There continues to be a lot of buzz about the need for CPAs to understand ESG and the critical role they can play in ESG reporting. The article below will explore some of the many reasons why ESG matters for CPAs and how you can address the challenges and opportunities it presents.
Why is it so important?
With climate change disruptions like 2021’s heat dome and floods in BC, it’s clear these events are threatening the future sustainability of the planet and in turn pose huge challenges for our governments and businesses, as they need to adapt to these new conditions.
As a result, we are seeing fundamental shifts in how businesses view the importance of an ESG strategy: organizations not only need to effectively manage ESG risks, they need to understand how to find opportunities from disruption. Incorporating sustainable business practices and accounting for ESG factors has become a focus for many organizations.
The role CPAs will play
CPAs have an important role to play as businesses adopt ESG, including:
- developing organizational strategy;
- ensuring coordinated execution; and
- applying appropriate governance and reporting practices, all with the highest ethical standards.
Another reason to embrace ESG is that clients and other stakeholders are increasingly asking CPAs for ESG and sustainability reporting services. Says Sarah Marsh, CPA, CA, partner with PwC Canada’s Sustainability and Climate Change team in Vancouver, “Today, [our ESG team] is expanding rapidly in response to increasing demands from our clients. ESG is being embedded into every line of our service and every department.” Learn more about why ESG matters for CPAs.
The need for an ESG strategy
It’s evident that we need to normalize and integrate ESG into how we do business in general. The Expert Panel on Sustainable Finance has noted: “If Canada is to meet its long-term objectives, sustainable finance must become, simply, finance. In other words, climate change opportunity and risk management need to become business-as-usual in financial services, and embedded in everyday business decisions, products and services.”
For corporations, this means they must identify why they should integrate ESG into their strategic and operational plans. This “why” is what will create the buy-in needed to drive action and change. However, because ESG strategy and reporting is often completely voluntary, we need to look at other possible reasons to embrace ESG, some of which are outlined below.
Access to capital: A recent RBC survey found that 75% of institutional investors incorporated ESG principles into their investment process in 2020, up from 70% the year before. PH&N Institutional’s vice president and portfolio manager, Andrew Sweeney, CPA, CA recently shared his insight on how having an ESG strategy and committing to ESG reporting will be increasingly important in raising capital for business, noting that “virtually every analyst or every portfolio manager is focusing on ESG issues.”
Identifying risk: An ESG strategy could also be developed for risk-mapping purposes to manage the broadest range of risks, including transitional risks and economic shifts.
Enhancing reputation: In addition, a sincere focus on ESG could be used to attract new customers and partners, and significantly influence an organization’s reputation.
Retaining talent: And we can’t forget talent attraction and retention, as we are seeing a generational shift in terms of ESG, with many younger workers expecting employers to take action on sustainability and demonstrate accountability. Learn more about the need for an ESG strategy.
New economic models that support ESG
Economic models work, until they don’t. With climate change affecting our daily lives—with extreme weather events and related air pollution, for example—it is time for new thinking and new models in economics. We must change, but how?
“Doughnut Economics,” with its representation of a safe zone in which economic activity can take place that ensures social equity and respects environmental constraints is already proving to be a valuable tool for many decision-makers, and it’s one CPAs should have on their radar, particularly given its compatibility with ESG principles. Learn more about Donut Economics.
Taking action: How BC companies are tackling ESG
ESG has gone from being an area of focus for a small number of organizations to something that is very mainstream. It’s fair to say that ESG is now business-critical and many BC companies are well into their ESG journey.
For Diane Vuong, CPA, CA, vice-president of finance and CFO of the Vancouver Airport Authority, a commitment to ESG has been an opportunity to demonstrate leadership. She notes, “At YVR, we are very passionate about ESG as well as our net-zero plan. It is important for us to build the credibility, and then to influence our business partners, to decarbonize our industry, and to look at the rest of our ESG practices and make sure that we're really walking the talk and lead within the industry. In fact, the net-zero plan of 2030 has been accelerated by 20 years.”
In terms of how YVR is handling ESG reporting, Vuong says, “In our 2020 report, we separated out the report into two parts. One, which was on the storytelling to share the efforts that we've made with our business partners, particularly through the pandemic, and making sure that we've kept ESG top of mind as we went through a pretty challenging time for the industry. The second part is a set of accountability statements that reported on the ESG metrics that we have as an organization. This second part is positioning us to be able to have those statements audited in the near future.” Learn more about how BC companies are tackling ESG.
In conclusion, CPAs have a vital role to play to help organizations address ESG-related risks and opportunities. As strategic, financial, and data-focused professionals, you are uniquely positioned to help companies navigate these complex issues.
To learn more about the topic, be sure to check our inventory for courses on ESG.