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EXECUTIVE SUMMARY

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? 

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PART 1

THE WARRIOR ACCOUNTANT

“Rarely has the accounting profession had such a potentially momentous role to play in global affairs.”
Gillian Tett, Financial Times

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.

“If you want to do something to change the world then become a CPA. It’s disclosure and transparency which make markets move. You have to follow the money, that’s what makes change.”
Sarah Keyes, ESG Global Advisors

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.

Learn about: the role of the “warrior accountant”, and whether the business leaders we spoke to share the appetite for becoming more involved in helping companies take a stronger stand on social issues.

PART 2

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.

If accountants get involved in determining materiality, developing metrics, setting targets and establishing controls business will be better able to translate and manage their environmental and social impacts and the risks they face from social change.

TIMELINE OF E&S METRICS EVOLUTION

S IS FOR STAKEHOLDER

Human Capital

HUMAN CAPITAL

Social Capital

SOCIAL CAPTIAL

Learn about: the steps underway to consolidate ESG reporting standards, and how Canadian organizations are incorporating ESG into their business processes.

PART 3

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.

Anthony Scilipoti FCPA, FCA, CEO of Veritas Investment Research explains that "ESG measurement is in the eye of the beholder with too little emphasis on how it is being calculated…Just because a company has high or low ESG scores doesn’t mean it’s a good investment."

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.

Learn about: the problems with social metric reporting and how Canadian businesses are validating their metrics; what’s next in EGS reporting.