Six 2021 ESG Trends for Accounting and Finance Professionals
As investors, customers and key stakeholders continue to seek out reliable and transparent information on a variety of sustainability metrics, the Association of International Certified Professional Accountants (Association) today shared six environmental, social and governance (ESG) trends that will impact the accounting and finance professions in 2021.
The Association also released five steps companies can take to prepare for ESG reporting and assurance. These trends are based on conversations with Association members, global standard setters and executives at CPA firms and other organizations who lead ESG reporting and accounting efforts.
Top ESG trends currently impacting the accounting profession and CPA firms’ clients in 2021
- Demand is rising for ESG reporting, particularly under Sustainability Accounting Standards Board (SASB) standards and Task Force on Climate-related Financial Disclosures (TCFD) recommendations that various investors, investor organizations and certain jurisdictions around the world called for in 2020.
- As reported ESG information continues to make its way into mainstream financial reporting (e.g., SEC Human Capital disclosure requirements), responsibilities for ESG reporting are shifting from being the sole responsibility of sustainability and marketing teams to now include accounting and finance professionals.
- Environmental impact is a priority, with companies placing high importance on waste and plastic reduction in their supply chains and setting ambitious goals with accelerated timelines for achieving carbon neutrality.
- ESG’s social component is also growing, with organizations emphasizing diversity and inclusion in hiring practices, throughout their supply chain and in equal pay and fair labor practices.
- Demand for CPA assurance services continues to increase as companies look to enhance stakeholders’ confidence in the reported ESG information.
- There is continued movement towards a global set of sustainability reporting standards.
Steps organizations can take to get ready for ESG reporting and assurance in 2021
With significant investor interest in reported ESG information, the credibility and reliability of that information is essential. To that end, applying the same level of rigor to the measurement and reporting of ESG information, as is applied to financial reporting, is critical. Here are five steps organizations can take to get ready for ESG reporting and assurance in 2021:
- Incorporate management of ESG risks into broader enterprise risk management processes.
- Determine what key performance indicators are most relevant and important for stakeholders and the sustainability reporting standard or framework that will be used for reporting.
- Assess the types of data sources and determine whether policies exist that ensure the data is reasonable and accurate, comes in a timely and reliable manner and is derived in a way that produces consistent and comparable results.
- Establish appropriate Board oversight over critical ESG matters and develop and document internal controls over the data gathering and reporting processes to ensure accuracy and completeness of reported data.
- Consider engaging a CPA firm to perform a readiness assessment to help prepare for an assurance engagement over the reported ESG information.