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2020 was an epoch-defining year. The covid-19 pandemic, rolling economic crises and global protests fundamentally impacted business resiliency, and highlighted the importance of environmental, social and governance factors (ESG) on business.
Changing expectations of corporations by investors, employees and consumers are forcing companies of all sizes to increasingly account for social risk - the material risks to a company from major social trends – pushing sustainability further into the orbit of finance departments.
However, a lack of consensus around reporting standards, inconsistent data and concerns about ‘impact washing’ mean reporting on the ‘S’ in ESG may be easier said than done.
What role can CPAs play in helping companies demonstrate their value to shareholders and broader society? And are they up to the task?
THE WARRIOR ACCOUNTANT
Financial Times columnist Gillian Tett coined the term “Warrior Accountant,” referring to the way in which accountants—with their expertise in measuring and disclosing company information—could have an even greater impact on environmental issues than activists by connecting sustainability and business strategy.
Many Ontario business leaders agree that financial reporting teams should lend their expertise to measuring ESG performance. There is of course plenty of work to be done in terms of establishing best practices and meaningful metrics. Non-financial reporting requires a broader range of skills and competencies, which means allocating resources and time for training and capacity-building.
TRENDS IN ESG AND SOCIAL RISK REPORTING:
WHAT CPAs NEED TO KNOW
Currently, there is no global standard for ESG reporting, though a number of different frameworks and guidelines are in play. Everyone agrees that a unified set of standards is needed, and soon. Worldwide there are many projects underway to harmonize the competing standards, but it is still very much in process.
That said, in the past two years—and particularly post-pandemic—many Canadian companies now view ESG as a core strategic concern. They want to understand the risks posed by social and environmental change and they want to effectively track and communicate their ESG credentials. Covid-19 has been a catalyst for increased social disclosures.
S IS FOR STAKEHOLDER
SOCIAL METRICS: A REALITY CHECK
Measuring social impact is highly complex, and we still have a lot to learn. A recent study by NYU Stern, for example, found that most social impact metrics track a company’s efforts—their commitments and initiatives—but not the actual results of those efforts. Add this to the fact that a lot of data isn’t collected over any length of time, and that businesses can pick and choose what to report on, and you can easily see how challenging the business of social impact reporting becomes.
In 2021, the “new social contract”— the collective charge among government, citizens and businesses for justice and equality— will continue to impact how organizations function. Whether you feel energized or overwhelmed by the prospect of ESG and social metric reporting entering into the accounting profession, the topic raises many questions for Ontario CPAs.