Is ESG dead? The State of the professions before and after everything changed

For some years, Environmental, Social and Governance (ESG) services have been at the forefront of the profession’s occupations: at the start of the journey they were hailed by many, including myself, as one of the great arguments to persuade young people that our profession is full of exciting opportunities (the increasing importance of AI and cybersecurity-related concerns being the second key area we often refer to).  

After all, who wouldn’t want to work in a profession where one can combine having an often very well-defined career path with helping clients implement sustainability protocols or assuring non-financial information, thus being certain to be on the right side of history and part of the worldwide move towards net-zero which is often regarded as the NorthStar by younger generations who want to be sure that their work makes a difference.  

The above argument is valid as it is indeed true that accountants and auditors are ideally positioned to become key actors in the provision of ESG-related services. We have a unique relationship with our clients as their go-to trusted advisors which means that we know our clients’ businesses better than anybody else. We are also widely recognised as experts when it comes to assessing internal control environments, improving processes and providing a wide range of assurance services.  

While many firms did not have technical knowledge or expertise on ESG matters, firms quickly found many different ways to fill the gaps, from merging in ESG consultancy boutiques to hiring entire teams of experts. Those who couldn't do either went to considerable lengths to upskill existing staff members with the help of professional bodies worldwide.

The Institute of Chartered Accountants in England and Wales (ICAEW) launched its Sustainability Certificate in 2022 and the much more complete Sustainability Accelerator Programme earlier this year. France went even further, mandating more than 90 hours of ESG training that professionals must complete in order to gain the accreditation ‘CAC vert’, the colloquial name for the French sustainability auditor. The largest French firms worked hand in hand with the Compagnie des Commissaires aux Comptes (CNCC) to ensure professionals from firms across the spectrum, including the very smallest ones, had access to the curriculum which was released towards the end of 2023.

These are merely two examples of many, and the focus the International Federation of Accountants (IFAC) put on outreach and research is further testament to the importance of the sustainability agenda. IFAC’s Asia-Pacific Sustainability Exchange which took place in Singapore exactly a year ago and brought together Professional Accountancy Organisations, investor representatives and other interested parties was a resounding success. The same can be said for IFAC’s groundbreaking research ‘The State of Play: Sustainability Disclosure & Assurance 2019-2022, Trends & Analysis’, a benchmarking study which discusses to what extent companies worldwide are reporting sustainability related information and obtaining assurance over it.  

In light of the above, it is fair to say that we were ready. Many firms had invested heavily and the profession wholeheartedly embraced sustainability and ESG in a show of unity that is almost unparalleled in recent years.  

We have known for some time that prioritising sustainability-related concerns depends on individual US states and the willingness of the President to make it a focus of the political agenda. And yet, it is my impression that the real turning point in people’s perceptions had little to do with the situation on the other side of the Atlantic and everything to do with the Omnibus, the European Union’s rather dramatic U-turn.  

For those who may not have followed in detail, on 26 February this year, draft proposals containing far-reaching modifications were released but still need to be adopted. As far as the Corporate Sustainability Reporting Directive (CSRD) is concerned, the key areas where we expect modifications concern the implementation timetable and the content of the reporting directive.  

‘Stop the clock’ is relatively simple in nature, proposing to postpone reporting required by Wave 2 and Wave 3 companies by two years. The content proposal is a little more complex and includes four areas of focus: the overall scope of the Directive, value chain related requirements, assurance-related requirements and updates to the European Sustainability Reporting Standards (ESRS).

It is fair to say that many stakeholders representing companies and the profession alike were shocked. I heard stories of entire teams of ESG experts which felt they no longer had any purpose from one day to the next, reporting and assurance teams whose clients stopped engagements almost immediately and froze budgets earmarked for ESG. The fact that what was issued in late February was merely a proposal and will need to go through several months of negotiations before its final approval does not help. On the contrary, the related uncertainty merely adds to the general feeling of instability and confusion.  

And yet, there are some positives I retain:  

• CSRD has long been criticised for being too complicated and clarification or even simplification will be welcomed by many. Accountants and auditors are well placed to know that over-complex directives and standards are not met with much enthusiasm by the stakeholder community, and the enthusiastic support of sustainability-related standards by all stakeholders is crucial to guarantee success.
• Applying requirements progressively to small and medium-sized entities is positive as it will allow businesses with genuine conviction to transition while being mindful of the required work-effort and financial resources. Yet, this slow transition is only possible where management teams are lucid enough not to suddenly abandon the sustainability journey they had started to embark upon.
• The profession has been advocating for a global baseline to ensure genuine comparability in reporting and assurance. It appears to me that, with the recent European developments, IFRS S1 & S2 and ISSA 5000 are closer than ever since the beginning of our ESG journey to becoming that global baseline.

Despite its uncertain future in the US and Europe, internationally, ESG momentum continues to build. In many parts of the world, ESG is tied to national development goals, and countries such as Australia, Singapore, Brazil and Chile are becoming poster children for ESG progress.

Personally, I welcome the fact that there are so many countries which move ahead with their ESG agenda and do not seem to have any desire to emulate what happens in Europe or the US. In my role at HLB, I also recognise that we may have been over focusing on some regions and that there is no better time than the present to shine a light on our member firms in other parts of the world. One lesson I took away from IFAC outreach over the past few years is that there is a lot going on and that we can and need to learn from our colleagues in countries which remain all too often under the radar. 

Let us also not forget that even in countries where the move towards mandatory reporting and assurance has stalled for the time being, demand from investors and consumers continues to grow and must not be ignored.

At HLB’s inaugural ESG Forum which was held in London just one day before the Omnibus proposal was issued, all stakeholder groups present confirmed that ESG is very much alive. 

What if the profession therefore started talking to clients about integrating an environmental perspective, equitable working conditions and better corporate governance as part of a transition to a long-term value creation model? Not because it is mandatory but because it makes economic sense.  

Adapting the narrative and refocusing rather than seeing the glass half empty is the order of the day, but I am not worried. Our profession knows how to pivot, we demonstrated our ability to do so quickly and effectively not so long ago during Covid, and we can do so again.