Environmental, Social and Governance (ESG) Reporting: Impact on the Accounting Industry

Recent criminal cases have highlighted the consequences of unethical and illegal accounting practices. For example, in September 2023, four employees of the British cafe chain Patisserie Valerie were charged with fraud after officials discovered irregularities in their accounting reports.¹ Earlier the same year, the electronic payments software company Cantaloupe was fined $1.5 million after it inflated sales revenue.²

Cases like these demonstrate the need for ethical accounting policies and approaches that don’t harm society. Many companies have addressed these issues by embracing environmental, social and governance (ESG) reporting. This framework considers the impact of corporate decisions and practices on the planet, society and clients.³ This guide explores the importance of ESG reporting in accounting and the practical steps for implementing this approach.

Accountants increasingly incorporate ESG criteria when preparing financial statements and other reports. These documents go beyond traditional finance documentation to measure how a company’s activities impact the climate, local communities and other factors.⁴ For example, financial statements can break down employee salaries by gender and quantify the greenhouse gasses emitted by a company’s vehicles.

Companies use ESG reporting in accounting to assess their performance and evaluate the impact of potential investments. They also use these reports to minimize financial risk.⁴

Companies can implement different ESG accounting standards based on their goals and priorities. Common ESG reporting frameworks include:⁵

• Global Reporting Initiative (GRI): This popular framework has universal standards for sustainability reporting
• Sustainability Accounting Standards Board (SASB): Publicly traded companies use this framework to measure the financial impact of their sustainability efforts
• Task Force on Climate-related Financial Disclosures (TCFD): This framework enables companies to prepare climate-related financial reports

Transparency is a guiding principle of ESG frameworks, as socially responsible investing will play a crucial role in decisions for a growing number of investors. Companies can use ESG reporting to share relevant decisions and results with investors and stakeholders. This process builds trust and enhances the reputation of businesses.⁶

Accountants can use these strategies to create more accessible and transparent ESG reports:⁶

• Using data visualizations to represent ESG data graphically
• Creating interactive reports that allow stakeholders to filter and explore data
• Working with creators to develop videos and other immersive content about a company’s ESG activities

Accountants can help companies achieve their ESG goals by incorporating relevant data into their accounting systems. This process involves these steps:⁷

• Creating a governance board to oversee ESG reporting
• Identifying key ESG metrics
• Collecting and managing ESG data
• Verifying the accuracy and reliability of data
• Incorporating ESG metrics in enterprise research

ESG assurance is the process of independently validating an organization’s ESG data and practices. Corporations typically hire external accounting firms and environmental consulting companies to perform these audits. This process ensures that companies use the most accurate information for decision-making.⁸

Companies can implement environmental accounting standards to measure, manage and minimize their impact on the planet. Examples of environmental accounting include:⁹

• Tracking carbon energy consumption and waste production
• Assessing the environmental impacts of investments and assets
• Calculating the environmental benefits and costs of improvement initiatives

Business leaders can use these metrics to disclose their environmental performance to investors and make informed decisions.

Businesses can profoundly impact the lives of their employees, clients and the communities where they operate. Companies that prioritize the social component of ESG strive to positively affect society. Social responsibility in accounting often considers these metrics:¹⁰

• Workers’ wages and disposable income
• Workforce diversity and inclusion
• Investments in workers’ professional development
• Social impact of products

Governance in ESG refers to the internal operations and principles that guide an organization. Social governance in accounting covers these factors:¹¹

• Board structure
• Leadership diversity
• Executive compensation

ESG reporting trends have evolved rapidly in recent years. The Securities and Exchange Commission has proposed new regulations that would require companies to include climate-related disclosures in their financial statements. This government agency has also established a task force to detect and penalize ESG-related misconduct.¹²

New governance accounting trends have also reshaped the industry. According to a recent report by Deloitte, many companies have created new committees to oversee ESG policies. In addition, 52% of surveyed businesses have established audit committees.¹³

Companies have increasingly embraced ESG frameworks, but implementing these structures poses many challenges for accounting professionals. For example, 91% of companies surveyed by the World Economic Forum lack the software needed to collect and report on ESG metrics.¹⁴

In addition, many ESG metrics are intangible, such as community relations and the impact of corporate social responsibility. As a result, accountants often find it difficult to identify relevant data sources. Implementing ESG practices also requires cultural shifts within companies, which some employees may resist.¹⁴

Accounting professionals can use many strategies to keep up with the latest ESG reporting trends, such as:¹⁵

• Researching voluntary ESG frameworks and standards
• Developing relevant skills, including data visualization, data processing and project management
• Volunteering to work on transformational projects
• Consuming ESG-related blogs and podcasts

Many companies successfully use ESG reporting to achieve goals and make a positive impact. For example, in 2023, the software company JAGGAER used external auditing to evaluate its ESG practices. Based on these findings, the company adopted several measures to enhance its ESG performance, such as creating a Board of Directors ESG Committee. These improvements enabled JAGGAER to decrease its greenhouse gas emissions by 10% and improve workforce diversity.¹⁶

Accounting professionals can use ESG reporting to drive change in their organizations and make a difference. Learn about the latest ESG and other essential reporting trends with William & Mary’s Online Master of Accounting program. You’ll develop accounting expertise as you take innovative courses from expert faculty. Our curriculum covers in-demand skills, such as auditing and assurance, advanced corporate finance and financial reporting standards.

You can expand your professional network by participating in optional residency weekends. We also provide leadership development resources to help you achieve your potential.

Schedule a call with an admissions outreach advisor today to learn more.