- What you need to know about ESG
- How organizations are setting goals and measuring their impact
- How you can leverage ESG to help your clients and build your practice
Colleen Rozzillis (00:11):
All right. Hi everyone. Thank you for coming to our ESG discussion. My name is Colleen Rozzillis and I'm a partner with Moss Adams. I lead ESG consulting for the firm. Moss Adams has been in the ESG business for more than 30 years, primarily doing assurance over ESG reports and many firms we've jumped into consulting with both feet over the last several years as our clients have asked for it. And so I'm going to talk today about what that looks like and what it could look like in other firms depending on what you are interested in. So first I'm just going to start out with what is ESG? We have a huge crowd here, so I do expect some engagement. I just love to know kind of what your level of experience is with ESG.
(01:06)
So how many of you feel like, I don't really have any idea what this is and I am trying to figure out how to get my bearings? Okay, most people. Is anybody in here an ESG expert? Alright, great. Me and a little bit, right? So everybody else is kind of in the middle. Okay, good. All right, so we'll start here. We'll talk a little bit about what ESG is. It's not new, but it's also not corporate social responsibility. So in 2004, the United Nations officially coined the term ESG, really thinking about those factors that are not financial that we think about assessing organizations for mostly public companies. But really, ESG applies to every single sector, every single business, and we're thinking about how we can help to make decisions better. For most organizations, it really is about adding more value and making less impact, and that's going to be different for every single organization.
(02:12)
You'll hear me say that a lot today. We really want to tell our own story and there's also the opportunity to have a competitive advantage with the data that we're sharing. There are three main elements of ESG, so environmental, we're thinking about how we are a steward of the national environment, but also what our impact is. That again, is going to be very different for every single organization. We are thinking about how our supply chains are impacted, what happens in terms of our partnerships and community impact. And really just depending on what you do, you're going to have very different environmental impact. A professional services firm has a really different impact than an energy company, and we want to figure out how to balance that for every single one of our clients. From the social perspective, that's much more about who we are, what our values are, and are we walking the talk for every organization that's going to be different.
(03:07)
Really think about where we operate, who our employees are, who our customers are, and what that means for us. And then governance. So good governance is a no-brainer, but we don't really have great tools to measure governance and what that looks like. So we're thinking about how do we oversee risk management? How do we oversee compliance? What is the role of board and executive leadership in stewarding a company forward? There are many, many different types of ESG criteria that an organization can use. We are thinking about them in very broad terms when we initially work with our clients. So what is important to you? What is data that you already have? And really trying to drill down into those areas that are important for decision making in that particular company. I'll talk a little bit more about specific metrics as we go forward, but really we want to talk about why this is important for our companies and for our clients.
(04:03)
So there is a tremendous amount of value that any organization can receive by measuring their progress, by I identifying outcomes and then figuring out how we want to get to our goals. That's true for any framework within an ESG framework. We're thinking about a couple of market drivers like compliance, like tax regulations and incentives, as well as what's happening in the industry and being able to manage that. We're also thinking about what recruits want to know. So I don't know about all of you, but every single recruiting meeting that I have, folks want to know about what our values are as an organization, what our social impact is, who we are, and actually how we're measuring that. It's not enough to say, oh yeah, we have great values and we're a good company, especially the younger generation of recruits really wants to know are we walking the talk and they want to see data to support that.
(05:00)
That's really, really important for us as we move forward and try to be competitive in the current landscape. We're also thinking about customers making more informed decisions. So not necessarily just on brand value or name recognition, but what a company is and who they stand for and doing a lot more research there. So the information that we put out is really important. If we don't put out information, folks will figure that out for you, right? In a vacuum, someone's going to tell their version of your story. So that's also very important. So when we're thinking about our organizational performance, it's not just financial data. It's thinking about what we actually do in the world and who we are in the world as an organization and that can really impact our reputation as well as folks are trying to tell their story and making their investment and partnership decisions.
(05:53)
So this is actually a list of the business case for ESG from Nasdaq. So they're very interested in ESG and have a great set of metrics that I would really recommend as a baseline. It's very easy to understand and there's a tremendous amount of information on how to actually gather data there, but when we think about the business case, so I talked about the external pressures and potential regulations, we're also thinking about risks. So we're thinking about how we manage organizational risk? What does operational risk look like? We're thinking about how we communicate with our stakeholders and ultimately there is the opportunity to increase access to investor capital to grow on a values-based perspective. There is a relationship between sustainability initiatives and better corporate performance. I do not have the math behind that at my fingertips, but there are a lot of studies out there that show that as well.
