ESG assurance opportunities likely to grow for CPA firms

By Ken Tysiac

Earlier this year, The Dow Chemical Company decided to change its environmental, social, and governance (ESG) reporting verification provider.

Where a verification services firm performed that work in the past, Dow contracted with its financial statement auditor, Deloitte, to provide assurance services.

"We feel that gives the information a little more credibility," Pamela Oberski, Dow's North America finance director, said at the AICPA & CIMA Conference on Current SEC and PCAOB Developments. "It kind of sets us apart as a leader, at least within our industry, in terms of who we're getting the assurance from."

Dow's decision may be part of a trend in ESG services that CPA firms can take advantage of in the coming years. A Center for Audit Quality study performed earlier this year showed that just 31 of the S&P 500 companies used public company auditors to perform assurance on their ESG reporting, while 235 S&P 500 companies used nonaudit firm assurance providers.

But investors are requesting more ESG information for decision-making, and the regulatory environment appears likely to change in the future. The IFRS Foundation in November created the International Sustainability Standards Board in an effort to harmonize reporting standards on sustainability information around the world. Meanwhile, the SEC is developing ESG requirements for public companies and has enhanced its focus on climate-related risks in company disclosures.

It's becoming clear that existing investor demands and future regulatory requirements will lead companies to create more rigor around their sustainability data. And when that data is reported in SEC filings rather than just in company sustainability reports, companies may want CPA firms to perform the assurance services.

"I do expect that trend to continue for a lot of companies," Sara DeSmith, CPA, who leads PwC's sustainability assurance practice, said at the SEC/PCAOB conference. "We're moving toward integrated reporting, where we're meshing together the nonfinancial with the financial results. It just makes sense to use the same auditor for both of those reporting streams."

DeSmith said the benefits for a company of using its financial statement auditor to audit financial statements include:

  • The efficient approach that will emerge from using a firm with deep knowledge of the company for assurance;
  • The ability to leverage assurance procedures used in the financial statement audit for ESG assurance work;
  • The independence, ethics, and quality control standards that a CPA firm is held to are rigorous.

"I do think we're going to continue to see that trend, and I think that's the right thing for companies to be moving toward," DeSmith said. "CPAs bring what we call 'investment-grade quality' to the table."

At many companies, the finance function has not historically been involved at all in the sustainability function's efforts and data collection, DeSmith said.

She said it's now important for finance teams to develop the same controls and procedures around sustainability data that exist around other data that is included in financial statements.

"I would encourage everybody to take a really clear look at what you've been saying in your sustainability report for the last year or two and either connect the dots to what you've said in your [SEC Form] 10-K and the risk factors, or at least have a good explanation as to why you didn't say something in the 10-K when you did emphasize it in the sustainability report," DeSmith said.

One step in connecting the dots is to connect the processes and controls around collecting and ensuring the quality of data. Steve Gibbs, vice president, chief accounting officer, and controller at Home Depot, said at the conference that his company has a task force on sustainability that is addressing those issues.

Because sustainability data hasn't been reported in the financial statements, controls around that data are not as strong at many companies. But that is changing as regulators and investors become more interested in that information.

"There's some commonality in internal controls in a framework, right?" Gibbs said. "But I'll tell you what, my sustainability guy had never heard the word 'COSO,' and now he's hearing it. So there's a whole level of education that comes along with those types of things."

Meanwhile, at CPA firms, getting involved in assurance services can help with challenges firms are having attracting and retaining talent. This can be a particular help during a time when labor shortages are pervasive for many employers, including CPA firms, in the United States.

Kristen Sullivan, CPA, who leads Deloitte & Touche LLP's US Sustainability and ESG Services, said the firm's work in sustainability advisory and assurance services has been attractive to talented Millennials and members of Generation Z who want to be engaged in the ESG area. She said expanding the firm's services to include ESG advisory and assurance has given the firm a way to serve the capital markets and have an impact on society.

"We found that to be not only essential to attracting and retaining talent to deliver our services — advisory, attestation, and ultimately audit — but also to executing on our public interest role in the market," Sullivan said at the SEC/PCAOB conference.

As the spotlight on the public interest role of the profession increases with delivery of ESG assurance services to more clients, those engagements may become broader and more complex. The assurance level may be increased from limited to reasonable, and a wider set of data may be subject to assurance.

Oberski, the Dow finance director, said her company currently is having limited assurance services performed on its reports that are prepared in accordance with the Global Reporting Initiative comprehensive option standards.

She expects that to expand to include some of the metrics Dow reports in alignment with the Greenhouse Gas Protocol.

"I do expect this will change and evolve as we get a better view of what our investors and stakeholders are using and how that information is important to them," she said. "We may want to include more as part of that assurance process."

— To comment on this article or to suggest an idea for another article, contact Ken Tysiac at

Where to find March’s flipbook issue

The Journal of Accountancy is now completely digital. 





Get Clients Ready for Tax Season

This comprehensive report looks at the changes to the child tax credit, earned income tax credit, and child and dependent care credit caused by the expiration of provisions in the American Rescue Plan Act; the ability e-file more returns in the Form 1040 series; automobile mileage deductions; the alternative minimum tax; gift tax exemptions; strategies for accelerating or postponing income and deductions; and retirement and estate planning.