Accounting
Accountants & ESG: The next frontier
The environmental, social and governance landscape can be confusing.
With evolving regulations, geopolitical challenges, and various frameworks to navigate, keeping pace with it all and developing an ESG strategy that satisfies stakeholders is no small feat for many businesses — but for accounting firms, these challenges can spell opportunity.
With expertise in regulatory compliance, financial reporting, and internal controls, accounting firms are ideally positioned to help clients ensure data quality, maneuver the complex ESG frameworks, and provide independent assurance. These are among the services in need as ESG-related strategies increasingly shift from a voluntary effort to a business imperative.
In fact, a survey by Moss Adams (which merged with Top 25 Firm Baker Tilly earlier this year) conducted in July 2024 of 200 ESG decision-makers in the U.S. found that 76% of respondents consider ESG reporting and disclosures a high priority.
The key drivers behind ESG or sustainability reporting and disclosures, according to the “State of ESG for Mid-Market Organizations” survey, are:
- The need to comply with related regulations (71%);
- To strengthen the company’s brand (68%);
- To gain operational efficiencies (63%); and,
- To respond to stakeholder demand (49%).
“I do think CPA firms can bring our reputation, our skill set, and bring a different lens to the ESG world. We bring audit discipline, we bring our knowledge of what trusted reporting processes look like, what trusted risk management approaches look like. We are really able to look more holistically across an organization and help sustainability teams, or whoever in an organization is handling that, and think about how do they integrate it into the rest of their activities,” said Debbie Biddle-Castillo, Baker Tilly’s risk advisory principal and ESG advisory leader in Irvine, California.
That said, regulatory ambiguity has sparked a notable shift in the ESG universe.
“You have a lot of companies in the U.S., in particular, of course, that are kind of adopting this wait-and-see posture. What’s going to happen? What are the federal requirements going to be? What political shifts? They don’t want to overinvest in complying until they know a little bit more. So, there’s a bit of uncertainty for a group of organizations thinking along those lines,” said Jim Pelletier, lead product manager for Wolters Kluwer TeamMate, which is part of the Wolters Kluwer Corporate Performance & ESG Division.
Despite this, many companies are still forging ahead and voluntarily adopting ESG reporting. “[This is] either because it is coming from investor pressure, or they see it as a competitive advantage, or they are ultimately looking to access global markets. So companies that want to grow into European markets, for instance, or expand their operations into European markets, certainly need to get ahead of the game and think outside the current limitations in the U.S. market.”
The shifting sands of ESG
Taking an anti-ESG stance, the Trump administration has pursued deregulation and limited sustainability requirements. It has, for instance, severed ties with the Paris Agreement, moved to restrict ESG considerations in corporate disclosures and retirement plans, and dialed back environmental rules.
Meanwhile, another area of uncertainty is the timing and scope of the European Union’s regulatory framework, the Corporate Sustainability Reporting Directive. Earlier this year, the European Commission introduced an omnibus package to reduce the due diligence and sustainability reporting requirements for entities within the scope of the CSRD, as well as the EU Taxonomy, and the Corporate Sustainability Due Diligence Directive.
As of press time, the omnibus package remained under discussion, with a final European Parliament vote expected in October 2025.
(Read more: “Preparing yourself and your firm for ESG.”)
As stated in KPMG’s ESG Assurance Maturity Index 2025, “If enacted, it would significantly narrow the CSRD’s scope — limiting mandatory sustainability reporting to only the largest companies. Parallel work to revise the European Sustainability Reporting Standards is expected to significantly reduce the number of disclosures that companies will need to eventually report, e.g. prioritizing quantitative datapoints over narrative text and clearly distinguishing between mandatory and voluntary data requirements. For companies that are not yet required to report, initial application has been delayed by two years.”
Despite regulatory ambiguity, KPMG’s research found that most (74%) of the companies are staying the course with their sustainability reporting plans under the CSRD. Of those, nearly 41% are also sticking to their preparations for assurance.
The ESG momentum, however, has lost some of its steam (for now), and in some cases, has shifted course. But, overall, firms and their clients are advised not to rest on their laurels. The benefits to be gained and stakeholder pressures for transparency are simply too strong to ignore.