(06:50)
I'm going to pause and just talk a little bit about the SEC proposed rule because this is something that has made folks really nervous since it came out last year, and I'll talk about international regulations in a little bit because those are actually in place and driving some business. But when we're thinking about the SEC proposed rule, so it's put out for comment in March, 2022, and then they received more comments than they've ever received on any proposed rule and then they reopened it up for comment. And so we are not sure when it's going to come out. We're not sure what might happen with the proposed rule, but we do know that sometime this year they're going to give us an update and that is hot off the presses from the SEC. We have folks on in our firm who serve on AICPA sustainability committees.
(07:38)
They had a meeting last week, absolutely no update on timing. I'm sorry that I can't give you timing today, but it's likely if it is going to commence that it will begin reporting some time between 2024 and 2025 depending on an organization's filing status. And also important to note that under this rule limited assurance will be required for different types of companies in their that first year. The SEC is estimating that the first year cost of compliance for large accelerated filers is something around three, sorry, 30,000 hours, which is they're equating to over $600,000 just for that first year of figuring out how do we comply with this, how do we assure it? And I don't know about you, but a lot of our clients don't have that amount of capacity or cash just sitting around trying to figure out, okay, we're going to be ready as soon as the SEC tells us what to do.
(08:34)
According to Reuters, only 30% of US companies are doing any disclosure over climate data, and that's really scope one and scope two emissions, the scope three emissions, which is what is our supply chain? That's a very small amount of companies that are reporting at this point and not very many are assuring over it. This is going to be especially burdensome for small companies, for mid-size companies that don't have an infrastructure in place, don't have a large compliance function in place already to be able to respond to this. I do think that this can scare people, right? Because we don't have the infrastructure set up and we're not sure what it will look like and the compliance deadlines look very close based on the proposal. It sort of reminds me of Sarbanes Oxley and how nervous everyone was about what that would look like and what reporting would look like, and now that's just a normal piece of business.
(09:26)
So there will be some growing pains. It is going to be a challenge, but it will eventually become a normal part of business. And while not all companies will have to comply, typically what happens with publicly listed SEC based companies trickles down to the rest of the marketplace. The other thing that's important to think about, given the requirement for Scope three emissions in this reporting and many international frameworks, is that if you're part of a supply chain or partner with a company that does have to comply, then you're going to have to comply. So we're going to see a big growth in quantifying climate impact, figuring out how to close our gaps in terms of climate data, determining whether that data is reportable and auditable, and then giving that to folks as often as we can in a way that is not contradictory to our other corporate reporting. So before I talk about opportunities in ESG, I just wanted to pulse check and see if anybody had additional questions about what ESG is or the SEC proposed rule before I move forward. Yeah.
Audience Member 1 (10:36):
Is there any state mandates?
Colleen Rozzillis (10:38):
So the question was are there any state mandates? No, there are not. What we are seeing some movement toward potentially. So California, there have been some bills floated, for example, we are seeing more tax credits and incentives at the state level and at the federal level for sustainability initiatives versus requirements for reporting at this point. Yeah, that was a good question. Yeah
Audience Member 2 (11:09):
Just wondering how, do we have any resources or course?
Colleen Rozzillis (11:20):
Yeah, so the question was if there are resources or courses and yes, that actually is the last section of my presentation. If you can hang in there for another 35 minutes. Okay, thank you. Alright, so as accountants and advisors, we have a really critical role to play in ESG reporting and assurance, not just in actually performing the assurance, but in helping our clients comply because they trust us to understand what data is reliable, what are our competitors doing, how is the marketplace keeping up? And for most companies, as I mentioned, they're not going to have the capacity, the existing resources, the framework to comply with SEC or to meet potentially what their customers demand and we potentially do and we can help to augment that. So there is a lot that we can do. First and foremost, it's assurance. So when we think about assurance, it can look a lot of different ways from something very similar to a financial statement, audit to and agreed upon procedures.
