The environmental, social and governance landscape can be confusing.
With evolving regulations, geopolitical challenges, and various frameworks to navigate, keeping pace with it all and developing an ESG strategy that satisfies stakeholders is no small feat for many businesses — but for accounting firms, these challenges can spell opportunity.
With expertise in regulatory compliance, financial reporting, and internal controls, accounting firms are ideally positioned to help clients ensure data quality, maneuver the complex ESG frameworks, and provide independent assurance. These are among the services in need as ESG-related strategies increasingly shift from a voluntary effort to a business imperative.
In fact, a survey by Moss Adams (which merged with Top 25 Firm Baker Tilly earlier this year) conducted in July 2024 of 200 ESG decision-makers in the U.S. found that 76% of respondents consider ESG reporting and disclosures a high priority.
The key drivers behind ESG or sustainability reporting and disclosures, according to the "State of ESG for Mid-Market Organizations" survey, are:
- The need to comply with related regulations (71%);
- To strengthen the company's brand (68%);
- To gain operational efficiencies (63%); and,
- To respond to stakeholder demand (49%).
"I do think CPA firms can bring our reputation, our skill set, and bring a different lens to the ESG world. We bring audit discipline, we bring our knowledge of what trusted reporting processes look like, what trusted risk management approaches look like. We are really able to look more holistically across an organization and help sustainability teams, or whoever in an organization is handling that, and think about how do they integrate it into the rest of their activities," said Debbie Biddle-Castillo, Baker Tilly's risk advisory principal and ESG advisory leader in Irvine, California.
That said, regulatory ambiguity has sparked a notable shift in the ESG universe.
"You have a lot of companies in the U.S., in particular, of course, that are kind of adopting this wait-and-see posture. What's going to happen? What are the federal requirements going to be? What political shifts? They don't want to overinvest in complying until they know a little bit more. So, there's a bit of uncertainty for a group of organizations thinking along those lines," said Jim Pelletier, lead product manager for Wolters Kluwer TeamMate, which is part of the Wolters Kluwer Corporate Performance & ESG Division.
Despite this, many companies are still forging ahead and voluntarily adopting ESG reporting. "[This is] either because it is coming from investor pressure, or they see it as a competitive advantage, or they are ultimately looking to access global markets. So companies that want to grow into European markets, for instance, or expand their operations into European markets, certainly need to get ahead of the game and think outside the current limitations in the U.S. market."
The shifting sands of ESG
Taking an anti-ESG stance, the Trump administration has pursued deregulation and limited sustainability requirements. It has, for instance, severed ties with the Paris Agreement, moved to restrict ESG considerations in corporate disclosures and retirement plans, and dialed back environmental rules.
Meanwhile, another area of uncertainty is the timing and scope of the European Union's regulatory framework, the Corporate Sustainability Reporting Directive. Earlier this year, the European Commission introduced an omnibus package to reduce the due diligence and sustainability reporting requirements for entities within the scope of the CSRD, as well as the EU Taxonomy, and the Corporate Sustainability Due Diligence Directive.
As of press time, the omnibus package remained under discussion, with a final European Parliament vote expected in October 2025.
(Read more: "Preparing yourself and your firm for ESG.")
As stated in KPMG's ESG Assurance Maturity Index 2025, "If enacted, it would significantly narrow the CSRD's scope — limiting mandatory sustainability reporting to only the largest companies. Parallel work to revise the European Sustainability Reporting Standards is expected to significantly reduce the number of disclosures that companies will need to eventually report, e.g. prioritizing quantitative datapoints over narrative text and clearly distinguishing between mandatory and voluntary data requirements. For companies that are not yet required to report, initial application has been delayed by two years."
Despite regulatory ambiguity, KPMG's research found that most (74%) of the companies are staying the course with their sustainability reporting plans under the CSRD. Of those, nearly 41% are also sticking to their preparations for assurance.