“The way that we, at KPMG, approached [the omnibus] and sort of the shift in regulation was, instead of allowing compliance to solely drive what we were doing, it was a shift to encourage companies to go back to the reason why this regulation came into place first, which was to develop their plans, goals, ambitions, strategies around how to become a more sustainable company, and understand what actions they were actually going to take in order to execute on those targets and goals,” said Maura Hodge, the U.S. sustainability leader for KPMG based in the Boston office.
She continued, “A lot of what we’ve been doing now is focusing on climate risk assessments, partially because California is driving it, but partially because that is the basis for a lot of carbon and climate strategy work moving forward.”
Similarly, at Chicago-based Top 10 Firm BDO USA, audit principal and sustainability assurance leader Dan Harris and sustainability services market leader Srinand Yalamanchili said that much of the assurance activity had previously centered on CSRD, as the EU regulation would have impacted numerous U.S. companies with reporting requirements in 2026 for 2025 information.
Due to the omnibus and two-year delay, BDO has now seen a shift in regulatory focus to California. The state has two regulations — SB 261 and SB 253 — that require reporting in 2026, which largely impact companies in the U.S. but could also impact overseas operations.
- SB 261: Starting Jan. 1, 2026, companies with more than $500 million in annual revenue that operate in California must publicly report, every two years, on climate-related financial risks and mitigation strategies.
- SB 253: This applies to U.S.-based companies with annual revenues exceeding $1 billion that do business in California. Starting in 2026, they must report their Scope 1 and 2 greenhouse gas emissions, and beginning in 2027 they will need to report Scope 1, 2 and 3 emissions.
Harris and Yalamanchili said that, from an assurance and reporting perspective, SB 261 and SB 253 are creating significant opportunities covering both preparation and assurance. Companies that are in scope are taking steps to ensure they are ready to fulfill the requirements.
Meanwhile, on the advisory side, the biggest opportunity relates to broader sustainability versus just ESG services, the BDO experts explained. Fueled by increased demand from AI and crypto mining, they see significant opportunities in energy markets. The energy grid is under strain, and there’s a gap between rising demand and supply. They noted that, in the intermediate term, this will result in significant energy cost increases.
Helping clients secure clean energy, cut operating costs, and enhance efficiency while operating sustainably — all of which typically help companies become more profitable over the long run — are within the overarching advisory opportunity, said Harris and Yalamanchili. Key areas include:
- Minimizing tax liabilities;
- Utilizing appropriate tax credits to reduce investment costs;
- Engaging with state and local tax incentives around job creation and energy efficiencies;
- Tax planning strategies to take full advantage of ESG investments for global companies; and,
- Exploring how offering green products and services can increase market share.
Lessons learned
The ESG landscape is undoubtedly in a state of flux as the U.S. market navigates uncertainty and political hurdles, and international standards continue to evolve. While many questions remain, it is clear that lessons have been learned and opportunities for firms exist.
As outlined in KPMG’s survey, analyzing the first wave of companies reporting under the CSRD revealed valuable insights that should be considered. For instance, 60% of these first-wave companies said that they expect to gain market share or expand their client base, and more than half anticipate increased profits and a stronger reputation.
The KPMG research also showed that pressure for sustainability assurance is heating up. “As investors increasingly rely on a combination of financial and sustainability statements to assess a company’s value, it’s no surprise that nearly 80% of respondents who obtained assurance on their sustainability disclosures did so through an audit firm,” researchers wrote.
Additionally, key lessons learned, as outlined in the KPMG research, include:
- Don’t delay, because most businesses needed more than a year to prepare for ESRS reporting and assurance.
- Drive engagement. This means getting boards involved and securing senior-level engagement.
- Be prepared to capture new metrics and KPIs. Companies have needed to expand the scope of what they capture, including gender pay gaps, supplier terms of payment, and other areas.
- It’s not just a regulatory compliance exercise; it’s an opportunity to inform and engage with key stakeholders, including investors.
Speaking of lessons learned, Pelletier of Wolters Kluwer pointed to SOX and the importance of shifting away from a compliance-burden perspective.
