That's great.

Tom (00:54:37) - Well, thank you so much. Very educational, very much in line with the kind of things that our audience really wants to learn about. So we really appreciate it.

Kai (00:54:45) - Of course. My pleasure. It was great with both of you.

Adam (00:54:48) - Thanks.

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