(12:21)
Most companies are doing assurance when they're in, I would say year three to five of an ESG program. So we're not seeing assurance immediately because we want to make sure that that data exists and that data is reliable before we go ahead and hire someone to assure it. And we are seeing folks look at portions of an ESG report right now and not necessarily whole scale ESG assurance. I think that will be coming, but right now it's very much focused on that climate impact. We've had a couple of clients who have had us do assurance over DEI reporting and other social impact metrics, but not nearly as much as we're seeing in that climate space. So that does mean that we have to learn a little bit about what this stuff actually is. I know a lot of firms are considering, do we hire climate engineers?
(13:06)
Do we figure out how to add this capacity because there is such a different level of calculation and a level of expertise than we necessarily traditionally have. External assurance can be very valuable for a company, and what I would say is that there's nothing that erodes trust more than unreliable data. So when we are thinking about tailoring specifically to each of our clients, how they report, we want to make sure that we're also consistent with existing data and we want to make sure that we are not greenwashing. So greenwashing is really thinking about this from a marketing and PR perspective. Some of us probably remember in 2019, Volkswagen had a big greenwashing scandal and that really tanked their reputation in the marketplace for quite some time. They have actually been saved a little bit by covid taking over the news because it was pretty tremendous for that organization.
(14:02)
When we think about greenwashing, it really is taking this data and manipulating it or overstating it to show that we are sustainable without actually having that backed up. So if there is assurance over the data, then we can, as assurance firms help to say no, they're not greenwashing, they're actually walking the talk or identifying areas where there could be improvement and that can really help an organization gain credibility as they move forward and gain that competitive advantage. If data is exaggerated also folks will figure it out. So we have lots of different types of reporting. People will look at different data sources, so it's very important that it's either consistent or that we know why it's not consistent, because that will absolutely be the thing that people focus on as opposed the story we're trying to tell. So assurance that we provide. So we do examinations very similar to a financial statement audit and reviews that are much more similar to agreed upon procedures.
(15:03)
Right now that work is done using attestation standards, there was just a set of standards that were sent out by COSO and the Institute of Internal Auditors over controls. So there's some information that's brand new about two weeks ago there. But really what we're trying to do in each of these areas is figuring out materiality levels, figuring out what controls and systems are currently in place for data that's not typically in the gl. And so that's a place where a lot of accountants can just go running, right? No, thank you. I don't want to do that. I don't have a checklist already. You have to create your own checklist. So I'll give an example is that we for a long time have done assurance over Ben and Jerry's climate report. And so what that means is that we had to figure out materiality for the caramel and fudge that is swirled into ice cream or the chunks of cookies that are swirled into ice cream.
(16:00)
And that's not typically something that they teach you in an accounting class, but you have to figure out what does this look like? How important is it for every single piece of something that a company manufactures or is part of their supply chain that we feel is relevant and material materiality is going to be different for every single organization and their KPIs are going to be different. What SASB says for materiality is that we should think about the information being reasonably likely to be important to investors or important in decision making. So are the chunks of brownies that go into a pint of ice cream reasonably important? Probably because that's why you bought the men Jerry's in the first place. So we're thinking about those types of things as we go through. It absolutely requires a lot more intellectual curiosity, flexibility than your typical financial statement audit, but that's also what makes it fun because we're really thinking outside of our typical box and some people really like to dig into that and I would just say if you've got folks who are interested, take advantage of it. Yeah, I've got a question in the back.
Audience Member 2 (17:07):
So could you even go a little deeper (Inaudible)?
Colleen Rozzillis (17:22):
Yeah. So the question was could can it go deeper than just the brownie, but how is it made? So the answer is yes. Yeah, the ingredients that are part of that, for example, there are a number of companies that sell eggs or milk based on the happiness or the way that they're, the animals are treated. So that absolutely would be a part of it. I wouldn't necessarily place a value judgment. Are we using sugar? Are we using Splenda? Because that's more of a business decision and likely kind of more around marketing, but when we look at the sustainability of our choices or our marketing claims and validating whether those are true, then that's absolutely a place where we could go. Yeah, that's a good question.
(18:10)
So the other place where if you've got advisory in your firm that we have had a really great opportunity is around readiness and strategy for ESG. What we have seen over the last couple of years is that organizations are really trying to figure out what are my competitors doing? What is the marketplace telling me to do and how do I fit in there? For most industries, the door is closing to be seen as a leader in ESG, and that's totally okay because if you're a leader, you're investing a lot of time, money, and energy, and if you are third across the finish line, that's completely okay in this space and you're keeping up with your peers and maybe learning some lessons from them. What we also know from working with lots of organizations is that most organizations are already doing a lot with respect to ESG.