“For firms, one of the things to consider is, yeah, there’s the compliance component of [ESG], but we went through that with SOX, and companies saw that as a burden. So, I think one of the potential value differentiators here for a firm is to look at it from a perspective of: How do I demonstrate that complying can also add strategic value to the organization?” said Pelletier. “Can I tie their sustainability information to their financial information and give them future insights? You start thinking of things like scenario planning and stuff like that. If I can find correlations in data, it can help to drive better long-term strategic thinking.”
Instead of viewing ESG as a compliance burden, see it as a strategic advantage, said Pelletier. For example, in financial reporting, there has been a shift in thinking toward viewing internal controls as tools for managing risks, which are things that can prevent organizations from achieving their objectives. So, by effectively managing those risks with internal controls, organizations are much more likely to reach their goals.
“We’re seeing that shift in thinking on the financial reporting side of the house. I think we’re also going to see it on the nonfinancial reporting, the ESG and sustainability reporting. What are the internal controls behind this? And that gets a lot more complex. … With ESG, that [data] is spread across the organization in multiple processes, in multiple workflows, and in multiple systems. How do we help to bring that data together?”
Added Pelletier, “I think that’s going to be the magic spot for firms is in helping organizations to do those things: How do I define all of those things? How do I know where all of the data is? How do I understand all of those systems? How do I bring it together and know that that data is really good quality? And then, how do I know that I have the right controls in place? … We have that discipline on the financial reporting side. I don’t know that many organizations have that discipline on the nonfinancial reporting side.”
When asked about ESG-related services, Harris and Yalamanchili of BDO said that, while controls and data integrity are fundamental services that feed into data that later requires assurance, the most exciting work is in operational strategy: exploring how sustainability initiatives can boost efficiencies, reduce costs, and create opportunities for new products and services to gain more market share.
On one end of the spectrum is ESG reporting assurance, which companies see as a regulatory requirement, and on the other end are services that go beyond mere compliance. These services directly influence profitability, operating costs, and shareholder returns — elements critical to the success of the business, Harris and Yalamanchili said.
They went on to explain that the most significant value-adds that accounting firms can provide to clients regarding ESG reporting and auditing include:
- Filling knowledge gaps and assisting in upskilling internal teams.
- Providing assurance and a greater degree of confidence in the data presented to management, boards and audit committees.
- Offering feedback on current processes for gathering and reporting data (they continue to see many companies relying heavily on Excel).
- Helping to prepare framework-compliant reports and providing feedback on process controls.
- Making recommendations to improve process efficiency.
So, what’s next? What does the future of ESG hold? While no one knows for sure, Biddle-Castillo shared her thoughts and predictions.
“I think we are seeing assurance continuing to become more and more common and demanded in our regulations. So, I think as we see more of the regulations really coming into effect, that is going to continue. We have been seeing, in prior years and will continue to see, convergence in global regulations. The regulatory groups have been saying that is a key priority for them. They want to make sure what they are coming out with is interoperable with others. So, I think we are going to continue to see that convergence, but in the next five years we are going to see more of these regulations actually start to come into effect, versus us just talking about them,” Biddle-Castillo said.
She also believes the regulations will “lift the bar of what does ‘good’ look like” and that even companies not subject to ESG reporting and assurance requirements will be affected and influenced by expectations.
Added Hodge, “How regulation plays out will ultimately drive a lot of opportunity. One of the key questions is the extent to which regulators limit assurance at least to accounting firms or certain credentials, versus continuing to leave it open. I think even if it is left open and nonaccounting firms are still able to provide that assurance, it is going to be incumbent on the accounting profession to really clearly articulate our value in providing these services. And I think where our value comes is the ability to connect the financial information with the nonfinancial information.”
Over the last few years, AI has gone from being a novelty to a mission-critical business strategy for many accountants. Innovative, forward-thinking firms are using these tools to streamline manual tasks, ensure compliance and provide the best possible service to their clients. According to the 2025 Intuit QuickBooks
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However, AI adoption is at varying levels across the industry. While nearly every firm has begun experimenting with basic AI tools, many remain in a sandbox phase, hesitant to move toward full-scale integration due to perceived complexity or costs.No matter where you may fall on the integration spectrum, the fact remains: AI is rapidly reshaping the accounting industry. If you’ve delayed AI adoption in your business, you’ll want to create a focused plan to catch up.
