Accountants embrace ESG services as demand grows
Accountants embrace ESG services as demand grows
With sustainability becoming ever-more important, a growing number of accountants have launched environmental, social and governance services to help a broader range of clients.
Call it doing well by doing good. While only the largest companies in the UK – often served by the Big Four accountancy firms or their closest competitors – are currently covered by mandatory requirements for environmental, social and governance (ESG) reporting, many other businesses are collecting more data and making voluntary disclosures. That has seen a growing number of accountants launch ESG services to help a broader range of clients.
Research published by the Institute of Chartered Accountants in England and Wales (ICAEW) last year suggested 45% of mid-tier accounting firms already offer ESG services – with a further 10% planning to launch a service line within three years. That mirrors data compiled by the Accounting Excellence Awards, where 40% of large firm finalists in 2024 said they had begun offering ESG services.
Advisory services
In practice, the nature of those services varies by firm. Some accountants are largely focusing on advisory services, providing support and guidance on ESG issues, often in the context of risk and resilience. Others have launched compliance services – helping firms to measure their carbon footprints, for example, but also to report on areas such as gender pay differences. Assurance services may also be available, often as part of audit work.
In part, the driver for launching such services should be principled, argues Harriet Hodgson-Grove, a partner at UHY Hacker Young, one mid-market firm that has expanded into ESG, but she also points to the commercial imperatives. “As accountants, we do have a responsibility to help our clients build sustainable businesses for the long term,” she said. “But even partners who may be less focused on the moral case for investment in this area will recognise the size of the opportunity – this has the potential to be a significant new revenue stream.”
Clear direction of travel
One factor here is that the direction of travel on ESG regulation is now clear. While the requirements introduced in 2021 by the Taskforce on Climate-related Financial Disclosures (TCFD) are largely limited to stock-market-listed companies, the Climate-related Financial Disclosure (CRFD) regulations subsequently extended this to some larger private companies and limited liability partnerships. More businesses – including small and medium-sized enterprises – are steadily being caught by regulation. All will require professional support.
In addition, many businesses not directly impacted by regulation nonetheless have little choice but to comply with significant elements of it. Large organisations in scope for TCFD and CRFD are increasingly being asked to provide more data on the ESG performance of their suppliers; this requires more businesses out of scope to generate disclosures. Finance providers, including banks, face similar pressures and are asking more searching questions of borrowers; small firms unable to report on ESG may struggle to secure funding.
Competitive advantage
Equally, many smaller businesses regard the ability to demonstrate strong ESG credentials as a source of competitive advantage. They note research such as a PwC survey that found consumers in the UK are prepared to pay a 9.7% premium for sustainable goods. Elsewhere, one recent study found more than a quarter of job applicants now check on an organisation’s sustainability practices before submitting their applications.
“Smaller businesses are becoming more aware that the need to get up to speed isn’t going away,” said Richard Singleton, finance and sustainability director at Menzies, another mid-tier accountant with a growing ESG service line. “They are starting to consider both the risks and the opportunities – most notably as suppliers but also in terms of potentially losing out to their competitors.”
In which case, there is significant potential for the mid-tier accountants that serve these businesses to expand their ESG practices. “ESG work used to be the preserve of the largest firms but that’s no longer the case,” said Gemma Gathercole, strategic engagement lead at the Association of Chartered Certified Accountants (ACCA). “There is a significant and growing appetite for accountants to play a growing role in ESG – particularly to provide assurance about the quality of businesses’ disclosures.”
Skills shortage
Not that launching ESG services is straightforward. One issue is that in a relatively new discipline, skills and knowledge are in short supply. Not-for-profit group Accounting for Sustainability has warned of a major skills shortage across the finance sector on ESG, with businesses citing this as one of the biggest sustainability risks they now face.
“The next generation of accountants will have a better understanding of key ESG issues because their training now includes that, but for many of those already practicing, there is a great deal of upskilling to do,” warned Hodgson-Grove. “While there is plenty of support and information available, there is a shortage of accountants with really deep ESG expertise.”
Lack of common standards
Another challenge for accountants is the UK’s lack of common standards for ESG disclosures. At a global level, the IFRS Foundation’s International Sustainability Standards Board (ISSB) has published IFRS S2, aimed at providing a consistent framework for reporting on climate impacts. But while growing numbers of countries have adopted IFRS S2, regulators in the UK are still considering how to incorporate it into sustainability reporting rules. And even once that standard is in place, accountants will still need to consider how to support clients on social and governance issues.
“We need more robust and consistent standards that support transparency and assurance,” warned Gathercole. “So much is still changing, but ESG data is much less valuable if it’s not comparable across businesses and sectors – and interoperable with what’s going on in other spaces.”
Navigating regulations
Certainly, IFRS S2 promises to bring more rigour to large parts of sustainability reporting. But other standards, including the Global Reporting Initiative (GRI) disclosures, continue to compete for space, despite efforts to collaborate. The Taskforce on Nature-related Financial Disclosures is another set of standards to consider – and many UK companies with operations or sales in the European Union will also need to be cognisant of the requirements of the bloc’s Corporate Sustainability Reporting Directive (CSRD).
Still, while navigating the alphabet soup of sustainability regulation may be a headache for accountants developing ESG services, it is likely to be even tougher for their small and medium-sized clients. And ultimately, that only adds to the ESG opportunity in the accounting sector. Other firms to have launched new ESG services in recent years include Bishop Fleming, Cooper Parry, HaysMac, Robson Laidler and Saffery. Expect more to join their ranks.
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