Recent regulatory efforts to standardize companies' climate-related disclosures are expected to boost the role accounting and finance professionals play in tracking, reporting, and assuring carbon emissions disclosures.
Already, the proposed new climate regulations are gaining the attention of small and midsize suppliers and contractors of multinational businesses that started environmental, social, and governance (ESG) efforts several years ago.
As companies step up their ESG reporting, firms will have to develop talent and expertise in the emerging field. Many are looking to hire CPAs with ESG knowledge and experience. Brigitte Muehlmann, CPA, Ph.D., an accounting professor at Babson College in Boston, sees enormous opportunities for the profession in addressing ESG aspects of businesses.
And she's not alone. KPMG announced last year that it will invest $1.5 billion in expanding its ESG efforts, including partnerships with New York University and Cambridge University. Corinne Dougherty, CPA, is an audit partner at the firm and leads KPMG's ESG curriculum for existing staff.
Muehlmann and Dougherty spoke with us about the growing importance of ESG. Their answers have been edited for length and clarity.
Why should faculty consider adding ESG to their classes?
Muehlmann: A few decades ago, when we looked at the value of S&P 500 companies, we could see that about 80% of the value was because of tangible properties, and about 20% was intangibles. Now this has flipped. So, if more than 80% of the value of a company is due to intangibles, and the brand is potentially the most valuable item for consumer-facing companies, then we are not helping the people who analyze companies and those who invest in companies if we don't help them with trustworthy business information that's related to those intangibles.
We actually added the word sustainability to the title of our financial and sustainability reporting course, because students told us their prospective employers were really excited about them learning ESG concepts, and they want to see something on the transcript that reflects that they learned those concepts.
Dougherty: Our firm just issued the 2022 KPMG CEO Outlook, and what was interesting was that 51% of the CEOs surveyed believe that corporate purpose will be important for strengthening the engagement and the employee value proposition over the next three years, and we're starting to see the next generation of leaders really trying to find purpose in what they're doing. Employees want to work for companies that take ESG seriously. For example, this brings an opportunity to help companies reduce their carbon footprint by leveraging data and insights, and that's really attracting younger professionals and college students.
Do you have any advice for faculty who want to start incorporating ESG into their teaching?
Muehlmann: ESG is already in courses; you may just not be aware of it. Tax reaches into governance and social factors, and even environmental factors. Just look at the Inflation Reduction Act, which includes environmental incentives. Even accounts receivable and accounts payable have ESG implications. You don't have to change the entire course, just think about what students care about in your current topics and start with one ESG nugget.
This week, I have a banker coming to speak about an entrepreneurial business case where the business owner is applying for a loan. He starts out with financial analysis, but would you believe, he actually asks his client ESG questions. He's evaluating a lumber business, so I pulled up the key factors that contribute to Home Depot's ESG score in the ESG Direct database, to which the Babson library subscribes. When you look there, you see everything applies to the little lumber yard. It's easy to highlight the way ESG ties into the loan approval process, and it's an example of how ESG incorporates into our existing curricula.
How much would you say the demand for ESG skills is growing in the accounting world?
Dougherty: Now more than ever, people really want companies to tell their stories publicly, transparently, and completely, so this requires a lot of ESG data, which is where accountants come into play. The desire to have high-quality, high-volume, and highly comparable ESG data is only growing, and this is a trend we're seeing across the accounting profession, really largely driven by investors, customers, regulators, employees, and others who are really starting to demand this information from companies they engage with. So, at KPMG, with the rise of ESG, we have been anticipating increased demand for ESG services, including assurance, so we've taken steps to plan accordingly, including scaling, hiring, and training our existing professionals who want to do this work.
Are there any other skills or qualities that are important to succeed in ESG work?
Dougherty: Technology and data analytics capability are really important for professional development, particularly for those earlier in their career. Certainly, baseline accounting and critical thinking skills remain essential to this line of work, but also that constant learning mindset. One thing we're frequently seeing is that many of the skills developed in school and on the job are applicable to ESG. For example, auditors are experienced at identifying risks, providing insights to clients, implementing process understanding and control testing, and they also understand the importance of maintaining independence. All of these skill sets are highly transferable to ESG work.
Hear more from Brigitte Muehlmann and Corinne Dougherty at the next Faculty Hour webinar, "Demystifying ESG," Friday, Nov. 11, 2 p.m.–3:30 p.m. ET.
— Megan Hart is a freelance writer based in Florida. To comment on this article or to suggest an idea for another article, contact Courtney Vien at Courtney.Vien@aicpa-cima.com.