Monique Verduyn asked Neil Morris, Global Head of Assurance and ESG Methodology at KPMG, what the increased pressure on organisations to integrate ESG in their strategies, manage ESG-related risks and report ESG matters means for the profession.
Environmental, social and governance (ESG) reporting is a rapidly growing field for chartered accountants. Investment funds with tens of trillions of dollars in assets are using ESG principles to make investment decisions.
By incorporating ESG reporting into financial reporting, companies can provide investors with a more complete view of a company’s performance, which can help them make more informed decisions about their investments. In addition, ESG reporting can help companies identify potential risks and opportunities and develop strategies to address them, which can lead to long-term business success.
Neil Morris, the Global Head of Assurance and ESG Methodology at KPMG, is a CA(SA) with 24 years’’ experience at KPMG in South Africa and the United Kingdom. His expertise includes risk management, climate change and sustainability, financial audit, and assurance technical support. He is also a member of SAICA, and a registered auditor with the South African Independent Regulatory Board for Auditors (IRBA). He has served on various committees and working groups for both SAICA and IRBA.
‘One of the many advantages of being a CA(SA) is that it gives you access to the international stage,’ Neil says. ‘Several years ago, well before ESG assurance became what it is today, a few of the senior partners asked if I would lead our climate change and sustainability practice. It sounded like an extremely interesting challenge to take on.’
The business unit’s early focus was on environmental liabilities., It was through that work, which included determining closure costing liabilities, that Neil and his team began to focus on other ESG questions.
‘We initially focused on sectors that have more direct impacts on the environment. We also focused on health and safety of employees and communities affected by operations. From a governance and social perspective, we learnt a lot, and we were able to apply these learnings to organisations where ESG is less immediately tangible such as banking, for example. From these early encounters, the business unit grew.’
‘ESG represents incredible opportunity and huge responsibility for the profession,’ says Neil. ‘I believe it would be impossible to attract and retain top talent in today’s environment if we were to ignore the fact that across industries, geographies, and company sizes, organisations have been allocating more resources toward improving ESG. Investors are increasingly considering a company’s ESG characteristics alongside its financial attributes when making investment decisions. It’s also a deeply interesting subject matter. I recently met with a retired partner who has been drawn back to work because he finds the ESG angle so interesting. At KPMG we have a queue of people – from graduates to managers – wanting to get involved.’
Maintaining social licence
The need for companies to understand and address ESG is becoming essential to maintaining their social licence. ESG has applicability across the globe to every organisation, industry, and sector, whether public or private. These matters should not be seen in isolation as they penetrate every aspect of business including strategy, policies, risk, and day-to-day operational considerations.
‘The concept is not new,’ says Neil. ‘Although initially slow, developments in the ESG space have accelerated recently, and now the conversations are happening with CEOs and organisational leaders – and taking place in boardrooms. We know that assurance will lead to better information being disclosed which, in turn, will lead to better decision- making and actionable strategies that will take us down the correct path.’
Working towards a global framework
Organisations need to be able to execute ESG strategies in a structured manner. An ESG gap analysis can provide them with an understanding of existing efforts that fall under the ESG framework, as well as allowing them to consider additional factors that form part of the ESG risk assessment into the future. This can lay the groundwork for a transformation roadmap and provide those charged with governance with a clear understanding of ESG implications and the manner with which ESG dovetails with the organisation.
‘From a reporting perspective, professional bodies have dedicated considerable time to the structure of reporting frameworks. The next layer is regulation, which may differ from country to country when it comes to information disclosure and data calculation.’
Given that the International Financial Reporting Standards (IFRS), developed and maintained by the International Accounting Standards Board (IASB), govern how particular types of transactions and events should be reported in financial statements globally, achieving that level of buy-in and standardisation for ESG reporting is key.
‘We want to make sure that the risk of fragmentation is limited and that we develop a leading global sustainability assurance standard that can be followed by practitioners around the world,’ he says Neil.
Neil became a board member of the International Auditing and Assurance Standards Board (IAASB) in January 2023, where his responsibility is to work with his fellow members serving the public interest by setting high-quality auditing and assurance standards. ‘My main priority is working with the sustainability task force to draft the International Standard on Sustainability Assurance.. We are looking forward to sharing an exposure draft during this year and a final approved standard by the end of 2024. For me, that would signal incredible progress. We are seeking to bring some of the practical experiences we have had from performing assurance over a number of years to develop a robust assurance standard to support the type of decision making we´re going to be seeing in the future.’
With the increasing importance of ESG information to investors and wider society, Neil says there is enormous opportunity for CAs(SA) who have an interest in furthering their understanding of ESG.
‘When I see the seriousness with which the leadership of so many organisations is taking ESG, it’s very clear that this is becoming a mainstream area of focus for the accounting and audit profession. I would recommend that newly qualified CAs(SA) especially take every opportunity to learn and gain experience in this area, whether you are preparing financial information or auditing that information, members of our profession have a significant role to play.’
He finds it exciting that chartered accountants have the opportunity to engage with engineers, environmental scientists and social scientists, and other professions on ESG matters.
‘We are not on our own here,’ he says. ‘Instead, we get to bring our skill set to the party, as well as gain valuable insights from our peers in other sectors. It is truly a mind-opening experience and a wonderful opportunity for those of us who are working to develop an ESG framework for the future.’