(18:57)
So you probably already have some data collected on what your procurement process looks like, what our energy uses, what our recycling and water use are. We just might not be reporting it. We also usually have data on our employee diversity on our community and social impact, whether we do giving and volunteer days, things like that, whether we use child labor or not or have rules around those sorts of things. And we typically have data around governance that we just don't use. What type of education does our board have? What are their skills? How regularly do we meet competency frameworks, things like that. So the very first step that we usually take is just what are we already doing and does this make sense to us? Are there gaps in this data? Then we also take a look at the organization's strategic plan. We want to make sure that wherever we end up going with ESG, that it aligns with the strategic plan that's in place.
(19:49)
If it doesn't align, that's a full stop and we have to talk to leadership about if this doesn't fit into your strategy, how are you going to make it part of your strategy? Or do you really want to make it part of your strategy? Because we have to have appropriate resources and capacity to be able to do that. That can be a place where we stop with some clients. That can be a place where we pause and we go back to the strategic plan and make sure we can nest it in somewhere. Once we understand where we're going, then we want to establish some objectives. So using the data that we already have, identifying the gaps that we might need to fill, figuring out where do we want to go with this? So if we want to reduce our climate impact, if we want to increase our employee diversity, if we want to increase how much we give back to our community, we have to figure out how we're going to measure that, set reasonable targets and then actually have that data in place.
(20:39)
Those are all places where then we emerge With ESG roadmap or a strategy, typically the roadmaps that we are developing are one to three years out before we get to reporting because we've got to figure out how to add the capacity. We've got to figure out how to collect the data and make it meaningful before then we go out to the world and say, this is actually what we're doing. So there are a lot of different places that we can plug in in terms of advisory services that aren't that different from traditional strategic planning, traditional operational efficiency work that really is just with an ESG lens and is absolutely an opportunity. Data is another place. So a lot of firms now have data analytics teams. We're really digging into data and trying to figure out how we can use it more strategically.
(21:26)
So helping folks to develop ESG dashboards, developing reports, that's absolutely a place where we can fit in. No one wants to read a 200 page sustainability report. Nobody really wants to read a 50 page or even 10 page report. We want to look at a dashboard and see where are we now, where are we going? So this is actually some sustainability reporting that's actually from Harvard University. I liked the colors in this report, but also it's not our client or anything, it's just an ESG report and it just shows a lot of different ways that they are measuring their impact and kind of what that looks like. And this is really easy to understand, here's where we are and here's where we want to go. And this is really what investors, stakeholders, employees, and recruits are looking for. We have to be thoughtful if we want to actually help with reporting so we can help develop dashboards, we can help folks determine what KPIs they want to use.
(22:22)
If we do reporting for our clients, it means we cannot in the future perform assurance. So a lot of firms right now are trying to figure out, do we actually want to be in the ESG reporting business? And for some it's no, and for some it's yes. So we'd rather do the advisory work and we're okay not assuring them in the future. For others we we'd be more comfortable having ongoing assurance when you all are ready and it just really depends on what you want to do. It's definitely a different skill to help folks with reporting and analytics than it is to do the assurance. So it's also an investment in your team to do that. So let's talk a little bit about what organizations are really reporting on in terms of ESG. There are a number of areas that I would recommend in terms of developing knowledge and competency in these.
(23:11)
There are some stakeholder entities and regulators like I mentioned, Nasdaq, GRI, and SASB that have really well developed frameworks. They have example metrics and where the data comes from. Those are really valuable places to start. That also helps us to facilitate benchmarking and eventual assurance. So when we all use the same metrics, then we can go out and see what is the marketplace looking like? How are we performing in comparison? I would be very careful with benchmarking, particularly with this though because it's really about our own impact and what we are doing to lessen it or make a change as opposed to what our competitors are doing when we're trying to make decisions and tell our own story in the marketplace, benchmarking does have value, but if we are not measuring to our own target and outcome, then we're not really making the right data-driven decisions.
