Environmental, Social and Governance criteria, commonly referred to as “ESG,” are a series of standards used by socially and environmentally conscious investors to evaluate and screen potential investments. In short, a potential investor uses these criteria to determine if a corporation is going beyond maximizing the profits of shareholders to also promote and benefit society overall. Some details considered by investors would be the amount of carbon emissions, the number of women and minorities serving in leadership roles, and whether the company promotes the health and safety of its employees.
ESG has become a driving force in the individual investor’s portfolio as younger investors are frequently insisting on new information about what steps a corporation is doing to address environmental issues amongst other concerns. In 2017, Morgan Stanley’s Institute for Sustainable Investing conducted a surveyi wherein they found that 75% of all investors and 86% of Millennial investors desired to invest in companies wherein they believed that their investment could create a positive impact. As more money is invested using ESG standards, the reporting associated with ESG is a rapidly growing field for consulting and public accounting firms.
According to UNC’s Kenan-Flagler Business School, the cornerstone of developing ESG strategies and reporting is a fundamental knowledge of business operations and finances. As accountants are trained to understand and think critically about these basic elements of the business, they can advise and lead the development and implementation of sustainability strategies that also boost the business financially and operationally. As ESG reporting continues to grow, professionals who possess these skills will become increasingly more valuable to companies.
The biggest challenge facing ESG strategies and reporting is the lack of standardized measurements. In November 2021, the formation of the International Sustainability Standards Board (ISSB) was announced. The goal of the ISSB is to establish sustainability disclosure standards that are both specific to the pertinent industry while also remaining relevant to the shareholder. The development of these standards should be seen as an opportunity for accountants to develop the requisite skills and knowledge to not only audit financial statements and balance sheets, but also statements on items like carbon emissions or workplace diversity.
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