The ESG momentum, however, has lost some of its steam (for now), and in some cases, has shifted course. But, overall, firms and their clients are advised not to rest on their laurels. The benefits to be gained and stakeholder pressures for transparency are simply too strong to ignore.
"The way that we, at KPMG, approached [the omnibus] and sort of the shift in regulation was, instead of allowing compliance to solely drive what we were doing, it was a shift to encourage companies to go back to the reason why this regulation came into place first, which was to develop their plans, goals, ambitions, strategies around how to become a more sustainable company, and understand what actions they were actually going to take in order to execute on those targets and goals," said Maura Hodge, the U.S. sustainability leader for KPMG based in the Boston office.
She continued, "A lot of what we've been doing now is focusing on climate risk assessments, partially because California is driving it, but partially because that is the basis for a lot of carbon and climate strategy work moving forward."
Similarly, at Chicago-based Top 10 Firm BDO USA, audit principal and sustainability assurance leader Dan Harris and sustainability services market leader Srinand Yalamanchili said that much of the assurance activity had previously centered on CSRD, as the EU regulation would have impacted numerous U.S. companies with reporting requirements in 2026 for 2025 information.
Due to the omnibus and two-year delay, BDO has now seen a shift in regulatory focus to California. The state has two regulations — SB 261 and SB 253 — that require reporting in 2026, which largely impact companies in the U.S. but could also impact overseas operations.
- SB 261: Starting Jan. 1, 2026, companies with more than $500 million in annual revenue that operate in California must publicly report, every two years, on climate-related financial risks and mitigation strategies.
- SB 253: This applies to U.S.-based companies with annual revenues exceeding $1 billion that do business in California. Starting in 2026, they must report their Scope 1 and 2 greenhouse gas emissions, and beginning in 2027 they will need to report Scope 1, 2 and 3 emissions.
Harris and Yalamanchili said that, from an assurance and reporting perspective, SB 261 and SB 253 are creating significant opportunities covering both preparation and assurance. Companies that are in scope are taking steps to ensure they are ready to fulfill the requirements.
Meanwhile, on the advisory side, the biggest opportunity relates to broader sustainability versus just ESG services, the BDO experts explained. Fueled by increased demand from AI and crypto mining, they see significant opportunities in energy markets. The energy grid is under strain, and there's a gap between rising demand and supply. They noted that, in the intermediate term, this will result in significant energy cost increases.
Helping clients secure clean energy, cut operating costs, and enhance efficiency while operating sustainably — all of which typically help companies become more profitable over the long run — are within the overarching advisory opportunity, said Harris and Yalamanchili. Key areas include:
- Minimizing tax liabilities;
- Utilizing appropriate tax credits to reduce investment costs;
- Engaging with state and local tax incentives around job creation and energy efficiencies;
- Tax planning strategies to take full advantage of ESG investments for global companies; and,
- Exploring how offering green products and services can increase market share.
Lessons learned
The ESG landscape is undoubtedly in a state of flux as the U.S. market navigates uncertainty and political hurdles, and international standards continue to evolve. While many questions remain, it is clear that lessons have been learned and opportunities for firms exist.
As outlined in KPMG's survey, analyzing the first wave of companies reporting under the CSRD revealed valuable insights that should be considered. For instance, 60% of these first-wave companies said that they expect to gain market share or expand their client base, and more than half anticipate increased profits and a stronger reputation.
The KPMG research also showed that pressure for sustainability assurance is heating up. "As investors increasingly rely on a combination of financial and sustainability statements to assess a company's value, it's no surprise that nearly 80% of respondents who obtained assurance on their sustainability disclosures did so through an audit firm," researchers wrote.
Additionally, key lessons learned, as outlined in the KPMG research, include:
- Don't delay, because most businesses needed more than a year to prepare for ESRS reporting and assurance.
- Drive engagement. This means getting boards involved and securing senior-level engagement.
- Be prepared to capture new metrics and KPIs. Companies have needed to expand the scope of what they capture, including gender pay gaps, supplier terms of payment, and other areas.