(24:03)
We would not necessarily recommend that any company pick this entire list, take every single GRI metric you're going to want to take what works for you and what's meaningful. And starting with that data inventory that I mentioned previously, figuring out what do we already have and how reliable that data is. You can add things over time. Some of this stuff is super easy. Some things like for example, your CEO pay ratio, we can get that right out of our financial statements. Some of it is really challenging and so we really want to make sure that we understand how we're measuring and communicating appropriately. On the governance side, you'll see a lot of things that are sort of a yes or no, right? Do we have data privacy rules in place? Do we have an external assurance over the work that we're doing?
(24:50)
Things like that. But then there are things that are a little bit more qualitative to measure. So the independence of the board, how would we measure and report on the independence of our board? Those are really things that we have to dig into with each individual organization and figure out how do we want to tell that story in a reliable and a repeatable way. I would say 2022 for us was a story of a lot of readiness, a lot of strategy, a lot of setting up governance frameworks for ESG and 2023 so far is turning into controls over ESG. And I think this is going to be the biggest area of growth over the next few years because if we are seeing requirements for assurance, we are going to want to know what are those systems actually look like? What are controls over those systems?
(25:36)
What is the quality of that data? And typically those are not systems that have the same type of controls that financial systems do or even HR systems do. Sometimes it's just a spreadsheet that lives on someone's computer that's terrifying. Let's hope not. But it might be multiple spreadsheets, it might be multiple systems, it might be places across a company that don't touch each other that might not align, and we have to figure out the reliability of that data. We've had a lot of inquiries from our clients around doing SOC work over climate data, over HR systems that end up reporting the SS data, and we are also seeing some requests from large companies for their supply chain to provide those. So if you are a partner or a vendor to have a SOC report, so not just the data, but is this data reliable? Because if they are going to report on their Scope three emissions, then they're going to want to see is this actually reliable because it's their credibility, it's at stake as well.
(26:35)
I don't know of any accounting firm that yet has an ESG SOC group, but if I come back here in five years, I wouldn't be surprised if there are multiple firms that have these in place and it's going to be a big education process as well for the folks who work in that space. And that's a really important role for us as folks who understand controls and compliance, to be able to discuss that with our clients and make sure that they establish those appropriately. So when we're thinking about putting a control structure together, I would say anywhere possible data that can come from the GL is great. Not everything is going to tick and tie. As I mentioned before, if things don't align with our financial statements or with other reports, just noting why and giving that explanation is really important and you can still report the data that way.
(27:26)
This is a really fast moving space and there's a lot of ambiguity and it's okay for data sources to change year to year, as long as we are transparent about that. The second that we try to fudge things or don't acknowledge it, that's when folks might get suspicious and trying to dig in more. So the more transparent we are, the better. I've worked with a number of organizations where they report the same performance measure for years, then we change the way it's calculated, then we have to figure out on that beautifully colored dashboard how to actually show this is a difference in our methodology. That doesn't mean that it was wrong before, we are just changing it. We have to be a lot more flexible and open in this space just because the marketplace is moving so quickly. Couple of other services that firms offer.
(28:09)
So we are seeing ESG due diligence increase in terms of transactions, mergers and acquisitions. We are seeing companies being much more interested when they are combining from a values-based perspective, but also if we're thinking about the manufacturing space, the food and beverage space, the energy space, we want to know exactly what that impact is if the acquirers already doing reporting, making sure we're aligned in those areas. So ESG due diligence has been a little bit of a bubble and I think it will continue to increase. We also did a project last year for a company that was planning to go public. And so what they wanted us to do was do an ESG assessment so that they could actually use that as part of their MDNA and pitch deck to say, we have these values, we have this in place, this gives us additional value in the marketplace.
(29:00)
So it's a little bit on both sides. We're also seeing some opportunity in valuation. So what is the actual value of having this? We know from a lot of research that the more that we have values-based decision making in place, then the better financial outcomes our organization has, but what does that actually look like in terms of total dollar value and really trying to quantify that. So our valuations teams are absolutely looking into that. ESG risk is also tremendously important when we are looking at companies that operate internationally that operate maybe in the energy space or in manufacturing or construction where there are external pressures. So conducting risk assessments and understanding where exposures are in this space is becoming increasingly port important in some industries, I would say particularly in energy, but there are a lot of organizations and industries where it's something that we want to know what our exposure is.
