There is always a plethora of fascinating insights in Larry Fink’s annual letter to shareholders each year. As CEO of BlackRock, an asset manager managing close to $9 trillion on behalf of investors around the world, his views are increasingly seen as gospel to those in the corporate world. However, in this year’s note, one of Fink’s statements stood out – that listed companies with stronger ESG credentials are now performing better from a share price perspective than those that don’t, enjoying a “sustainability premium” that is only set to widen.
While ESG is far from a new concept, it has been building in prominence in recent years as customers, employees and investors are changing the way they engage with corporates based not only on their approach to climate change, but always their stance on areas such as diversity, social justice, and inequality.
This has led to dramatic changes in the non-financial information that companies are expected to publish. What was once simply a P&L and balance sheet, modern annual reports include detailed disclosure on carbon emissions, gender pay gaps and employee engagement. Such advancements are needed to demonstrate which companies are creating sustainable value for their stakeholders, however assessing sustainability risks requires that investors have access to consistent, high-quality, and material public information.
This presents a huge opportunity for Recently Qualified Accountants in both practice and industry to develop the expertise and skills needed to advise large corporates on how best to monitor, disclose and contextualise relevant ESG metrics in a consistent way. The skills qualified accountants possess, specifically ensuring the integrity of data and analysing why things have changed and how they could change in the future, are seen as vital to the future of ESG reporting as a result.
It therefore came as no surprise to see the leaders of the Big Four accounting firms come together in a rare joint initiative to unveil a reporting framework for environmental, social and governance standards. Announced toward the end of last year, it will see these firms encourage their clients to adopt these standards for their 2021 full year accounts.
The drive to create a common accounting framework has been sparked by rising frustration among investment groups over the competing systems for measuring ESG. In addition to metrics linked to the so-called Task Force for Climate-Related Financial Disclosures (TCFD), there have been metrics created by the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI). Described as an “alphabet soup of metrics” by Deloitte CEO Punit Renjen, understanding the differences in disclosure requirements as well as their relative strengths and weaknesses is already a valuable skill set for specialist accountants.
This area of expertise will only deepen. For example, while environmental factors such as carbon emissions are already being measured by many companies, certain social metrics are considered harder to measure with precision. This has seen a new wave of specialist accountants be trained in practice and employed in industry to advise on the reporting of such metrics a way that does not increase potential liability risk.
At FK International, we believe that trained accountants have clear transferable expertise and can adapt their existing skillset to help businesses satisfy investor concerns and deal with ESG issues in the following ways:
- Disclosure: Environmental costs, social risks and governance standards must be understood and considered properly so that they can be disclosed in line with rapidly changing regulations.
- Investment appraisal of projects: These elements can also be costed into projects, which impacts budgeting, the provision of forward guidance and overall asset valuations.
- Risk management: Investors want to see that companies are considering all relevant risks, so accountants can help identify and develop strategies to mitigate them.
- Strategy: With consultancy an ever more important part of an accountant’s role, many are expected to advise on how best to integrate ESG into an overall company strategy.
If ESG reporting is something that interests you, we would be happy to discuss potential roles as this is an area that is developing at pace and with an increasing value placed on specialism.
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