Time is of the essence, but don’t sacrifice strategy for speed
Firms that are ready to take the leap from casual use to deep integration may find themselves in need of accelerated adoption, but speed should not come at the cost of strategy. Identify tangible, practical ways that easy-to-use tools can impact your business through automation. Having a strong strategic focus allows firms to implement workflow changes to streamline manual tasks, ensure compliance and provide excellent service to your clients.
To begin your AI journey, here is a four-step plan that firms can use to transition from experimentation to execution, in a safe, practical manner:
Step 1: Kick off your first AI project
As is the case with many things, getting started is often the most challenging step. While enthusiasm is high, uncertainty with implementation risks can cause hesitation. The key is to lower risk by embracing AI and implementing an intentional, phased approach. Begin by weaving AI tools into high-impact, low-risk tasks, such as summarizing meeting notes, drafting client or firm-wide memos, or translating complex concepts into easy-to-understand ideas. Monitor results carefully and, if these initial attempts need adjustment, be prepared to pivot to the next use case until you can clearly demonstrate that AI systems are delivering a measurable impact on your operations. From there, you can learn from early experiences, adapt strategy, and scale appropriately to complete more complex projects.
Step 2: Dig into your AI toolkit
The marketplace is crowded with AI-powered tools that promise to do everything from enhancing your workflows to improving the customer experience. It can be hard to know which ones are worth investing your time and money. Find a trusted source like a respected peer, or leverage your professional network to help discuss the tools that may be the best fit for achieving your business goals. You can also look within the tools you’re already using to see if they offer AI-powered features, which can help ease into the transition. Additionally, look for free high-quality education to upskill your team. For example, Anthropic offers a Claude AI University that provides excellent foundational resources for moving beyond basic prompts.
Step 3: Review an AI security checklist
An important element in AI implementation is security. With AI tools needing access to firm and client data to function, it leads to questions of how the data will be protected. This makes the right AI and cybersecurity strategy critical. Firms must proactively ensure that client data remains protected from today’s increasingly sophisticated threats by embracing an established cybersecurity framework such as
Step 4: Openly discuss AI usage with your clients
Once you’ve established the best way to use AI tools that meet your firm’s needs, you’ll want to communicate all of the advantages afforded by these tools to your clients. Make sure you highlight the benefits and simultaneously ensure you are addressing any potential concerns. It’s also important to get explicit consent from all clients if you’re sharing their information with the third-party tools you may use. While this might seem like an extra step, it will go a long way toward fostering a greater level of transparency and deepen trust between you and your clients.
Don’t get left behind
Adopting AI does not have to be intimidating, expensive or overly complex. Think of it as a strategic business move that will not only keep you competitive, but will potentially free you up to focus on keeping clients happy and growing your practice. By strategically focusing on these best practices, identifying AI use cases in a phased approach, evaluating the right tools for your business, ensuring client information is secure and clearly communicating your AI strategy, you’ll be AI-ready in no time.
The Financial Accounting Standards Board met this week to discuss its projects on accounting for transfers of cryptocurrency assets and enhancing the disclosures around certain digital assets, such as stablecoins.
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During Wednesday’s meeting, FASB’s board made certain tentative decisions, according to a
At a future meeting, the board plans to consider clarifying the derecognition guidance for crypto transfer arrangements to assess whether the control of a crypto asset has been transferred.
FASB also began deliberations on the
The board decided to provide illustrative examples in Topic 230, Statement of Cash Flows, to clarify whether certain digital assets such as stablecoins can meet the definition of cash equivalents. It also decided to include the following concepts in the illustrative examples:
- Interpretive explanations that link to the current cash equivalents definition;
- The amount and composition of reserve assets; and,
- The nature of qualifying on-demand, contractual cash redemption rights directly with the issuer.
FASB plans to clarify that an entity should consider compliance with relevant laws and regulations when it’s creating a policy concerning which assets that satisfy the Master Glossary definition of the term “cash equivalents“ will be treated as cash equivalents.
