Environmental, Social and Governance (ESG) Advisory

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In his annual “Letter to CEOs”, Larry Fink, Chairman and CEO of BlackRock, declared that consideration of climate risk is sparking a fundamental reallocation of capital and called on all companies in which BlackRock invests to disclose their plans for dealing with climate risk.  Climate risk is just one aspect of ESG (Environmental, Social and Governance) components that present both risks and opportunities for all companies, large and small.  Companies are facing rapidly evolving regulatory requirements as well as increasing demands and pressures from shareholders, customers, vendors, employees and other stakeholders to consider and disclose how they’re addressing various ESG issues.  In a study published in August 2021, the Center for Audit Quality found that 95% of S&P 500 companies publicly disclosed detailed ESG information in sustainability or comparable reports and the remaining 5% published high-level policy information on their company website.  These same requirements, demands and pressures are now trickling down and starting to impact privately held companies.

The world is rapidly changing and ESG considerations are fundamental to companies in assessing current and future business risks.  Companies can also embrace ESG to leverage opportunities to stand out in the marketplace by proactively communicating the company’s initiatives.  Pease, CPAs offers ESG advisory and assurance services to help companies navigate this new and evolving world of ESG. 

What does ESG represent?

Qualitative discussion and/or quantitative metrics addressing the following areas:

  • E, or Environmental – climate risks and impact; carbon emissions and neutrality; sustainability; natural resource scarcity; air and water pollution; waste disposal; other environmental factors
  • S, or Social – corporate social responsibility; labor and supply chain standards; economic equality; community impact; employee health and safety; diversity and inclusion policies and efforts; product quality and safety; privacy and data security
  • G, or Governance – corporate ethics and behavior; structure and diversity of company leadership; executive compensation; critical event responsiveness; policies on lobbying, political contributions, bribery and corruption

Why should companies devote resources to ESG?

  • Increasing regulatory requirements, demands and pressures on companies to disclose ESG information, initiatives, and metrics to various stakeholders
  • Emergence of White House executive orders, pending Congressional legislation and SEC scrutiny placing heightened focus on environmental sustainability and other ESG factors
  • ESG is becoming a key consideration in the M&A financial due diligence process
  • Younger generations increasingly place a premium on whether a company’s values align with their own, which will impact customer buying habits, recruitment of talent, etc.
  • Evolving audit standards require more disclosure and discussion of risks, ESG issues can’t be ignored
  • Companies that don’t proactively address ESG issues could risk future extinction in a competitive marketplace

What do companies do with ESG information?

  • Note that privately held companies can utilize ESG considerations solely as an internal risk and opportunity management tool and (currently) don’t have to share any information externally
  • Develop internal controls over capturing, evaluating, and reporting ESG information
  • Select from a variety of different ESG reporting frameworks and standards that best fit their industry, company, and objectives
  • Present ESG information in a stand-alone sustainability, corporate responsibility or similar report, with the following possible objectives/benefits:
    • Communicating key ESG risks and opportunities and how they are managed;
    • Relaying progress on the company’s commitments to the environment and society;
    • Credibly demonstrating how the company’s ESG strategy drives value for all stakeholders; and
    • Increasing confidence in how leadership is prioritizing and advancing ESG commitments
  • Consider some level of assurance to add credibility and increase third-party reliance on ESG reporting

What ESG services can Pease, CPAs provide?

  • Readiness Assessment
    • A great place to start for companies just starting to explore ESG
    • This is a consulting engagement that provides no assurance
    • Assistance in developing ESG objectives and KPIs and designing internal controls over the capture and reporting of ESG information
    • Help to identify which ESG reporting framework and standards are most suitable to meet a company’s objectives
    • Consideration of internal and external reporting options
  • Review
    • The next step for companies that want to add credibility and increase third-party reliance on ESG reporting
    • Substantially less in scope than an examination, provides limited assurance that reported subject matter is measured, evaluated or presented in accordance with certain established criteria
    • Must be performed by an independent qualified public accounting firm
    • Results in a written review report that can accompany reported ESG information
  • Examination
    • More extensive than a review, an examination is designed to provide reasonable assurance that reported subject matter is measured, evaluated or presented in accordance with certain established criteria

Pease, CPAs can help your company develop, implement, and execute its ESG strategy. To learn more about Pease, CPAs ESG Service offerings, please contact Todd Kennedy, at tkennedy@peasecpa.com

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