This article is based on a presentation at IBA’s Fall 2022 Forum on Accounting and Finance Analytics: Perspectives on ESG Reporting by Robert Hirth, Senior Managing Director at Protiviti, and Steve Wang, Managing Director at Protiviti.
As companies around the world become increasingly aware of the need to focus on environmental, social, and governance (ESG) issues, consulting firms like Protiviti are playing a crucial role in helping them navigate this complex landscape.
Bob Hirth, a longtime executive with Protiviti, has been at the forefront of the ESG movement for years, and he believes that there is tremendous opportunity for those with the right expertise in accounting, finance, and analytics.
Hirth notes that ESG reporting and sustainability standards have rapidly become global topics that companies ignore at their peril. In fact, he sees this as an opportunity for students and others interested in ESG to make a significant impact in the world.
However, Hirth also points out that many companies are still struggling to understand how to measure and report on ESG issues, and the current state of assurance standards is a prime example. While slightly more than half of the S&P 500 receives third-party assurance on ESG reporting, much of that assurance is limited and focused on only a handful of key performance indicators, such as greenhouse gas emissions. In addition, many environmental and engineering firms provide this assurance, rather than accounting firms.
This is likely to change soon, as the Securities Exchange Commission (SEC) is expected to adopt new requirements for climate-related disclosures. While many organizations have expressed concerns about what will be included in the final rule and when it will take effect, Hirth believes that the adoption of these new standards is inevitable.
However, with the adoption of the SEC rules, public companies will need to disclose certain environmentally related information and will need assurance over those disclosures. This will be monumental for the investors, policymakers, and other stakeholders impacted by the ESG landscape.
Steve Wang, another executive with Protiviti, notes that many CFOs and other financial professionals are worried about the impact of ESG reporting and the emerging regulatory requirements, which will force organizations to focus on data on areas never focused on before, such as the different scopes for emissions. He believes that companies need to implement a series of systematic internal controls for ESG as requirements for assurance continue to evolve.
Wang notes that organizations are beginning to implement ESG controls that tend to fall in one of three categories: entity-level controls, transactional controls, and consolidation/monitoring/management review controls. Examples of some of these controls include having an environmental policy in place or conducting ESG materiality assessment.
Overall, the SEC’s proposals for more consistent, transparent reporting also create opportunities for investors or stakeholders to hold a company to its goals. If a company fails to meet its goals, investors and other stakeholders will be asking why, which means that companies need to be more proactive than ever before about developing and implementing sustainable business practices.
Consulting firms like Protiviti are playing a crucial role in helping companies to navigate the complex world of ESG reporting and sustainability standards. As the SEC moves toward more stringent climate-related disclosures, companies will need to focus even more closely on ESG issues, and those with the right expertise will be well-positioned to make a significant impact in this area.
As Hirth emphasized, “Accounting and data analytics majors already have many of the core skills needed to help organizations develop effective, accurate, and meaningful reporting on sustainability and ESG. In some cases, they will need to top up their skills related to various environmental matters, such as greenhouse gas emission calculations. All of this simply spells ‘opportunity’ for students and recent graduates.”
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