Three years ago Barbara Porco, Ph.D., CPA/CFF, professor of accounting and taxation at Fordham University in New York, decided to teach a one-credit course on data analytics and sustainability reporting, an area she felt passionate about after years of study and research.
"The expectation was that we would have minimal interest,” Porco said. But within 15 minutes of registration, nearly 100 students tried to sign up, she said, and the university had to add course sections to accommodate the demand. Today, Porco teaches several undergraduate and graduate courses focused on sustainability accounting and ESG, the term for organizations’ environmental, social, and governance activities.
ESG is an area of growing interest for the accounting profession. More U.S. companies are reporting their ESG data, and global standards bodies, such as the newly created Value Reporting Foundation, along with the U.S. Securities and Exchange Commission, are ramping up their review of how organizations report on ESG factors. CPAs will need to become knowledgeable about ESG reporting, as they will likely encounter ESG-related issues in the workplace.
“Almost every Fortune 500 company already publishes a voluntary report on sustainability — and that's only going to expand,” said Jeffrey Hales, Ph.D., a University of Texas at Austin accounting professor, who teaches a stand-alone course on corporate sustainability. The climate crisis will likely lead to increased pressure on companies to report their data, he added. Businesses will be forced to address and manage ESG issues that arise, remain in compliance once standards are mandated, and report publicly on their movements.
"And that is central to what the accounting profession is good at," noted Hales, who is also the chair of the Sustainability Accounting Standards Board (SASB), a nonprofit organization that recently merged with the International Integrated Reporting Council to form the Value Reporting Foundation. Accountants excel at “identification of issues, measurement, and reporting” — in other words, giving high-quality information to help influence decision-makers, he said.
Students are excited about ESG, said Susan Hughes, Ph.D., CPA, an associate professor of accounting at the University of Vermont (UVM) in Burlington. UVM requires all undergraduate students to complete a course in sustainability, and students in the Grossman School of Business may complete a theme in sustainability. The business school also offers a Sustainable Innovation MBA. Hughes teaches sustainability reporting at both the undergraduate and graduate levels. Students who complete a three-credit-hour course in sustainability reporting have a deeper understanding of the purpose and nature of financial reporting, in addition to their newfound knowledge in sustainability, she said.
"The students find the topic so intriguing that they will go above and beyond on ESG-related assignments over and over again," Hughes noted. "The current generation of college students care deeply about the environment and the way employees and stakeholders are treated. They want to see all three of the ESG factors clearly presented in the ESG reports."
Having ESG knowledge can set graduates apart. Public accounting firms covet graduates with some background in ESG and sustainability reporting, and "view sustainability assurance as a high-growth area," Hughes said.
Porco, Hales, and Hughes offer the following advice for incorporating ESG topics into accounting classes:
Start now. The ESG reporting landscape is in its "adolescent stages" in the United States (Europe is further along), said Porco, who is also the executive director for the Center for Professional Accounting Practices and the associate dean of graduate studies at Fordham. Thus it's a good time for faculty to jump in and learn about it. "Don't wait until it becomes all grown up," she said. "Come in now while it is still evolving."
Get educated. Faculty can establish a solid foundation for teaching ESG by reading articles written by ESG publications, the Value Reporting Foundation, or the Global Reporting Initiative, and by regularly reviewing corporate sustainability reports, Porco noted. The Value Reporting Foundation's website provides "expansive information regarding business decision-making, external reporting, and investor decision-making," she said.
Faculty should also examine the SASB’s recommended standards for each industry or look to organizations like the AICPA or the Big Four firms for resources such as webinars and training, both Hales and Porco advised. (See the Deloitte, KPMG, EY, and PwC sustainability sites for more details.) Increased guidance around climate issues could intensify this fall.
Faculty who teach corporate financial reporting should also "ask their students to assess the risk of each of the items that appear on the balance sheet and income statements," Hughes said. Students can also surmise if certain items are not included in basic financial statements. "Many of the things that are not included are likely associated with future risks," which can result in liabilities and expenses, she added. "These are the items ESG reporting will often be focused on."
Offer real-world examples in assignments. To help students grasp the relevance of ESG and sustainability accounting, ask them to reflect on plausible scenarios. For instance, have them consider the economic impact of giving employees a day off to engage in community activities, Porco suggested. What would the payroll expense of that action be, and is it sustainable?
Students can also do comparison exercises where they read the management discussion and analysis (MD&A) sections of corporate SEC filings and compare them to sustainability reports, where they can identify "similar and dissimilar messages and risk focuses," Porco said. Auditing students, meanwhile, can review assurance reports and do similar comparisons. These assignments can be offered as homework, group collaborations, or breakout room activities, she noted.
Students should also review "the role of corporate governance" by looking at proxy statements, Hughes advised. There, they can find out who is on the board, how much executives are paid, the level of ESG experience among board members, and other things. "Quality governance is key to quality ESG reporting," she said. Individuals with specific interest in governance can visit Ceres.org, a nonprofit focused on sustainability efforts, and review the publications that link ESG and governance, she suggested.
Bring in guest speakers. Hales advocates inviting guest lecturers from public accounting firms or public corporations to tell students what they do and why it's important. "More and more chief financial officers and controllers are aware of and managing sustainability reporting," he said. He has CFOs, CAOs, investors, and assurance providers address his students.
"By bringing different perspectives and expertise into the classroom, students can see not only how ESG information gets produced and used in the real world, [but] they can also get insight into the different career paths that come from pursuing a degree in accounting," he added.
Ultimately, teaching ESG can be a way to help students grasp the impact accounting can have upon the wider world. "I think of accounting as not debits and credits, but facilitating accountability,” Hales said. "Use sustainability as a way to connect what you are already doing in class to the bigger purpose that [the accounting profession is] trying to achieve."
In order to understand organizations’ environmental and societal impact, “you must have information reported in a way that people can understand it, compare it, and rely upon it — and only accountants can provide that,” Porco summarized. "I sincerely believe that it is the accounting profession that can save the world."
— Cheryl Meyer is a freelance writer based in California. To comment on this article or to suggest an idea for another article, contact Courtney Vien, a JofA senior editor, at Courtney.Vien@aicpa-cima.com.