Ernst & Young has seen greater interest from clients in incorporating sustainability reporting as part of the services they want from the firm.
Chris Walker, a senior manager of EY’s Climate Change and Sustainability Services practice, said the practice crosses all the boundaries of the work EY is known for, including assurance, tax and accounting, and includes experts in all three areas.
“Companies are being asked by various stakeholders to disclose and report nonfinancial information that potentially is of utility to investors, customers and business partners,” he told me Wednesday.
Walker sees promise in the recent provisional standards issued by the Sustainability Accounting Standards Board for the health care sector, and its plans for releasing standards for other industry sectors including financial services, technology and communications, and non-renewables (see SASB Releases Sustainability Accounting Standards for Health Care Sector).
SASB is joining other groups that have also been working over the years on sustainability accounting issues, such as the Prince of Wales’s Accounting for Sustainability Project, the International Integrated Reporting Council, the Global Reporting Initiative and the Carbon Disclosure Project.
“I’ve seen a lot of groups jump into the mix,” said Walker. “The difference in what SASB is trying to do is they’re taking an approach like FASB in the United States. They pull together experts across a sector like health care to define the most material aspects. By accumulating and vetting the aspects, you could refine them to create a guidebook on what would be the most material issues.”
Walker believes that additional transparency about sustainability issues will be beneficial to the industry over the long term. That way, there won’t be an ad hoc approach to corporate sustainability reporting, where some companies in a given sector will report on greenhouse gas emissions while others report on their recycling efforts. “It’s been very hard from investors’ perspective to benchmark one company against another,” he said. “That’s what SASB is trying to rectify.”
Walker’s background is in the legal profession, including work on asbestos-related lawsuits, and he believes the standards can provide a useful goalpost going forward for the accounting profession and help companies avoid legal entanglements. “Transparency is better than covering up,” he said. “This is about better corporate governance. I’m an old asbestos lawyer by background, and where a lot of companies got into trouble was the many years of denial.”
He admitted that the kind of integrated reporting that the IIRC and SASB are championing is still in its early stages, especially in the U.S., but Ernst & Young is getting a head start by working with a few companies to come up with an approach.
“We help them determine what is material, and do a readiness assessment of the metrics and information they want to report,” he said.
Historically the approach taken by many companies to capturing this kind of information has been non-standard at best, Walker pointed out. “The systems weren’t necessarily there,” he said. “There were a lot of sticky notes and Post-It notes, which wouldn’t necessarily create an auditable trail. There’s a maturation now in the market. You need to go back and make sure it’s verified and assurable. Only when it’s up to that stage will you see the integration into the financial reporting.”
Right now, integrated reporting is being done in an experimental way by several companies. A few U.S. companies have publicly said they would pilot the IIRC’s draft framework for integrated reporting, including Microsoft, Prudential Financial, Clorox, Coca-Cola, Jones Lang LaSalle, Edelman and Cliffs Natural Resources.
Walker recalls that when he first became involved in sustainability reporting about 13 or 14 years ago, he was working for an insurance company and the chief risk officers were very interested in it. He recalls one of them telling him, “You know this is serious when the lawyers and accountants are involved.”