As corporate responsibility and sustainability becomes more ingrained in financial reporting among U.S. companies, a number of CPA firms are seizing opportunities to meet rising investor demand for that non-financial information - specifically dealing with a company's environmental and social and governance footprint.

In other words, companies are not only reporting on their bottom line, but how they get to the bottom line. And more recently, more companies are reporting the "triple bottom line" - profit, people and planet.

So now CPA firms such as the Big Four and Moss Adams, to name a few, are reaping the benefits of investor demand by offering sustainability and environmental accounting services.

According to reports, nearly three quarters of the top 100 companies in the U.S. report on the performance of their corporate responsibility, while outside the U.S., 80 percent of the Global Fortune 250 companies issue corporate responsibility reports.

In January, Coca-Cola released its eighth systemwide sustainability report, and gave itself a B+ using the requirements outlined by the Global Reporting Initiative - a nonprofit that promotes economic, environmental and social sustainability and provides a reporting framework. The soft-drink titan cited its initiatives of replacing plastic bottles with plant-based materials, reducing carbon emissions by 2 percent, and reducing the amount of water needed for beverage production.



Research from KPMG International has identified 10 "megaforces" that will significantly affect corporate growth globally over the next two decades. The study explored issues such as climate change, energy and fuel volatility, water availability, and cost and resource availability, as well as population growth spawning new urban centers.

The KPMG research finds that the external environmental costs across 11 industry sectors - which are often not reflected on financial statements - jumped 50 percent, from $566 billion to $846 billion, from 2002 to 2010. Those costs are often non-financial, and can be difficult to quantify for comparison with traditional monetary values, such as the effects of pollution - hence the need for accounting expertise.

"There's absolutely a rising demand related to sustainability reporting," said Steve Starbuck, leader of Ernst & Young's Americas climate change and sustainability services. "But you really have to step back and look at it as a journey or evolution in terms of a risk and compliance approach. Companies are now looking at how they can make money and save money through sustainability. The U.S. is behind the rest of the world in this area. But steadily, the largest areas of shareholder resolutions we've been seeing have focused on asking companies to be more transparent in their reporting in this area."


A recent report from the Professional Accountants in Business Committee of the International Federation of Accountants found that accounting professionals need to better respond to increasing investor demand for non-financial information - i.e., environmental, social and governance, or ESG, reporting. The report, Investor Demand for Environmental, Social and Governance Disclosures: Implications for Professional Accountants in Business, discussed how accountants can better support their organizations in responding to these demands, and ultimately improve the management and reporting of such performance issues.

"Until there is a true regulatory driver for integrated reporting, it will continue to be entirely voluntary," said Starbuck. "Eventually we'd like to see it become the norm."



Meanwhile, another research study, this one conducted by the American Institute of CPAs, the Chartered Institute of Management Accountants and the Canadian Institute of Chartered Accountants, revealed that small and midsized companies in the U.S., the U.K. and Canada are placing greater emphasis than ever on sustainability strategy in tandem with their accounting.

The AICPA/CIMA/CICA paper focuses on nine case studies showing small companies in each of the three countries that are taking different approaches to sustainable practices. The AICPA, the CIMA and the CICA are members of the Prince of Wales' Accounting for Sustainability Project, which is spearheaded by Prince Charles of Great Britain. Last year, in a joint survey, the trio found that a third of smaller companies have a defined sustainability strategy, and another 23 percent intend to develop one over the next two years.

"Enhanced business reporting actually dates back to the 1970s," explained Amy Pawlicki, director of enhanced business reporting assurance advisory services at the AICPA. "In Europe, the focus on the triple bottom line was for its impact on the environment, while on this side of the Atlantic it was more for marketing purposes - you put out a report from a social standpoint, like Wal-Mart and their supply chain or the corporate culture at Starbucks. Now it has become less of a marketing exercise and more of a general focus that stakeholders care about."

That increased demand has translated into engagement opportunities for accounting firms or the impetus to start sustainability practice areas.

At Seattle-based Top 100 Firm Moss Adams, Bob Bunting, the chair of the international and sustainability services groups, said that the firm has focused on positioning itself as an auditor of CSR and supply chain reports, a niche that it began over a decade ago, when it developed an internal framework for sustainability auditing.

"It really began to grow rapidly over the past several years as big companies began to get serious about supply chain integrity," reported Bunting, who added that their services have seen rising demand from such industries as food processing, the wine industry and retailing.

Bunting said that Moss Adams also helps clients with the California Transparency in Supply Chains Act, in which retailers and manufacturers with gross revenues of more than $100 million doing business in that state must evaluate and address the risks of issues such as human trafficking and slavery. An estimated 3,200 companies are subject to the act. "We help them develop KPIs for things like carbon and greenhouse gases," explained Bunting. "Many times the reports are compiled by people from HR and engineering who have no idea what an internal control is."

"There's a lot of business from an advisory and consulting standpoint from both existing and new clients," echoed Eric Hespenheide, global leader of Deloitte & Touche's Sustainability and Climate Change Group. "For us, it's helping companies realize the economic benefits [of sustainability] and identify areas of improvements - such as operational or supply chain efficiencies. What's your water and carbon footprint?"

Hespenheide is also a member of the Working Group of the International Integrated Reporting Council, a group that was formed in 2010 under the aegis of the Prince of Wales' Accounting for Sustainability Project and the Global Reporting Initiative. The IIRC counts executives and investors, representatives from the major accounting bodies, standard-setters, and security regulators as part of the committee and is working to created a integrated reporting framework that melds financial, environmental, social and governance reporting in an accepted format.

But convergence in CSR reporting also presents its own unique set of challenges, according to Hespenheide: "Taking the difference between GAAP and IFRS, is it important to measure revenues or the cost of leases? What's important in non-financial measures? The challenges lie in deciding what the relevant or material items are and how do you measure it. You need comparability on what Company A is reporting and what Company B is reporting."

Both Starbuck and Hespenheide said that they plan to attend the June Rio+20 global summit on sustainability in Rio de Janeiro.



Sustainability and CSR reporting can also benefit companies with regard to recruiting and retention.

"Gen X and Gen Y are very vested in socially responsible companies," stressed Jennifer Elder, a CPA and principal of the Maryland-based consultancy The Sustainable CFO. "It's important for them to work at a place where business values match their values, and the company that does that has a leg up on retaining their workforce."

Elder, who also teaches a "green" MBA program at Antioch University New England, as well as sustainability courses for the Business Learning Institute arm of the Maryland Association of CPAs, recounted a hygiene program instituted by global products manufacturer Unilever in impoverished areas of India by selling baby bars of soap at a price the population could afford - and now that country is one of Unilever's largest markets.

"That's an example of a social program that has measurable results," she said. "It's all well and good to make charitable contributions, but aside of feeling warm and fuzzy, the results are hard to quantify."

Said Starbuck of E&Y, "There is going to be a real need for these services in the future, and accounting firms need to gear up and be ready for it!"

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access