The field of environmental, social and governance reporting and assurance is a natural opportunity for accountants, and one that’s ripe for the taking. But they risk losing the opportunity if they don’t move more quickly.

Incoming and evolving regulation from the European Union and in some U.S. states means more companies will be looking for attestation that their climate and other initiatives are actually effective. Accounting firms are at varying stages with ESG, with the biggest firms having invested billions in this area and smaller firms just getting started. However, there’s still hesitancy among many firms.

There are three key areas of regulations to watch: the Corporate Sustainability Reporting Directive in the EU, the proposals from the Securities and Exchange Commission in the U.S., and American state regulation, specifically from California.

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With the new presidential administration, experts anticipate that the SEC will table or even rescind its proposed regulation. But EU regulations are expected to impact as many as 3,000 private and public U.S. companies, and proposed regulation in California will impact all companies that do business in the Golden State.

“What we always talked about previously was, ‘We have this alphabet soup of standards and frameworks and nobody knows what to do,'” KPMG US sustainability leader Maura Hodge said. “But what we’re actually finding is that it’s creating a patchwork of complexity, so while it’s more organized, it is still very complicated.”

“I think that there is a desire on the preparers’ part to continue to pump the brakes on this and say, ‘We don’t want to go all in because everything keeps changing and we aren’t sure if it’s going to be required or mandated or not,'” Hodge said. “But what we have been advising and the reality is that this needs to happen. Most of these companies have been reporting voluntarily historically anyway, and I think there’s a recognition and a realization that transparency and accountability in that reporting is what is desired.”

“At a minimum, shifting what you’ve done in the past to get to this regulatory baseline is a no-regrets move that you kind of keep working forward to,” she added.

Highly transferable skills

Accountants are well-suited to performing this service as ESG reporting and assurance moves away from the marketing and investor relations side of companies and becomes a financial function with regulation and standards.

Though accountants may need upskilling in specific sustainability topics, Ami Beers, senior director of the assurance and advisory innovation team at the American Institute of CPAs, says the foundational processes and skills are highly transferable, like understanding different standards and frameworks, gathering data from multiple sources, pulling together reports, and implementing processes and controls and governance.

“We have been collectors of data and auditing of that data for millennia now. We’ve been doing it with financial data. It only makes sense that we could do it with nonfinancial data. We already have frameworks set up that we adhere to for really high-quality work and high-integrity work, which ESG is in general,” said Jennifer Harrity, ESG and sustainability leader at Top 100 Firm Sensiba.

“Accounting firms are very good with the quantifiable data, but the qualitative data is scarier for them because that’s not normally where they live,” Harrity said. “But when you look at it, this is data that you look at opportunities and risks and that’s what accountants have been really good at for a very long time — looking at the numbers and having it tell a story, being able to tell that story to the clients in order to see what is opportunities and risks for an organizations. When paired with the financial data, it’s an extremely impactful forecast, and it’ll allow you to forecast for your clients with a much longer look into the future than just financial data alone.”

Where to start with ESG

With an ongoing talent shortage, firms may feel at a loss on how to start a whole new practice when they still have their traditional compliance work to complete. Starting with a materiality assessment using the Sustainability Accounting Standards Board’s framework is a good place to start, Harrity said.

“Don’t just jump into the practice. Figure out what you want to help your clients with in the ESG space and run through it yourself as a firm,” Harrity said. “One of the things that we did is we said we’re not going to offer any services or tools to our clients that we have not put ourselves through, and I think once you start doing that, you start to really see the value of ESG from an owner standpoint and from an organizational standpoint.”

Establishing good governance practices cannot be overlooked, either. Oftentimes, standard operating procedures aren’t written down — they live in an individual employee’s or a collective’s head.

“If the person who’s responsible for collecting this data were to wake up tomorrow and not be able to come to work, would somebody else be able to know what they were doing and be able to recreate that information?” Hodge said.

After ensuring there is solid governance, then firms can layer controls on top.

“What’s really important to remember — we talk about this all the time with controls on the financial reporting side — is that the company needs to be doing that before their assurance providers come in,” said KPMG’s Hodge. “Because while we perform some of the same procedures, you don’t want the assurance provider to find those mistakes. You want to have identified them and resolved them prior to the assurance provider coming in, or else it just makes the process longer.”

As the profession moves from a compliance to an advisory model, with developing technology like artificial intelligence taking over the compliance side, ESG is an opportunity for firms to add a revenue-generating service to their consulting and advisory arsenals. But this opportunity won’t be around for long.

“There are a lot of sustainability consulting firms, not accounting firms, that are chomping at the bit for this work. If accounting does not get their butts together, it’s ours to lose,” Harrity said. “This business and this niche could be a really powerful additive to our firms, but if we linger, those sustainability firms are going to swoop in and really dominate the space, and it’s going to be hard for us to come back in.”