Developing, measuring and delivering ESG policy at accountancy firms

The importance of partnerships, strategy and skills when it comes to implementing ESG strategies.

Developing, measuring and delivering Environment, Social and Governance (ESG) policy is now a central part of operations for accounting firms. Happily, a growing number of accounting leaders at some of the UK’s most innovative firms are taking a proactive role in that, developing ESG strategies both for clients and the firms themselves.

They talked to us about the challenges facing the sector as ESG compliance, engagement and leadership morphs from a ‘nice to have’ to business as usual. Part two focuses on the importance of partnerships, strategy and skills.

‘Random activity is not a program’

Alex Hindson, Partner, Head of Sustainability, Crowe

I learned this lesson a while back, and so now we ask, “What’s the rationale? How did we come to focus on what we’re focusing on?” We did what we recommend our clients do, which is a materiality assessment in terms of what is important to our stakeholders and why.

And that basically helped us prioritized the topics: net zero, diversity and inclusion, social mobility, and communities. We’re starting to group social mobility and communities under social value because that’s how our clients are starting to talk about it.

So essentially if it’s not one of those four things we tend to not do it because we’re trying to stop people having pet projects and distractions. We are trying to funnel our resources into having an impact as opposed to just being busy.

‘You can’t solve this alone’

Mhairi Poole, Head of Sustainability, Forvis Mazars

When it comes to Environment, we talk about Net Zero targets and the different Scopes of emissions. Scopes One and Two are things like gas in your buildings and electricity use, while Scope Three covers things like your business travel and all of the emissions that are sitting within your supply chain.

When you look at professional services firms, the vast majority of those emissions will be sitting in Scope Three, where you don’t have direct control over them; indeed I think if you’re a smaller firm you might underestimate actually what is sitting within your Scope Three.

Within our Scope Three, the three top areas are purchased goods and services, including capital goods – which covers supply chain emissions, then business travel, then employee commuting. When it comes to supplier emissions, we work closely with our procurement team and we have a sustainable procurement policy in place that the dedicated team handles.

While we’ve been measuring our own emissions in the supply chain, now we’re starting to engage with our suppliers, particularly the bigger ones where our biggest amount of spend is, to find out where are they on this journey. We want to know how they are reducing their emissions and what their plans are. If they’ve already got plans, and are already putting in processes to reduce emissions, great. If they haven’t, then we can work together and help them.

‘Change takes time’

We have guiding principles in our policies relating to sustainability. Take business travel, while there’s a bigger piece around that in terms of employee safety and cost, we have sustainability principles woven throughout the policy.

We recognise that travelling to meet with clients and team members is an important part of the way that we do business. So we are not saying ‘Do not travel’. What we are saying is, first of all think about why you are traveling – Do you really need to travel on this occasion? Is there an alternative? Do as many people need to travel?

Post-COVID, we saw a real drop in our travel emissions. So that makes you think, ‘Great, we’ve really reduced our emissions’. But now it’s going up and we’re returning to pre-COVID levels – and we’re growing. Net Zero targets are absolute, so it doesn’t matter how much you’ve grown as a firm or how many people you’ve got, your target is absolute. So it’s difficult sometimes to bring people on board with that message.

But it is only through having those conversations with people, not being punitive, and acknowledging that you understand that this isn’t easy that you can make progress. Some of the things that we’re asking people to do are not easy choices, but we keep talking about it. And we find that if one person in a team is more on board, they help encourage other people to change their behaviour.

Mark Lumsdon-Taylor, Partner, MHA Baker Tilly

‘Firms must stay current’

What our firm does differently is to focus, even with our audit clients, on the value proposition of what sustainability means to their company and how it can benefit and improve it. That is based on the fact that, as a Tier-two regulated firm we have a duty of care and should be the custodian of good practice when it comes to sustainability in ESG advice, guidance, reporting and compliance.

Because I’ve seen firms doing it without any experience. It needs structure within the sector, because without that, where’s the credibility in accountancy? Ultimately, the most important thing across everything that we do is the investment and hard work we put into ensuring that we are at the cutting edge of regulatory interpretation.

We must not only respond and contribute and be part of that journey with regulators, which takes up a lot of time, but we must also be fully up to date and cutting edge when it comes to the interpretation of them for our clients and our businesses. That takes a lot of resource and a lot of time.

‘Accountants will be crucial to this in future’

Yi Zheng, Senior Manager ‑ Sustainability & ESG, Saffery

First of all, accountants need to focus on the core of their job in order to improve and perfect that. But beyond that, they will need to apply the techniques and knowledge that can be transferred into a sustainability lens. So, for example, accountants are good with numbers: not only calculating, but also the interpretation of numbers for business to create value for financial gains or managing risks.

So that lens can be applied to ESG numbers. So what does ‘emissions’ mean? How many emissions? And what does the reduction target mean? By reducing 50%, what does the reduction target mean for the business?

In the future, the job will become about translating those numbers into financial implications, and accountants can play a huge role: to advise businesses, especially with long-term resilience in mind, to determine if it’s financially feasible to interact with this initiative or with this type of investment, and will the return really pay off with a type of investment on renewable energy, for example.

Christian Doherty is a business journalist and freelance writer for AAT.