(29:59)
We also are seeing quite a bit of investment strategy in ESG. So ESG investing has been around for a really long time. We've had corporate sustainable investing, I guess that's what we would call it, or responsible investing since the 1960s. And there are lots of different ways that we can look at sustainable investing from just kind of that initial, I want to do business or put my money into a company that aligns with my values to things like impact investing, to trying to partner with other investors to move companies in a different direction. There's a lot of movement in the investment space. We do know that ESG funds perform better than the traditional marketplace. So even in a down market, we have ESG funds performing less poorly than other funds, which is kind of interesting, and I don't know if the data will play out really long term that that's the case, but it seems to be something that folks are very interested in investing in.
(30:56)
And then I want to just talk a little bit about tax. Are there any tax people in the room? Oh yeah, look at, oh, and you're right in the middle too. That's great. Okay, so new markets tax credit is a newer tax credit that is designed to encourage investment in low income underrepresented communities. And that's a huge opportunity to tell an ESG story, to make an impact in a community and to have the federal government give you a tax credit for it. And so that's something that has really picked up a lot of steam and is a good opportunity across many organizations not-for-profits can be eligible for it, and we expect that the tax credit will continue for quite some time. And then the Inflation reduction Act has a tremendous amount in it around tax credits for sustainable infrastructure, sustainable building making, energy efficient choices, and we really want to be able to let our clients capitalize on that.
(31:52)
So we're doing some work right now for a company that is in that readiness stage. They're trying to figure out where do we want to go with this? We're actually just doing an energy use inventory for them starting from the ground up. And then we're also partnering with our folks in tax, our friendly tax friends to identify what opportunities there could be for credits and incentives, potential grants and subsidies so that they don't have to pay for it all themselves. And that can be a really powerful project to work on, and you can really help a company move the needle that way because you can help to say, okay, here's your roadmap. We know this is expensive, we know this looks daunting. Here are all the different ways to help you pay for it and actually do it. And so that can be, well, I think it's going to be really fun.
(32:35)
We're not done yet. The other piece that I think is really, and I think we probably have all experienced this, is even if our clients aren't doing anything right now, their board and audit committee want to know if we're doing something right. So board members tend to be hopefully more sophisticated and more connected, especially in kind of smaller companies that might have folks that work at bigger companies that might have an ESG initiative. We get a lot of questions from our clients that is, how do I answer my board? How do I tell them what we're doing? So being able to talk to the audit committee about what is happening in the marketplace, being able to educate them and connect them with resources, potentially take a look at the audit committee charter and see if they should oversee ESG. So we are seeing some movement.
(33:20)
I a has some resources out there around adding ESG oversight to the audit committee's charter. That's probably the right board committee if we're going to oversee this data and we're overseeing reporting that eventually there will be compliance requirements around, there are also pieces around actually just educating them and getting them ready to do it. So if you're reviewing these reports, how is that different from the financial statements? How is that different from our audit? Taking a look at what they should be reporting and how frequently to the audit committee versus publicly, and then whether the audit committee should consider using their existing assurance firm or potentially an independent firm to look at that data. And that's going to be really unique depending on every company's organization and what their goals are. So we're seeing some that are comfortable using their external assurance firm and want to, and others that really want to treat it like SOX reporting and have it be a separate entity to have that additional third level of assurance.
(34:21)
There are not requirements around that yet. So it's really just talking through the pros and cons of those things. So I would be remiss if I didn't talk a little bit about all of the challenges here because it's not easy, it's brand new, it's really fast moving and no one's exactly telling us what to do. So I would say here is the punchline, right? There's no universal standard. We have to figure out what standard we want to use, and that can be a place where a lot of companies and a lot of accountants just say, okay, I'm not ready to do this yet. I don't want to do it, so I'm just going to wait till somebody tells me exactly what to do. I will say, since regulations are coming, since they're very advanced in Europe and Asia and the economy is increasingly global, educating yourself on this is you're not going to lose anything from it.
(35:07)
We have a list of, well, these are sort of the most popular frameworks here, and this is a really great table that I first foundation put together of comparing kind of the different standards and frameworks. I would say that if you're going to educate yourself, the two areas to lean into would be GRI and SASB. Those seem to be the places where folks are coalescing around. GRI has a really great framework that has definitions of metrics, what data goes into them, how we might define them, and is a really good resource for just educating yourself and thinking about what the possibilities are. SASB has probably the only certification in ESG or sustainability accounting, and so if we are having folks getting certified, that's the place to go. For right now, it is a four-part exam.
