Why the latest trend can be a growth opportunity for you & your clients

Sustainability. 

If you’re an accountant, sustainability is something you’re going to increasingly hear in the coming months and years from your clients. 

So much so that many accountants and their firms are expanding their own range of services to expressly include Environmental, Social and Governance (ESG) support both for existing clients and to attract a wider range of business. 

This isn’t just good ethics but smart business. 

Right now mandatory ESG reporting in the UK currently applies mainly to larger corporations and businesses but many small and medium sized firms are proactively gathering the requisite data and making voluntary disclosures. 

It’s this direction of travel that has spurred more accountants to launch their ESG offerings. Recent research from ICAEW showed that 45% of mid-tier accounting firms offer ESG services with another 10% planning to do so within three years. This is echoed by data from the Accounting Excellence Awards which noted that 40% of their large firm finalists have begun to offer similar services.

Diverse Service Offerings

What do ESG services look like?

It will vary from firm to firm but ultimately they can come under two distinct outputs:

  • Advisory – Accountants can provide expert guidance on various ESG issues primarily through the lens of risk and resilience
  • Compliance – a focus on helping clients comply with other measured outcomes such as carbon footprints or gender pay gaps. Assurance services which will often be integrated with audit work will also become more common going ahead

Chris Horner, insolvency director with BusinessRescueExpert, said: “Accountants have a responsibility to help their clients build sustainable businesses in the longer term and while you should always make the argument from a moral point of view, the size of the various opportunities represent significant revenue streams that cannot be ignored.”

A clear path of ESG regulation

The direction of travel for companies regarding ESG is undeniable. 

In 2021, the Taskforce on Climate-related Financial Disclosures (TCFD) requirements were largely listed to stock-market-listed companies, the subsequent Climate-related Financial Disclosure (CRFD) regulations extended this to some larger private companies and for the first time, to limited liability partnerships. Increasingly, smaller and medium-sized enterprises (SMEs) were also being brought into the regulatory net, all requiring professional support and advice.

Beyond direct regulation, many businesses are facing more indirect pressure to comply and the large firms subject to TCFD and CRFD are increasingly demanding more ESG data from their suppliers, pushing more out-of-scope businesses to generate their own disclosures. 

Additionally more banks and lenders are asking more in-depth questions of borrowers so it’s harder for companies that aren’t engaging in and reporting their ESG footprints to secure funding.

Providing a competitive edge

If you’re a small company having strong ESG credentials offers a significant competitive advantage. 

Research from PwC found that UK consumers would be willing to pay nearly 10% premiums on sustainable goods. Another study revealed that more than a quarter of job applicants investigate an organisation’s sustainability practices before applying and interviewing for positions with them. 

Launching ESG services isn’t without challenges however. One is the relative shortage of skilled professionals in this relatively new field. The next generation of accountants will have a better understanding of key ESG issues as training will now incorporate it but practicing professionals will have to consider an element of upskilling if they want to take advantage of these opportunities. 

Establishing and reaching new standards

One of the obstacles for individuals and firms to launch ESG services is a lack of common standards surrounding ESG disclosures in the UK. 

In one example, the IFRS Foundation’s International Sustainability Standards Board (ISSB) has published IFRS S2 for consistent climate impact reporting – but the UK government is still deciding how to integrate it. 

Standards will improve and become stronger and more consistent and ESG will become even more valuable once the data can become more comparable between various businesses and sectors.

Right now, accountants developing ESG services have to navigate a complex field of various regulations including BCorp status in the UK, the Global Reporting Initiative (GRI), the Taskforce on Nature-related Financial Disclosures and the EU’s Corporate Sustainability Reporting Directive (CSRD) for businesses with operations and sales in the EU.

But this regulatory complexity creates an even greater need for expert guidance for business owners and directors that accountants will be best placed to provide.