Talking Heads: ESG
Climate change: Are firms ready to support small and medium businesses?
The focus on addressing climate change by creating a global economy where the net emission of Greenhouse Gasses (GHG) equals zero remains a top priority for governments worldwide. Steve Heathcote, CEO, PrimeGlobal offers a comment from a discussion with experts from PrimeGlobal member firms, highlighting steps which firms should take to be there for SMEs
egislation has been widely introduced requiring large companies to report on their GHG emissions. However, over 90% of economic activity is driven by small to medium sized enterprises (SMEs). To achieve the net zero goal, it is essential that these businesses also reduce their emissions.
With mounting pressure from their employees and clients, SMEs need to act. Talent shortages are widespread, and the next generation can choose to work for organisations which align to their values. To keep and attract their people, SMEs need to demonstrate they are making a positive impact on the environment. As net zero commitments are pushed through supply chains, SMEs’ clients will increasingly require them to demonstrate their environmental credentials. However, many SMEs do not have dedicated resources to tackle this challenge, or access to the support larger business may have.
An accounting firm’s position as a trusted advisor to SMEs has only strengthened due to the pandemic. SMEs should now be able to turn to their accounting firms to help them address climate change – but are accounting firms ready to act?
Small Medium Practices (SMPs) have limited resources and are in a war for talent. Firm partners worry about the lack of standard methodologies and tools to help their clients track and report on environmental impact. They are also concerned about their team’s capability to help, as they are unlikely to employ environmental experts. However, firms do have the core skills to address this client need. They understand what makes a business viable, how to measure using frameworks, how to report and how to provide assurance.
Fix your self
By understanding their own environmental impact, firms will develop experience which gives them more confidence and credibility to speak to their clients.
UK firm Buzzacott is committed to social and environmental goals, annually issuing a Corporate Responsibility and Sustainability report. This year they are reporting their energy and carbon reporting emissions for the first time. At this point, the focus has been on emissions they make directly (e.g., owned, or leased cars) and emissions they make indirectly (e.g., electricity they buy for heating). These are referred to as scope 1 and 2 emissions which larger companies must now report on in the UK.
James Ross, Corporate Social Responsibility Executive, at Buzzacott says, “Tools are now available to start reporting GHG emissions, for example the Carbon Trust Calculator.” Ross highlights that they will increasingly start to look at scope 3 emissions which are not related to Buzzacott itself, but they are indirectly responsible for (e.g., the environmental impact of staff working at home). Ross notes that this is an interesting area, “if 200 staff all make a cup of tea while working at home that’s 200 kettles boiling”. Ross explains, “Increasingly clients and potential clients expect Buzzacott to demonstrate social and environmental responsibility to be considered for client engagements. Buzzacott is a leader in the charity sector which is very focussed on this area.”
Supply chain questionnaires are increasingly being used to ensure that suppliers of products/services are committed to reducing environmental impact and this includes auditors and accountants.
Ross says, “The learning Buzzacott has developed through our own reporting has helped us have conversations with clients. We have provided guidance to help establish GHG reporting frameworks.”
When firms start to consider their own environmental impact, it’s important that they don’t see it as only a compliance matter. It should be central to the firm’s strategy and culture.
Managing partner and service line leader Impact Accountancy, Netherlands firm Eshuis
Michel Schaepers, managing partner and service line leader Impact accountancy at the Netherlands firm Eshuis explains, “Our firm has embraced sustainability as part of our core strategy since 2015. We use the United Nations Sustainable Development Goals (SDGs) as inspiration. And to make sure we act on our ambitions, we use the B Corp Standard as a management system for sustainability.” Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance.
Eshuis’ adoption of these principles across everything they do has created a strong culture with a clear sense of purpose. Schaepers notes, “There has been a very positive impact on staff retention. People join and they stay because they believe in our vision”.
Mark de Lat
Partner and service line leader Impact Accountancy, French firm Eshuis
Mark de Lat, partner and service line leader Impact accountancy at Eshuis explains, “Looking at our own environmental impact as a firm helped us gain experience. However, the biggest impact we can make is to help our clients tackle climate change. The B Corp Standard is a great framework to guide those discussions.”
Francois Jégard, managing partner from French firm Jégard Créatis, says, “We are looking at many ways to reduce our own environmental impact. We changed our computers to note pads as the manufacturing has less environmental impact. Cloud based services are not in the air – they are hosted on servers which emit GHG. We ensured our servers are managed from an environmentally friendly location.”
Jégard says, “It can be easier to start speaking to clients about the social aspects of sustainability first – e.g., wellbeing and diversity & inclusion. You can then move on to consider GHG reporting and wider societal impact”.
Like many accounting firms, Jégard Créatis provides payroll support to a range of clients. They expanded this service by recruiting an HR director. This enabled the firm to provide advice to clients around a broad range of social matters. The firm also now provides training to clients on these critical areas.
Jégard Créatis has also started to help firms with GHG reporting. Jégard says, “Once you help a client know where they are with GHG emissions you can then move to develop a reduction plan. This means discussing what is driving emissions and considering ways to be more effective. You can start asking the client about their services; for example, does their energy supplier have green credentials?”
Jégard notes that to help a client get started it can be helpful to focus on three to four core GHG indicators only, so the change feels manageable and more focused. Jégard also explains the importance of looking at the interaction between social and environmental factors, “Social interaction is important for mental health and relationships, so some travel is necessary. However, you can look to reduce the environmental impact through car sharing or taking the train.”
De Lat from Eshuis stresses that it is important to focus on the impact the organisation is having and work back from there. De Lat says, “as accountants, we can too quickly start to focus on risk mitigation. By focusing on impact accounting, you start to identify upsides like new markets that are opened by demonstrating commitment to reducing environmental impact. It is important to look beyond compliance and consider the total enterprise. For this we use the Eshuis Impact framework.”
De Lat advises firms to start with the client’s strategy, choose a reporting framework (like using the UN SDGs), determine who they report to (i.e., who are their stakeholders) and what level of assurance is needed.
Jégard also speaks about the importance of considering the impact on the wider organisation, “when considering environmental risk, it’s not just about extreme weather. What will be the impact if a bank will not lend the client money because they are not committed to reduce their environmental impact? What if they lose clients who will only work with organisations committed to change?”
Our firms see significant opportunities to help SMEs reduce their environmental impact. However, as Jégard states, “just being able to do the job is not enough, you need to let clients know you can do the job.”
SMEs do trust their accounting firms but may assume they are not able to help. It is up to firms to step forward and demonstrate they have the skills their clients need.
Our firms agree that the potential opportunities are significant and will grow. Ross says, “We see significant potential to provide assurance over businesses’ social and environmental reporting in the future. Particularly as concerns about green washing increase.”
De Lat notes that firms should focus, “on the next practices, not the best practices. It’s important to get started to learn and shape the practices of the future”. Jégard comments that, “if accounting firms do not step up, others will, and we will lose a golden opportunity. This is a transformational moment as significant as the digitalisation of our firms.”
PrimeGlobal Chair and partner at Buzzacott
Accounting firms may worry that they do not have the resources and bandwidth to be ready for SMEs. However, this is a role that associations must take to support our firms. As Mark Worsey, PrimeGlobal Chair and partner at Buzzacott confirms, “Our association’s commitment to sustainability is something that we intend to leverage further within the firm so that we can be assured we are taking appropriate, responsible and sustainable steps towards our futures.”
Accounting firms, this is the moment to stand up for SMEs and help them achieve the net zero goal.