Management tips for tax firm leaders
With ESG playing an increasingly significant role in business initiatives and investment decisions, more and more accounting firms are offering strategies to help their clients navigate ESG complexities.
If you’re a tax firm leader looking to differentiate yourself from the competition, providing your clients with insight into their ESG data is a great way to set your firm apart. Let’s take a look at some best practices accounting firms can use to help clients overcome the challenges of ESG data collection and management.
What are the challenges of ESG data collection?
When you look at ESG through the lens of a tax and accounting firm, reporting on environmental, social, and governance factors is enabled by data. The ability to accurately identify and manage this data helps your clients build trust amongst their stakeholders and demonstrates a commitment to society.
However, ESG data can be a challenge to collect, manage, and report on. Whether it’s measuring sustainability or quantifying the ethical impact of supply chains, your clients can easily get overwhelmed by the manual collection and aggregation of the ESG data and understanding related regulatory requirements. Many businesses don’t even know where to start.
But that’s where your expertise comes in. Accounting firms have a burgeoning role to play in determining the integrity of their clients’ ESG data and providing guidance on ESG reporting procedures. This includes ESG audit support that verifies the effectiveness of controls, as well as activities that identify gaps, assess risks, and develop a recommended plan of action.
What are the best practices for ESG data management?
1. Help your clients develop measurable ESG targets.
The ability to report on environmental, social, and governance factors is enabled by data. By definition, ESG is a framework for evaluating risks and opportunities related to a company’s operational impact on the environment, social issues, and governance factors.
Environmental risks include pollution of the air, water, or soil, as well as climate impact, carbon footprint, and energy use. Social risks include impacts on all stakeholders and global citizens, including the well-being, reputation, or privacy of customers, employees, or suppliers, as well as issues related to diversity, equity, and inclusion (DEI). Governance risks include financial reporting, fraud prevention, executive pay transparency, and overall business dealings of the company.
Accountants and auditors have an expanding role to play in determining the integrity of a company’s disclosure of ESG topics. By helping your clients identify concrete targets that can be measured, you can ensure that their ESG data is practical, auditable, and meaningful. This data should be gathered frequently and reflect the business’ goals.
2. Enable your clients to gather meaningful ESG data.
This is where an investment in automation comes in. As accountants know, one of the benefits of a technology tool is that can enable automation and integration based on what each stakeholder group cares about and provides a way to quantify and measure data within a given footprint.
Another way that software tools are helpful is that they can assign specific roles to employees and other stakeholders who are connected to a company’s ESG strategy. This enables team members to understand where their role fits and offers built-in capabilities for data governance, information controls, and audit trails.
When it comes to ESG and the selection of technology solutions, the current challenge is the competition for resources across internal corporate functions. However, this is an opportunity for the tax and finance teams to offer up their experience in managing robust data sets, understanding internal controls, building systems and processes for oversight, and capitalizing on existing infrastructure for analysis and reporting.
3. Assist your clients with ESG reporting and audits.
While the Securities and Exchange Commission (SEC) mandates that public companies include information on ESG factors that have a material impact on the company’s financial performance in their annual filings, they do not prescribe specific guidelines for reporting.
However, a growing need comes in the form of an ESG audit which verifies the accuracy of ESG-related data that a company discloses to its employees, stakeholders, and regulatory bodies. Increasingly, businesses are seeking third-party auditors who are well-experienced in ESG assessments to help them assure stakeholders that their ESG claims are truthful.
Experienced CPAs and auditors are the best fit to perform ESG audit services as they have vast experience in determining whether a client is in compliance with multiple standards and frameworks. The American Institute of Certified Public Accountants (AICPA) has even taken steps to create guidance around conducting an ESG audit.
The experience necessary to audit financial statements, regulatory information, and manage internal controls attestation translates well for accountants and auditors who can seamlessly apply this knowledge to ESG data collection and management.
How tax and accounting professionals can prepare for ESG changes
As ESG data collection and reporting matures, the tax and accounting profession will likely be tapped to meet the demand in compliance. With a deep understanding of business processes and evaluating procedures for collecting, analyzing, and reporting information, tax and accounting professionals are well-suited to identify ESG gaps, assess risk, and develop recommended mitigation options.
For more information on how to maintain and grow your accounting firm, see our helpful checklist for accounting firms.
