‘Moving so quickly’: The latest on ESG compliance

When will the SEC’s proposed rule on climate disclosures become final? And what effect will new legislation in California have on companies across the country? Those questions and more are topics of this episode of the JofA podcast.

Ami Beers, CPA, CGMA, senior director–Assurance & Advisory Innovation at AICPA & CIMA, discusses the latest news on multiple regulatory and reporting fronts. She also previews a December virtual conference. and discusses the AICPA a summary resource document, created in response to recently signed laws in California.

Beers also discusses SEC rules that are not climate-related, such as ones focusing on human capital and board diversity.

What you’ll learn from this episode:

• The nationwide impact of new climate-related legislation in California on public and private companies.
• Where the SEC stands on its proposed climate rule, and the SEC’s plans related to the “S” and “G” in ESG.
• The key role CPAs are positioned play in the rapidly evolving ESG reporting environment.
• How accounting professionals can benefit from the AICPA & CIMA ESG & Sustainability Conference in December.

Play the episode below or read the edited transcript:

To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Transcript

Neil Amato: Welcome back to the Journal of Accountancy podcast. This is your host, Neil Amato. Today we have a repeat guest on the show. She’s here to talk about all things ESG. Her name is Ami Beers. She’s a colleague of mine. She is senior director of the Assurance and Advisory Innovation team at AICPA & CIMA. Ami, first welcome back to the Journal of Accountancy podcast.

Ami Beers: Thanks, Neil. Thanks for having me.

Amato: We are in late October for this recording, Oct. 27 to be specific. We’re going to talk about a conference coming up, but there’s also other news potentially on the ESG front. Is there any update that you can share on the proposed SEC climate disclosure rule becoming final?

Beers: We’ve all been eagerly anticipating the finalization of that rule, and we know that the SEC is looking through over 16,000 comments that they have received on that rule, so I don’t have any update on when they will finalize. Obviously, the agenda had stated October, but I don’t know if that really means that they need to get something out by October. But I will say that regardless of when the SEC does finalize their rule, we’ve got some pretty big things going on here in the U.S. that are going to be impacting many companies, not just public companies. Gov. [Gavin] Newsom in California signed two laws a couple of weeks ago, and they have a big impact. They impact both public and private companies.

The first bill is the Climate Corporate Data Accountability Act. Companies that do business in the state of California with total annual revenues over $1 billion will be required to measure and report their Scope 1, 2, and 3 greenhouse gas emissions. They’ll have to report to the state annually and get assurance on that information. Many companies will be impacted by this. Most companies at that size probably do some level of business in the state of California. Now the state has not come out with the criteria for what they mean by doing business, but if you look to the state of California’s tax code, some of those thresholds are pretty small.

The second bill that they have signed into law is the Climate-Related Financial Risk Act. That is also similar to the SEC rule, which requires companies now with a total annual revenue — again, both public and private — in excess of $500 million, so the threshold is even lower. They’re required to report on climate-related financial risks and what they’re doing, and the measures that they are taking to reduce and adapt to those climate-related financial risks.

Those risks are in accordance with the TCFD framework or the [Task Force on Climate-Related Financial Disclosures]. This is going to be a really big impact. We’re expecting almost 10,000 companies, both public and private, to be impacted by these laws, and because Scope 3 is included in the requirements, that’s really going to start expanding out to the supply chains of those companies that are doing business with some of these large companies.

Again, the AICPA developed a summary of these laws and we posted it on our website. People can take a look at that. Regardless of what the SEC does, I think that these California laws are really going to have an impact. Now, this reporting will be starting for fiscal years starting 2025, so we’ll start seeing these reports in 2026. Even beyond that, we know that Europe has had some requirements for corporate sustainability reporting. They have what we call a CSRD, which is the Corporate Sustainability Reporting Directive, which will require companies that are listed in the EU and have operations in the EU to report on a broad range of sustainability topics. They actually just met last week and approved the European standards to be used to report that information. That will have an impact on companies that are in the U.S. that have operations in the EU, because not only will they have to report what the sustainability metrics are for their European subsidiary, they’re also eventually in the next few years are going to have to report on a global basis.

Bottom line is, regardless of where the SEC is, we’ve got a lot of other regulations to deal with. This is really coming, and companies really need to get ready. It’s an expansion of corporate reporting and assurance. These responsibilities are within a CPA wheelhouse, and CPAs are well-positioned to do this work within their organizations, as well as at firms who support clients in this area.

Amato: That’s a great rundown. Thank you for mentioning the resource that I guess addresses California S.B. 253 and S.B. 261. We will post the link to that resource in the show notes for this episode. With all that going on, I guess it’s pretty timely that the AICPA & CIMA ESG & Sustainability Conference is taking place in December. About that conference, we’ll also link to the agenda and registration page in the show notes. Ami, what are you looking forward to from that event?

