Thursday 27 May 2021 6:00 am ICAS Talk

Fee-earning opportunities from sustainability: Is your firm leaving cash on the table?

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Fiona sits on ICAS’ Sustainability Panel and is the Director of Red Links, a business consultancy based in Hong Kong that supports the development of responsible business through strategy, engagement and sustainability services. She has been active in renewables/clean tech/sustainability space since 2007and has a well-rounded business perspective of sustainability matters increasingly from the investment perspective.

The ever-evolving topic of sustainability can create ways to grow your business and further serve your clients.

Sustainability comprises the many elements of environmental, social and governance (ESG) topics, that are evolving over time; vary across company, industry and country; and involve such a huge range of different stakeholders, concepts, frameworks and rules.

Parking semantics on definitions, regardless of how you define sustainability, essentially it boils down to knowing and managing material ESG risks and opportunities that ultimately, whether directly or indirectly, translate into positive/negative impact to value, be they carbon taxes, reputational gains, lower cost of capital, reduced employee churn, litigation costs and much more.

Chartered accountancy firms are well advised to get their own houses in order: what should a firm stand for sustainability-wise and how should that be embedded in strategy and reflected throughout its own operations? Having clear policies and practices for these areas can reap multiple wins and even, most simply, be a point-scoring and winning differentiator – it’s not unusual for credit to be awarded on proposal scoring sheets for good practice in sustainability.

But sustainability also presents a raft of opportunities for accounting firms to serve their clients and thereby earn more fees possibly in new areas. With a little upskilling of people and diversification of propositions, a firms’ offerings to clients may be fine-tuned/revamped to better serve clients’ present and emerging sustainability needs.

Here we give just some examples that would sit comfortably within the stable of offerings of CA practices.

Assuring sustainability reports

Sustainability reporting broadly is making moves to emulate the robustness of financial reporting, and that includes deeper and more complete assurance being warmly welcomed by investors and other readers of reports. The de facto international standards for sustainability reports produced by the Global Reporting Initiative, (GRI), state in GRI Standard 102: “The use of external assurance for sustainability reports is advised…”

This encouragement is echoed in other ESG reporting guidelines, like stock exchanges. So, if firms have capabilities to deliver per the International Standard on Assurance Engagements (ISAE 3000) or AccountAbility’s AA1000 standards (among others), then it could be worth instigating conversations with clients with unassured sustainability reports around the value an assurance statement can bring.

Verifying other non-financial matters

In a similar vein, sustainable finance/responsible investing has grown in hockey stick trends in recent years. According to one source, green, social and sustainability bond issuance hit a combined US$400 billion in 2020, up 24% from the previous record of US$323 billion achieved in 2019.

Such bonds alone now comprise various types including green (dark, pale or stripey), blue, sustainable, social, COVID, UN’s Sustainable Development Goals, and climate, many of these arising in the last few years. One recurring theme is for finance aligned to sustainability (not just bonds) to require the opinion of an independent verifier to check that finance raised will/has been invested per the stated objective in raising it. For bonds, this amounts to fee-earning opportunities to verify use of proceeds against the framework, both pre-issuance and post-issuance on a periodic basis.

There may be hoops to jump through, for example, a firm may have to seek formal approval to assure for bonds issued through certain international platforms like the Climate Bonds Initiative, but this could be a small investment for a firm for a growing opportunity of potentially recurrent income streams.

ESG reporting options

Sustainability reporting is amass with frameworks, templates and the opportunity to make voluntary submissions to independent bodies on particular themes, for example, using CDP for carbon disclosures. This is set to continue in the short term as thinking further evolves and the needs of various stakeholders are re-reconciled by the 2020 reset, urgency to transition to carbon neutral and more. Particularly when there is any element of choice about reporting, it’s an evolving minefield and tricky to know the best framework(s) to report against to address the sometimes-disparate needs of the array of stakeholders.

Research by the Sustainable Stock Exchange (ESG Guidance Database) gives a sense of the patchwork of options and how local guidelines are aligning – or not – with international reporting frameworks. Chartered accountancy firms would be well advised to stay abreast of all the leading international frameworks – not just national norms – to advise clients on the optimal mix of reporting, and even contribute to some of the increasingly complex content that some of the frameworks require, for example, around scenario/financial modelling, as auditor independence requirements allow.

Sustainability is a huge and highly dynamic area that is also typically very international in nature due to all the different stakeholders involved (supply chains and investors alone web organisations to many jurisdictions). Given the financial impact of sustainability matters, chartered accountants (CAs) are having to know more and learn more about the impact of these topics that have traditionally been more off-piste for accountants. ICAS is gearing up to reflect the future needs of CAs even more in exams and CPD training in sustainability.

Fiona Donnelly is a CA based in Hong Kong and is owner and director of Red Links Limited.

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