(35:59)
I know that might be triggering to some people in the room. I would, it's not necessarily as challenging, but it definitely is. It takes quite a bit of work to get yourself up to speed on this and make the time to do it. Those folks in our firm who have done that certification have gotten a lot of value out of it and find it to be really interesting content as well. Diving into any of these frameworks does have value. We know that there are frameworks that are in place or required by European parent companies, for example, that some of our clients have to abide by, but because we do not have a framework in the US, you can also just kind of pick and choose from these frameworks and figure out where do we want to go. I think probably most of our clients are trying to report somewhat in alignment with GRI, understanding that it seems like that's where everything is going and that the frameworks kind of continue to consolidate.
(36:51)
But TBD, there are some additional challenges here too. So when we think about our audiences are very different for this type of data, and it's not necessarily just, okay, this is going to our audit committee or finance committee and it's going on to the world to investors. The audiences are really broad here and people are more interested in something a little bit more qualitative or a sustainability report than they might be in looking at an annual report or financial statements, and they might have different priorities for ESG reporting that those priorities might not be the company's priorities. So we have to be able to ask answer questions. We have to be able to understand if folks have different levels of literacy in terms of sustainability, in terms of diversity metrics, in terms of what good governance actually means, that we can also explain that and answer those questions.
(37:45)
We also know that this marketplace is moving really quickly, and so in order to do that, we have to be able to respond to our audience's needs shifting over time, whether we spotlight climate at the front, whether we spotlight governance at the front, that's going to be different for every organization. The measurements themselves and the data itself can be really daunting. So I mentioned I really like picking on Ben, and I guess I probably should ask them before I do this again, but fudge, who is a subject matter expert in fudge, I worked at an ice cream parlor when I was 14, so maybe I am actually, but maybe that's not a great example. So I mentioned before climate engineers potentially thinking about the different types of data and expertise that we need here. We do need expertise from our industry experts. When we thinking about working for a company that is in the food and beverage space, when we're thinking about the energy space, what are the particular operational needs and expertise that we have to have on our team to be good advisors?
(38:47)
And so there's going to be a lot more partnership, there's a lot more of referring work when we don't feel competent in doing it, then maybe there would be in our traditional lines of business, and that's okay. We build trust and collaboration with our clients when we get them the right advisor who might not be us, but we also need to expand our networks to figure out what subject matter experts do we need in the room. Do we need someone from HR in the room? Do we need someone who has been trained in equity and inclusion to be able to be a part of this conversation so we can have it competently? There is a huge variety in terms of what we measure and what that looks like from fudge to actual emissions coming out of a plant. And so understanding that variety, being able to describe that baseline in a way that makes sense to folks is also very important.
(39:38)
And we also have, I would say, kind of traditional assurance. We're looking backward and in ESG, we are looking forward, and that can be a real challenge in terms of a mindset shift with a lot of our team members because the data might be from the year prior, but we are having conversations about what's happening next for us, and that's something that we have to get comfortable with. Being more flexible, having that ambiguity in our conversations, that can be a big challenge and so folks might not want to mount that challenge. So I promised here it is, we're going to talk a little bit about how to develop your knowledge. I did provide the slides and there are links here. Everything that's underlined is a link to all of the places to go. I think the number one thing is to talk to your clients and to figure out how this affects their particular industry.
(40:31)
And it really is, I can't say this enough, unique to every single industry, to every single sector and every single company. So figuring out who are the market leaders in their space, what are they doing? What are sort of recent articles and trends that we can start talking about with our clients and asking questions, what are the things that are pressuring them? Is it the supply chain? Is it your customers? Is it your investors? Is it that one board member who read an article in Forbes and can't stop talking about it? We need to figure out where that's coming from so we can help them answer those questions and then what their individual goals and values are. So we should know that for our clients, we should be talking to folks about what is your strategy? Where are you going? What's the future of your company?
(41:14)
This is a great way to open that door and have that trusted advisor conversation really around something that is happening in the marketplace. Here's what's happening with another client. Here's what I'm hearing. In your industry, how is this affecting you? Are you thinking about doing anything? This is not necessarily to sell them additional work to learn more about where that organization is and where they're going. So certification, so SASB has a great credential, GRI. You can become a certified sustainability professional. It's a little bit easier than the SASB certification, but it definitely is worthwhile to look at if it's something that you want to get into. I would say a lot of people do not have certifications in ESG. Most people who do this work have kind of picked it up over time and just educate themselves and move forward.
