Journal Of Accountancy: Why Sustainability Information Matte

Journal of Accountancy Why sustainability information matters to CPAs As demand for ESG data grows, so does the opportunity for accountants to help businesses meet reporting requirements.

The increasing demand for sustainability data presents a significant opportunity for accountants and finance professionals. Driven by regulatory pressures, customer preferences, and investor demands, both public and private organizations are increasingly required to report on environmental, social, and governance (ESG) matters. Regulatory landscapes are expanding globally and domestically to include comprehensive disclosures on sustainability-related issues, which directly impact how companies operate, strategize, and communicate their commitments.

Public companies, in particular, face a growing array of international and national regulatory mandates requiring transparent reporting of ESG metrics, including greenhouse gas (GHG) emissions and social responsibilities. For instance, the U.S. Securities and Exchange Commission (SEC) adopted new rules in March 2024 requiring certain disclosures related to climate change, including GHG emissions data with independent assurance. Although these rules are currently under review, they signify a trend towards tightening ESG disclosure standards that will cascade into private company reporting obligations, especially those engaged in business relationships or supply chains with public entities.

Moreover, disclosures extend beyond emissions to encompass various environmental and social risks, which influence investor confidence, customer loyalty, supply chain stability, and overall corporate reputation. Consumer preferences increasingly favor environmentally sustainable products, as evidenced by higher growth rates for products labeled "eco-friendly," "fair trade," or "environmentally sustainable." Such consumer trends compel companies to integrate ESG considerations into their business models, creating opportunities for accountants to assist not just in compliance but also in strategic decision-making and stakeholder communication.

Regulatory Pressures to Reporting and Operations

Accounting professionals are well-positioned to support organizations in navigating complex regulatory frameworks. GHG emissions are categorized into Scope 1 (direct emissions), Scope 2 (indirect emissions from purchased utilities), and Scope 3 (emissions from supply chains and value chain activities). The scope of reporting is broadening, with indirect emissions, particularly Scope 3, often representing a substantial portion of a company's total emissions. For example, studies indicate that Scope 3 emissions can be on average 11.4 times greater than direct emissions, highlighting the importance of comprehensive data collection.

Regulations such as the SEC’s climate-related disclosures mandate companies to report Scope 1 and 2 emissions starting from fiscal year 2025, with phased assurance requirements following. Additionally, California laws S.B. 253 and S.B. 261 set state-level mandates requiring organizations doing business in California to report their carbon emissions, with initial reporting due in 2026. Internationally, standards such as those from the International Sustainability Standards Board (ISSB) and the European Union’s Corporate Sustainability Reporting Directive (CSRD) are fostering convergence and consistency in disclosures, pushing companies toward globally accepted frameworks.

Collecting and Building Trust in ESG Data

The reliability and completeness of ESG data are challenges that professionals equipped with financial expertise are equipped to address. Gathering accurate data from multiple sources—such as property management systems for energy consumption, HVAC service providers for refrigerant usage, and supply chain partners for Scope 3 emissions—requires establishing robust controls and processes. Data quality issues, including inconsistencies and gaps, can undermine stakeholder confidence and pose reputational risks if not managed effectively.

Accountants can play a pivotal role in developing standard procedures for data collection and validation, implementing internal controls to ensure the accuracy of reported metrics, and leveraging technology to automate data gathering and analysis. Establishing governance structures and oversight committees facilitates accountability and transparency, essential for achieving audit-ready ESG disclosures. Incorporating frameworks such as COSO’s Internal Control — Integrated Framework (ICIF) can help companies meet internal and external assurance standards, thereby enhancing trust among investors and regulators.

Establishing Governance, Oversight, and Risk Management

An effective ESG program depends on strong governance and oversight. Organizations should establish clear responsibilities at the board and management levels, with dedicated committees to oversee ESG data collection, reporting, and assurance processes. Education and ongoing training of board members are crucial, given that many lack familiarity with environmental risks or ESG metrics, which can hinder effective oversight.

Integrating ESG into enterprise risk management allows organizations to identify, assess, and mitigate environmental and social risks proactively. Leaders such as sustainability controllers or cross-functional ESG officers can ensure alignment across departments, maintain data integrity, and provide strategic insights. These steps foster a culture of accountability and continuous improvement, positioning companies to meet evolving regulatory standards and stakeholder expectations.

The Future of ESG Reporting and CPA Opportunities

The regulatory landscape is accelerating toward greater transparency, with regulators demanding detailed, trustworthy disclosures of GHG emissions and broader ESG metrics. Accountants have a unique opportunity to support organizations through data collection, internal controls, assurance engagement, and strategic advice. Developing expertise in sustainability reporting standards, assurance methodologies, and risk management will be critical for finance professionals aiming to capitalize on this evolving field.

As ESG regulations become more harmonized globally, the role of accountants extends beyond compliance to become strategic partners in sustainability initiatives. They can help craft sustainable business strategies, facilitate stakeholder engagement, and ensure data integrity and transparency. Ultimately, embracing ESG reporting equips organizations to improve their operational resilience, reputation, and long-term value creation, reaffirming the integral role of CPAs in sustainable development.

References

• Accounting & Auditing Organization for Sustainable Development. (2023). GHG Emissions Reporting and Assurance.
• European Commission. (2022). Corporate Sustainability Reporting Directive (CSRD).
• International Sustainability Standards Board (ISSB). (2023). Standards on Sustainability Disclosures.
• McKinsey & Company. (2023). The Rise of ESG: Implications for Business Strategy.
• NielsenIQ. (2023). Consumer Shift Towards Eco-Friendly Products.
• SEC. (2024). Mandatory Climate-Related Disclosures for Public Companies.
• Task Force on Climate-Related Financial Disclosures (TCFD). (2022). Implementation Framework.
• United Nations. (2023). Guidelines for Sustainable Finance and Reporting.
• Californian Legislature. (2024). California Laws S.B. 253 and S.B. 261 on Carbon Emissions Reporting.
• World Economic Forum. (2022). Building Trust in Sustainability Data.