“I agree with the staff suggestion to look at examples,” said FASB vice chair Hillary Salo. “From my perspective, I think that is going to help level the playing field. People have been making reasonable judgments. I agree with that. And I think that this is really going to help show those goalposts or guardrails of what types of stablecoins would be in the scope of cash equivalents, and which ones would not be in the scope of cash equivalents. I certainly appreciate that approach, and I think it has the least potential impact of unintended consequences, because I do agree with my fellow board members that we shouldn’t be changing the definition of cash equivalents, and it’s a high bar to get into the cash equivalent definition.”
“I’m definitely supportive of not changing the definition of cash equivalents,” said FASB chair Richard Jones. “I believe that’s settled GAAP in a way, and we’re not really seeing a call to change it for broader issues. I am supportive of the example-based approach. The challenge with examples, though, is everybody’s going to want their exact pattern, but that’s not what we’re doing.”
The examples will explain the rationale for how digital assets such as stablecoins do or do not qualify as cash equivalents and give a roadmap for other types of digital assets with varying fact patterns to be able to apply.
“We really don’t want to be as a board facing a situation where something was a cash equivalent and then no longer is at a later date,” said Jones. “That’s not good for anyone, so keeping it as a high bar with certain rigid criteria, I think, is fine.”
Stablecoins are supposed to be pegged to fiat currencies such as U.S. dollars and thus provide more stability to investors. “In my view, while a stablecoin may meet the accounting definition established for cash equivalents, not every one of those stablecoins in the cash equivalent classification represents the same level of risk,” said FASB member Joyce Joseph.
She noted that the capital markets recognize the distinctions and have established a Stablecoin Stability Assessment Framework to evaluate a stablecoin’s ability to maintain its peg to a fiat currency. Such assessments look at the legal and regulatory framework associated with the stablecoin, and provide investors with information that could enable them to do forward-looking assessments about the stability of the stablecoin.
“However, for an investor to consider and utilize such information for a company analysis the financial statement disclosures would need to include information about the stablecoin itself,” Joseph added. “In outreach, the staff learned that investors supported classifying certain stablecoins as cash equivalents when transparent information is available about the entities at which the reserve assets are held. Therefore, in my view, taking all of this into consideration a relevant and informative company disclosure would include providing investors with the name of the stablecoin and the amount of the stablecoin that is classified as a cash equivalent, so investors can independently assess the liquidity risks more meaningfully and more comprehensively by utilizing broader information that is available in the capital markets and its emerging information.”
Such information could include the issuer, reserves, governance and management, she noted, so investors would get a more holistic look at the risks that holding the stablecoin would entail for a given company.
The board decided to require all entities to disclose the significant classes and related amounts of cash equivalents on an annual basis for each period that a statement of financial position is presented.
Entities should apply the amendments related to the classification of certain digital assets as cash equivalents on a modified prospective basis as of the beginning of the annual reporting period in the year of adoption.
FASB decided that entities should apply the amendments related to the disclosure of the significant classes and amounts of cash equivalents on a prospective basis as of the date of the most recent statement of financial position presented in the period of adoption.
The board will allow early adoption in both interim and annual reporting periods in which financial statements have not been issued or made available for issuance.
FASB also decided to permit entities to adopt the amendments to be illustrated in the examples related to the classification of certain digital assets as cash equivalents without the need to perform a preferability assessment as described in Topic 250, Accounting Changes and Error Corrections.
The board directed the staff to draft a proposed accounting standards update to be voted on by written ballot. The proposed update will have a 90-day comment period.
Senators introduced several pieces of tax-related legislation this week, including measures aimed at improving customer service at the Internal Revenue Service, cracking down on tax evasion and curbing the carried interest tax break, in addition to efforts in the House to repeal the Corporate Transparency Act.
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Senators Bill Cassidy, R-Louisiana, and Mark Warner, D-Virginia, teamed up on introducing a bipartisan bill, the
The bill would establish a dashboard to inform taxpayers of backlogs and wait times; expand electronic access to information and refunds; expand callback technology and online accounts; and inform individuals facing economic hardship about collection alternatives.
“Taxpayers deserve a simple, stress-free experience when dealing with the IRS,” Cassidy said in a statement Wednesday. “This bill makes the process quicker and easier for taxpayers to get the information they need.”
He also mentioned the bill during a
“I’m happy to meet with the team … and do all I can to make it as good as you want it to be,” said Bisignano.
