One of the most talked about areas of growth is ESG (environmental, social and governance), but it is still an emerging area.
The ICAEW has reported that 45% of firms are yet to offer ESG services to their clients. Of those that do offer the service, 83% have more than 20 partners. This suggests that there are opportunities in this area, but they might be dependent on the firm's current client base and whether they're required to report ESG information in their accounts, together with the expertise within the firm.
It may feel challenging to move into an entirely new area, but accountants already have skills in financial report preparation and in assurance, which are both very closely linked with ESG requirements.
IFRS S1 and IFRS S2
New standards and regulations around ESG provide fertile ground for potential new or expanded service offerings. For instance, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and S2 Climate-related Disclosures set out related disclosure requirements. The objectives for each standard are as follows:
The objective of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information is:
"To require an entity to disclose information about its sustainability-related risks and opportunities that is useful to users of general purpose financial reports in making decisions relating to providing resources to the entity."
The objective of IFRS S2 Climate-related Disclosures is:
"To require an entity to disclose information about its climate-related risks and opportunities that is useful to users of general purpose financial reports in making decisions relating to providing resources to the entity."
In addition to these requirements, the EU has implemented the Corporate Sustainability Reporting Directive (CSRD). The directive requires all large and listed EU companies to disclose information on what they see as the risks and opportunities arising from social and environmental issues and the impact on their activities, on people and on the environment. Note, though, that the recent "Omnibus" package significantly curtailed the impact of the requirements.
Whilst the CSRD is an EU-wide requirement, many groups of companies will include an EU member, or have customers in the EU that might be impacted by the information a company is required to provide to be compliant with CSRD at a higher level. Many companies may therefore be seeking advice on CSRD, though this is more likely if they are primarily based in Europe.
ISSA 5000
In addition to the reporting requirements, the newly issued assurance standard, International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements, sets out the basic requirements in relation to providing an assurance report on sustainability disclosures.
The standard has been written to be agnostic in terms of the professions or people that could provide such services, but it is heavily based on other IAASB assurance standards and requires compliance with the quality management standard ISQM. It will therefore feel relatively familiar to auditors.
Accountancy firms that provide assurance services may want to consider whether they wish to provide sustainability assurance, and if the expertise and structures within the firm are not already in place, how to achieve this. Increasingly, sustainability directives around the world, such as the EU's CSRD, do or will require assurance. There will therefore be a market, mostly in large and listed companies, for sustainability reporting and/or assurance.
Small scale
As well as the regulatory requirements for larger companies to report on ESG issues, many compliance issues will trickle down to smaller firms, as Scope 3 emissions (broadly those within the supply chain) are included in reports.
Many large companies, who could be customers of a smaller entity, might also require confirmation of the smaller company's ESG, bribery and corruption and modern slavery policies. Accountancy firms can help such clients to know what types of information should be included in such policies.
Smaller clients, who might remain largely unaffected by the regulatory reporting requirements, might find their business models affected. For instance, if an SME has been producing plastic party bags and drinking straws, or disposable water bottles, they will have found the demand for their products dropping dramatically in response to a mix of legislative changes and customer behaviour.
The same goes for car dealers, workshops and manufacturers affected by the production of electric vehicles. Businesses will need to consider whether their business model is likely to be influenced by changing legislation or customer behaviour, or other aspects of the PESTLE (political, economic, social, technological, legal, and environment) acronym.
Accountancy firms can help their clients to undertake SWOT (strengths, weaknesses, opportunities, and threats) or PESTLE analyses, especially in relation to ESG issues, to identify areas where the business model may struggle in the future, or provide opportunities for additional success.
Source: Corporate Sustainability Reporting European Commission
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