- It's not just a regulatory compliance exercise; it's an opportunity to inform and engage with key stakeholders, including investors.
Speaking of lessons learned, Pelletier of Wolters Kluwer pointed to SOX and the importance of shifting away from a compliance-burden perspective.
"For firms, one of the things to consider is, yeah, there's the compliance component of [ESG], but we went through that with SOX, and companies saw that as a burden. So, I think one of the potential value differentiators here for a firm is to look at it from a perspective of: How do I demonstrate that complying can also add strategic value to the organization?" said Pelletier. "Can I tie their sustainability information to their financial information and give them future insights? You start thinking of things like scenario planning and stuff like that. If I can find correlations in data, it can help to drive better long-term strategic thinking."
Instead of viewing ESG as a compliance burden, see it as a strategic advantage, said Pelletier. For example, in financial reporting, there has been a shift in thinking toward viewing internal controls as tools for managing risks, which are things that can prevent organizations from achieving their objectives. So, by effectively managing those risks with internal controls, organizations are much more likely to reach their goals.
"We're seeing that shift in thinking on the financial reporting side of the house. I think we're also going to see it on the nonfinancial reporting, the ESG and sustainability reporting. What are the internal controls behind this? And that gets a lot more complex. … With ESG, that [data] is spread across the organization in multiple processes, in multiple workflows, and in multiple systems. How do we help to bring that data together?"
Added Pelletier, "I think that's going to be the magic spot for firms is in helping organizations to do those things: How do I define all of those things? How do I know where all of the data is? How do I understand all of those systems? How do I bring it together and know that that data is really good quality? And then, how do I know that I have the right controls in place? … We have that discipline on the financial reporting side. I don't know that many organizations have that discipline on the nonfinancial reporting side."
When asked about ESG-related services, Harris and Yalamanchili of BDO said that, while controls and data integrity are fundamental services that feed into data that later requires assurance, the most exciting work is in operational strategy: exploring how sustainability initiatives can boost efficiencies, reduce costs, and create opportunities for new products and services to gain more market share.
On one end of the spectrum is ESG reporting assurance, which companies see as a regulatory requirement, and on the other end are services that go beyond mere compliance. These services directly influence profitability, operating costs, and shareholder returns — elements critical to the success of the business, Harris and Yalamanchili said.
They went on to explain that the most significant value-adds that accounting firms can provide to clients regarding ESG reporting and auditing include:
- Filling knowledge gaps and assisting in upskilling internal teams.
- Providing assurance and a greater degree of confidence in the data presented to management, boards and audit committees.
- Offering feedback on current processes for gathering and reporting data (they continue to see many companies relying heavily on Excel).
- Helping to prepare framework-compliant reports and providing feedback on process controls.
- Making recommendations to improve process efficiency.
So, what's next? What does the future of ESG hold? While no one knows for sure, Biddle-Castillo shared her thoughts and predictions.
"I think we are seeing assurance continuing to become more and more common and demanded in our regulations. So, I think as we see more of the regulations really coming into effect, that is going to continue. We have been seeing, in prior years and will continue to see, convergence in global regulations. The regulatory groups have been saying that is a key priority for them. They want to make sure what they are coming out with is interoperable with others. So, I think we are going to continue to see that convergence, but in the next five years we are going to see more of these regulations actually start to come into effect, versus us just talking about them," Biddle-Castillo said.
She also believes the regulations will "lift the bar of what does 'good' look like" and that even companies not subject to ESG reporting and assurance requirements will be affected and influenced by expectations.
Added Hodge, "How regulation plays out will ultimately drive a lot of opportunity. One of the key questions is the extent to which regulators limit assurance at least to accounting firms or certain credentials, versus continuing to leave it open. I think even if it is left open and nonaccounting firms are still able to provide that assurance, it is going to be incumbent on the accounting profession to really clearly articulate our value in providing these services. And I think where our value comes is the ability to connect the financial information with the nonfinancial information."