“My bill would equip the IRS with the legislative mandate to create an online dashboard so that taxpayers can monitor average call wait time and budget time accordingly,” said Cassidy. He noted that the bill would allow a callback for taxpayers that might need to wait longer than five minutes to speak to a representative, and establish a program to identify and support taxpayers struggling to make ends meet by providing information about alternative payment methods, such as installments, partial payments and offers in compromise.
“I know people are kind of desperate and don’t know where to turn for cash, so I think this could really ease anxiety,” he added. “This legislation is bipartisan and is likely to pass this Congress.”
Cassidy and Warner
“Taxpayers shouldn’t have to jump through hoops to get basic answers from the IRS — and in the last year, those challenges have only gotten worse,” Warner said in a statement. “I am glad to reintroduce this bipartisan legislation on Tax Day to ease some of this frustration by increasing clear communication and making IRS resources more readily available.”
Stop CHEATERS Act
Also on Tax Day, a group of Senate Democrats and an independent who usually caucuses with Democrats teamed up to introduce the Stop Corporations and High Earners from Avoiding Taxes and Enforce the Rules Strictly (Stop CHEATERS) Act.
Senate Finance Committee ranking member Ron Wyden, D-Oregon, joined with Senators Angus King, I-Maine, Elizabeth Warren, D-Massachusetts, Tim Kaine, D-Virginia, and Sheldon Whitehouse, D-Rhode Island. The bill would provide additional funding for the IRS to strengthen and expand tax collection services and systems and crack down on tax cheating by the wealthy.
“Wealthy tax cheats and scofflaw corporations are stealing billions and billions from the American people by refusing to pay what they legally owe, and far too many of them are getting a free pass because Republicans gutted the enforcement capacity of the IRS,” Wyden said in a statement. “A rich tax cheat who shelters mountains of cash among a web of shell companies and passthroughs is likelier to be struck by lightning than face an IRS audit, and Republicans want to keep it that way. This bill is about making sure the IRS has the resources it needs to go after wealthy tax cheats while improving customer service for the vast majority of American taxpayers who follow the law every year.”
Earlier this week. Wyden also
The Stop CHEATERS Act would provide the IRS with additional funding for tax enforcement focused upon high-income tax evasion, technology operations support, systems modernization, and taxpayer services like free tax-payer assistance.
“As Congress seeks ways to fund much-needed policy priorities and address our growing national debt, there is one common sense solution that should have unanimous bipartisan support: let’s enforce the tax laws already on the books,” said King in a statement. “Our legislation will make sure the IRS has the resources it needs to confront the gap between taxes owed and taxes paid – while ensuring that our tax enforcement professionals are focused on the high-income earners who account for the most tax evasion. This is a serious problem with an easy solution; let’s pass this legislation and make sure every American pays what they owe in taxes.”
Carried interest
Wyden, King and Whitehouse also teamed up on another bill Thursday to close the carried interest tax break for hedge fund managers that
Carried interest is a form of compensation received by a fund manager in exchange for investment management services, according to a
Under the bill, the
“Our tax code is rigged to favor ultra-wealthy investors who know how to game the system to dodge paying a fair share, and there is no better example of how it works in practice than the carried interest loophole,” Wyden said in a statement. “For several decades now we’ve had a tax system that rewards the accumulation of wealth by the rich while punishing middle-class wage earners, and the effect of that system has been the strangulation of prosperity and opportunity for everybody but the ultra-wealthy. There are a lot of problems to fix to restore fairness and common sense to our tax code, and closing the carried interest loophole is a great place to start.”
Repealing Corporate Transparency Act
The House Financial Services Committee is also planning to markup a bill next Tuesday that would fully repeal the Corporate Transparency Act, which has already been significantly
If enacted, the repeal would eliminate beneficial ownership reporting requirements, removing a transparency measure designed to help law enforcement and national security officials identify who is behind U.S. companies.
“This repeal would turn the United States back into one of the easiest places in the world to set up anonymous shell companies, something Congress worked for years to fix,” said Erica Hanichak, deputy director of the FACT Coalition, in a statement. “These entities are routinely used to facilitate corruption, financial crime, and abuse. Rolling back the CTA doesn’t just weaken transparency, it signals to bad actors around the world that the U.S. is once again open for illicit business.”
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