(42:02)
I think we'll see more certifications as we advance in this space, but there's a little bit of fear of also investing in kind of the wrong certification. We're also seeing, I think when I went to college, you couldn't get a degree in sustainability, but now we're seeing folks who have dual degrees in accounting and sustainability, or you might have a major in sustainability or a minor, and that being something that folks are coming into the workplace with, and we really want to take advantage of that knowledge. So I would absolutely do sort of a scan of people that have graduated in the last five to 10 years and just see, did you take sustainability courses? What did that look like? And really try to capture that knowledge and see if we can teach each other. There are a ton of really good resources out there.
(42:50)
We've put, I would say the most value neutral, the most longstanding resources here. A couple that I just want to shout out, so the Society for Corporate Governance is a really great resource. It's a membership based organization. It's a lot of lawyers, but it really, the focus is around good governance. And so ESG naturally falls into that. They compile a lot of really good information from reliable sources and send out a very good weekly newsletter that has a lot of very interesting compliance governance and ESG topics. The GRI, as I mentioned, really great resource and there is a tremendous amount of information on their website. And the AICPA and COSO are starting to really dive into this, so I would absolutely jump on their websites and see what sort of information that they have available.
(43:43)
Before I get into questions, I just wanted to say one more thing because this does come up with ESG presentations from time to time, which is that ESG investing over the past couple of years has been increasingly politicized. And so we do hear occasionally from clients about why are you doing ESG? This means you're taking a political stance and really that's not true, right? ESG has been around for a long time. It's not political, it's about reporting data, but that has been something that is kind of bubbling up. So what we typically say when we are responding to those questions is we are trying to report Assure and help our clients to report and assure on data to help investors make decisions. That's ultimately what this is. And if the marketplace moving in this direction, we want to help our clients to be prepared. And so we're not necessarily talking about politics that are involved in it. I will say it's much more focused on the investing side versus the strategy side, but it's important to be able to respond to that if that is a question that your clients have because it does come up from time to time. So we've got about five minutes left, which is perfect timing if we've got questions. Yes. Friendly tax professional.
Audience Member 3 (44:58):
So how does this interplay with like B Corp?
Colleen Rozzillis (45:02):
Yeah, that's a great question. So B Corp certification is sort of a values based certification in the first place. So we would assume that B Corp are going to probably be more on the forefront of ESG reporting. A lot of B Corp do already have that data collected and are reporting it as part of that certification process. So it's actually pretty easy to do ESG reporting with a B Corp. That's your ideal client. Yeah.
Audience Member 4 (45:27):
Can you actually talk a little bit about how the merger with the SASB has affected the use of SASB slash RF stands versus SAS B still offering that as a credential within the SASB?
Colleen Rozzillis (45:36):
Yeah, So SASB is still offering that credential so that yes, there is a tremendous move toward trying to consolidate frameworks. So basically all of the different frameworks are starting to get together and say, oh, nobody's going to tell us what to do. We're going to try to figure out if we can come up with a consolidated framework. They're not there yet, but we are hopeful that that will help to consolidate things and also just give us a little bit more guidance so that we can guide our clients more effectively
Audience Member 5 (46:09):
On the technology side (Inaudible)
Colleen Rozzillis (46:18):
So the software space is absolutely evolving. There are a number of software companies out there. I would say right now they kind of all do the same thing. So audit board watershed, I think those are the two that we see in place more often. Audit board folks already use for compliance reporting, and so they added an ESG module. We are seeing some movement in terms of ERP systems, trying to figure out how do we add ESG modules. I would say be, we're in kind of that phase of, there are a lot of smaller companies, they're going to start getting acquired by kind of the bigger ERP providers and they'll start being integrated. I've had really good success with Watershed and with Audit Board, but there are plenty of companies in this space, and I would find the dashboard that works for you. You also can just use Tableau Power bi. You can use the data analytics tools that might be more at your fingertips, as long as we know that the transfer of data has those controls and we've got that process documented. Okay. Anybody else? All right. Well you have two minutes back in your day. Thank you so much for coming and thanks for your really great questions and engagement.