Beers: Yes. So on Dec. 13 and 14, we’re going to be hosting a virtual global conference. It will be live, and sessions will be replayed so that it’ll work for time zones all over the world. As I said, it is global. We’re going to be covering many topics over the two days, and it will impact both financial professionals within organizations, accounting and assurance professionals who are interested in learning about what’s happening in the sustainability space, and for those who are even expert to get up-to-date information from sustainability experts.

Now, we’ve got early bird pricing, which ends next week. So please take a look at our website and register today and there’s going to be one more chance for a one-day sale on Nov. 10 in recognition of International [Accounting] Day, so take a look out for that. But we’re going to be covering lots of different topics: ESG strategy, developing and implementing some of these ESG issues. We’re going to talk to companies who are actually developing their strategies and have a separate session on what those implications are and how they can implement an effective sustainability strategy and get some real-world application.

We’ve got reps from the different standards-setters. The [International Sustainability Standards Board] will be represented. The European standard-setters will go through some of those regulations that I talked about with CSRD, and they’ll be providing explanations and what they see looking toward the future. We’ll have a session on private equity investors and discuss what some of their expectations are for the companies that they’re investing in, as well as a separate session on green financing and the banking environment to cover the different forms of green financing, current trends with some of these instruments, and panelists will discuss some of the examples of successful placements and applications.

I would be remiss if I don’t talk about my assurance session to discuss what’s happening with the assurance landscape. Now, the International Audit and Assurance Standards Board has just recently issued an exposure draft for a new sustainability assurance standard. The AICPA Auditing Standards Board is analyzing that standard. We’ll be issuing comment, but then we’ll have to look to the AICPA standards to see how we converge for that new standard. We’ve got a panelist who was on the ESG committee at the ASB, and we’ll be discussing some of those issues and how it’s going to [affect] U.S. CPAs as well as international CPAs. So really excited for this event.

Amato: Yeah, it sounds like there’s no lack of energy and just so many topics. What else would you say is advice for the finance professional out there to be on the lookout for as it relates to ESG, which again stands for environmental, social, and governance, for those maybe not familiar.

Beers: Well, I think one event that I’m really looking forward to this fall is COP28. So COP stands for Conference of the Parties, and that’s the UN conference on climate change. That will bring together almost 200 countries, and that’s occurring in Dubai in December. They’ll be bringing together all of these world leaders to talk about what they’re doing to combat climate change and what they’re going to agree to. Now, this is a famous conference that happens every year. If you’re familiar with the Paris Agreement, that actually happened at COP21 back in 2015. And two years ago at COP26, that’s the meeting that they had announced the formation of the International Sustainability Standards Board, which in the past two years has been very busy putting out standards for reporting on this information.

I’m really looking forward to hear what’s going to happen at the convention this year. In January, the AICPA will co-host a webcast with the ISSB to talk about and review some of the announcements and some of the happenings at COP28. So look forward to that.

Amato: That’s a good look-ahead. We mentioned the SEC rule that remains in proposed status. It is not yet final. We can’t really get out our crystal balls and say, “Hey, this is when this is coming out.” But beyond 2023, what’s ahead in the U.S. on the ESG and sustainability front, you think?

Beers: Even though the SEC is deliberating on climate, they have a lot more proposals in their regulatory agenda. They had one on human capital, they had one on board diversity and so we might see some movement in some of those proposals. Again, we really need to look to see how these California climate laws get implemented and the details of those, and so we expect to see some more information about those regulations that come out of California.

I mentioned the assurance standards. The AICPA’s Auditing Standards Board will be working on an exposure draft to update our attestation standards. They have an active project right now that I mentioned to converge with the international assurance standards. So look forward to seeing that exposure draft. So all of this is really saying that this is just moving so quickly and there’s so much going on. It’s really difficult to keep up for accounting and finance professionals. But I hope that we get to talk a lot about this at the conference this December, because I think that’ll be a really helpful event within the next month and a half. I’m sure there’ll be a lot more news to discuss, and we’ll be there to discuss the latest trends and happenings in this space.

Amato: Ami, thank you very much. This has been a great rundown. Again, we’ll have resources that we mentioned in the show notes for this episode. Anything else you’d like to add in closing?

Beers: I would just say stay tuned and visit our homepage at aicpa-cima.com/esg. It is a hub. We constantly update it with new resources for our members to keep you up to speed and up to date on everything that’s happening. Thank you so much for having me today, Neil.

Amato: Thank you, Ami.