Big corporations are keeping an eye on more than just their profits these days.
Investors, regulators and the general public are increasingly demanding that publicly traded companies measure and report their efforts to keep the “triple bottom line” — profits, people and the planet — healthy.
This reporting of environmental, social and governance (ESG) activities is a rapidly growing field for consulting and public accounting firms. There are now tens of trillions of dollars in investment funds that apply ESG standards to their investment decision making.
“Part of what I think we’re seeing is an ability to manage the short-term pressures of managing an economy well with the need to manage that over the longer term,” says Jeffrey Hales, Chairman of the Sustainability Accounting Standards Board (SASB).
The board is a critical part of establishing rules to measure how businesses account for their environmental, social and governance practices. “Increasingly investors are holding companies accountable for that,” Hales says.
And accountants are increasingly taking a leading role in developing those ESG standards, measuring the data and reporting it.
Just as with financial reporting, accountants are being called upon to handle these tasks because of their analytical skills, knowledge of business, and ability to understand and apply reporting standards.
ESG reporting covers a wide range of activities and concerns, but probably the biggest area of concern is environmental.
Investors are demanding more information about how companies are approaching environmental sustainability. What’s a corporation’s environmental impact? What is it doing to reduce carbon emissions? How is it handling the risks created by climate change?
Sometimes this field is called sustainability accounting.
Regulators and investors are also pushing companies to pay more attention to their social impact, including issues such as diversity and inclusion and how they are responding to other issues related to social equity.
And stakeholders want to understand what steps businesses are taking to ensure their governance is sound. This includes everyday business ethics, risk management and ensuring that laws are followed in the various jurisdictions companies operate in.
ESG concerns are generally two-fold: What are companies doing to ensure their own practices have a positive impact on society and the environment, plus what are they doing to manage business and financial risks related to those matters.
Climate change can pose a real risk to businesses. A company that discriminates against employees could face lawsuits, public boycotts and other problems. And when businesses are managed in unethical or inappropriate ways, they may face government enforcement or other actions that could hurt a company’s financial results and, therefore, hurt investors. Businesses that pay attention to ESG factors are increasingly believed to be more sustainable and face less risk than those who don’t.
From reporting these activities to developing strategies to actually tackle ESG issues, accountants are playing a major role.
Developing ESG strategies and ESG reporting begin with an understanding of the business and how money flows through the enterprise. The nature of a business’ operations and finances will determine what ESG measures are most relevant to it and how the company will implement sustainability strategies.
Because accountants already speak “the language of business,” they are well equipped to contribute to — and often lead — these processes. The process of understanding an evolving set of third-party standards, developing plans, and collecting and reporting data can reach into every corner of a company’s operations.
As ESG grows in importance and visibility, professionals with advanced accounting skills — like those learned in a Master of Accounting program — will be more in demand. And if you’re interested in helping businesses do well while also doing good, a MAC degree can secure your place in the heart of ESG and sustainability efforts.
“In my time in the practice alone, I’ve helped craft and create new services, take companies in new directions,” says Kal Trinkner, Senior Manager – Climate Change and Sustainability at EY, and a 2009 UNC MAC alumnus.
The demand for companies to improve their bottom lines while also being responsible for their impact on people and the environment will only continue, he said. “I don’t see that changing — next year, three years, 5-10 years from now.”
Sustainability strategies can affect what suppliers and vendors a company works with. It can affect how a company invests its capital and, for banks, who it lends money to. It can drive operational changes, capital expenditures, and hiring and advancement practices.
There is now a kind of alphabet soup of standard-setting organizations, including the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), CDP (formerly the Carbon Disclosure Project), and others. And there are proposals to integrate ESG reporting with financial reporting.
All this activity is creating lots of new career opportunities for accountants.
For example, the world’s four biggest public accounting firms — the “Big 4” — have staffed up ESG practices with thousands of specialists, including many accountants. And as corporations seek to start reporting — or improve their reporting — of ESG information, they too have hired more professionals to lead these efforts.
Accountants often work with other professionals, such as environmental consultants and human resources specialists, on ESG matters. But just as with financial accounting, accountants are trained to applying standard rules to collect information, analyze data and report on business activities.
“You might have an environmental scientist, you might have someone who did a master’s degree in sustainability,” Trinkner says. “They’ll come in with a little more technical knowledge. But they still need to understand how business works.”
MAC curriculum classes on auditing, for example, provide the tools accountants need to understand ESG requirements, collect and evaluate sustainability data, and provide authoritative reports on how well companies are doing. The UNC MAC program also provides classes in leadership and management that address topics such as diversity in the workplace and ethics — critical aspects of corporate ESG efforts.
And as ESG reporting becomes more integrated with daily business operations, knowledge of sustainability accounting will likely become increasingly important all accountants.
“Whatever career path you might be thinking of traditionally, I think that investing in an understanding of sustainability issues and ESG issues is going to improve your ability to bring value as a professional into those traditional domains,” Hales says.
As corporations take a more active role in protecting the planet and improving society, accountants will be involved every step of the way.