CPA firm leaders have a reputation for spotting important business trends early and steering their clients in the right direction.
So it’s instructive that environmental, social and governance (ESG) issues have become a growing area of focus for many accounting firms. Some have even started full ESG service lines to counsel clients on strategies to keep them aligned with expectations of regulators, customers and investors in this area.
“As a firm, we want to establish ourselves as a trusted adviser to our clients,” said Jonathan Trunk, who leads the business advisory services practice line at Ohio-based firm Brixey & Meyer, which recently started an ESG practice. “Seeing ESG matters become more prevalent in the marketplace and getting more questions from clients caused us to think about how best to position ourselves to live our core values in helping businesses succeed.”
Bill Kohm, CPA, CGMA, assurance director at Dean Dorton, leads an ESG service line the Southeastern U.S. regional firm started in July. He compares all his interactions with clients on ESG to planting seeds that will bear fruit for communities, clients and firms in the coming years.
“I’ve been passionate about ESG my whole life, whether it’s recycling or investing in funds that are environmentally friendly,” he said. “It’s just something I think we all need to embrace, and I’m blessed to be in a position where our firm supports that.”
Here’s why firms are investing in ESG services:
Clients’ customers are interested. A 2021 PwC survey showed that more than three-fourths of consumers say they are more likely to buy from a company that stands up for environmental (80%), social (76%) and governance (80%) issues. “You'd hate to lose a customer and employee or a potential employee because your competitor is more ESG focused,” Kohm said.
Boards are getting involved. A mandate from the board was the impetus for one of Kohm’s clients to reach out to him and request ESG services. Meanwhile, Su Rim, CPA, who serves not-for-profit clients for BPM LLP, said their boards play a pivotal role in the advancement of ESG strategies. Donors are demanding that not-for-profits focus on ESG issues, and boards are making sure management is listening. “Especially in the nonprofit space, [boards] are probably the main drivers for ESG,” Rim said.
Regulatory requirements seem inevitable. Regulators and standard-setters across the world are working to mandate ESG practices or disclosures. These requirements may be set for large, public companies, but smaller companies also are likely to be affected. “There will be a trickle-down effect to the private companies, as larger companies look down their supply chain [for ESG data],” Rim said. “We’ll definitely see that impact.”
Investors are demanding ESG engagement. Private equity clients of California-based BPM LLP are including ESG as a key aspect of their investment evaluation. “This will be a fundamental criterion for investment decisions, and eventually … a likely consideration for many lending and other financial institution decisions,” said Kristi Staley, CPA, BPM’s director for business development. A 2021 PwC survey of asset and wealth management CEOs found that 79% said that ESG risks are an important factor in their investment decision-making, and 49% are willing to divest from companies that aren’t taking sufficient action on ESG issues.
ESG focus can deliver operational benefits for clients. Environmentally friendly investments can lower energy costs. Socially responsible hiring can lead to more diverse opinions and innovation. Governance improvements can reduce risk and improve efficiency. “[ESG efforts] may reduce costs, they may improve retention rates, they may improve diversity within the firm, which may have long term benefits [such as] improved profitability and improved corporate culture,” said Matt Deptola, who was hired to lead Brixey & Meyer’s new ESG service line.
It helps with recruiting and retention. A 2021 PwC survey showed that employees said they are more likely to work for a company that stands up for environmental (84%), social (83%) and governance (86%) issues. Rim has seen a dramatic increase recently in the number of questions job candidates ask about ESG, and particularly diversity. “There’s always a question about our DEI [diversity, equity and inclusion] policy, about gender equity, and questions about how I feel being a leader at this firm as a woman, and as a woman of color,” she said.
Ultimately, leaders of CPA firms starting ESG service lines say they are doing it to support their clients. Some clients are more interested than others, but the firm leaders all expect demand to increase. That will give them even more opportunity to make a difference.
“How can we help businesses be more sustainable, have greater longevity, more vitality over their long term?” Deptola asked. “That is the focus of what the practice is going to really be working toward, and with these added benefits of environmental sustainability.”