Reporting, consulting and assurance services around environmental, social and governance issues represent an enormous business opportunity for the future — but accountants may not be getting as big a share of that as they should, experts are warning.
For instance, AICPA president and CEO Barry Melancon noted that out of all the ESG assurance engagements worldwide in 2021 (the most recent year for which data is available), only 57% were conducted by accounting firms.
"People see that number and nod and think that looks pretty good," he told the audience at a recent ESG Symposium hosted by the AICPA and CPA.com, "but if I said that 57% of financial assurance was done by accounting firms, you would not think that was a very good statistic."
And that number represents a decline, according to Ami Beers, senior director of assurance and advisory innovation at the AICPA — it was 61% in 2020, and 63% in 2019.
"We're seeing that trend go in the wrong direction," she said. "As that market increases, we're seeing a smaller share for accounting firms."
The numbers are even worse in the United States, she added, where just 15% of ESG assurance-related engagements are performed by auditing firms.
Beers expects that number, at least, to climb — "We're seeing a sea change over the past two years among the top firms, with the attitudes and expectations changing," she said — but it's still a long way to claw back.
And assurance around ESG systems and reporting isn't the only area that accountants aren't dominating the way experts expect — they're also far from controlling the market for ESG consulting and helping companies set up their reporting systems and get into compliance with sustainability frameworks in the first place.
"In the mid-market, there are very few accounting firms that are doing sustainability strategy and building out plans for clients. We're one of the very few firms doing that," said Jennifer Cantero, director of the Sustainability Center at California-based Top 100 Firm Sensiba, which is a pioneer in this area. 'It's an opportunity that accounting can take on, and it's ours to lose."
It is not lost yet, to be sure, not least because the entire field is still very young.
"We are in a very formative period of time in this space," said Melancon. "Things are going to be less than certain, they'll continue to ebb and flow, and they will be impacted by factors we can't necessarily anticipate now."
"None of these things that we're dealing with are absolutes ... and not everyone agrees on them," he continued. "This is where the role of measurement and information comes into play. The reality is if we have good measurement and reporting, we ought to be open to making good decisions about what's important and what's working — and what doesn't work. And as a profession, one of the things we bring to the table is, 'This is the information to make the best decisions with.'
"We need to be a player in making sure society has the tools to make those decisions," he said.
Accountants also need to be deeply involved because they bring a unique set of skills and expertise to the table.
Beers and other presenters at the symposium noted that some new sustainability standards are being explicitly designed to be "profession-agnostic."
Speaking of an update to International Auditing and Assurance Standards Board standards being proposed with sustainability in mind, she noted, "Among the initial concerns we have is the knowledge gap we think there might be between CPAs performing this work and non-CPAs performing this work. ISSA 5000 is bringing in a lot of requirements from standards that accountants are familiar with, while non-CPAs might not have the same level of skills and knowledge in working with those standards. We're concerned about the quality of the work they might perform."
More broadly, she explained, "The CPA profession has a structure to oversee these kinds of engagements — in the U.S., we have peer review to make sure they're being conducted appropriately; the accounting profession in other countries has similar mechanisms. People outside the profession may not have the same oversight."
A big opportunity
A desire to make sure this kind of reporting and assurance is done well isn't the only reason for the profession to get involved: It's also an enormous business opportunity.
Experts at the symposium gave estimates for the near-term size of the total market for ESG services that ranged from $20 billion to $50 billion, and they were equally bullish about its potential for firms.
"From a firm perspective, we think its a $250 million opportunity for BDO USA," said Christopher Tower, managing partner for sustainability and ESG at the Top 10 Firm. "And last year we said it would be around $100 million."
Just two-and-a-half years ago, he noted, the firm would receive one or two inquiries a month; now it gets between 30 and 75 — so many that it had to install an automated system to handle them.
Jim Burton, a partner for ESG and sustainability at Grant Thornton, said the Top 10 Firm also sees a major opportunity — around $100 million, in their case — but also noted that the market is still developing.
"We had really big dollar signs in terms of our business plan in October 2020," he said. "Now, 25% of that revenue is deferred out two or three years because of the legislative and regulatory environment — it's not gone, but it definitely has shifted. Two-thirds of our conversations are educational."
While the very largest firms and a few smaller pioneers have recognized the potential in ESG services, far more have not — and one reason for that is that they don't know how much their clients already need help in this areas.
"A lot of the firms don't necessarily realize what's happening with the companies they're supporting," said CPA.com president and CEO Erik Asgeirsson. "There's a lot of internal work being done by those companies that could go better with help from the firms."
Andries Verschelden, the CEO of ESG solutions provider GoodLab, pointed up the size of the ESG opportunity in another way, citing estimates that there are as many as 26,000 sustainability professionals in the market now, 12,000 of whom are consultants, and by 2027, he said, that's expected to mushroom to 90,000 professionals, with 60,000 of them being consultants.
"As this trickles down market, it won't make sense for companies to have their own sustainability professional in-house," he said. "So, as in tax and accounting and many other areas, they're going to look to third-party help."
