By Jim DeLuccia, PICPA manager of research, publications, and insights

On March 21, 2022, the U.S. Securities and Exchange Commission (SEC) made a significant announcement that will greatly impact the “E” in environmental, social, and governance (ESG) reporting for public companies. The SEC proposed rule changes “that would require registrants to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements.”

The public has until June 17, 2022, to comment on the proposal, which also would also require domestic and foreign registrants to report greenhouse gas emissions and climate-related targets or goals in registration statements and on certain filings, such as Form 10-K.

As these new proposals from the SEC came to light, the PICPA was surveying its members on their awareness, level of interest, and assumptions related to ESG reporting, including their understanding of the impact ESG may have on their firm or company. ESG subject-matter experts helped the PICPA create the survey, which was open from March 15 to March 28 and sent to members working for public accounting firms and working in accounting and finance for companies, nonprofit organizations, governmental entities, and education institutions.

The study, which had 150 respondents, revealed that ESG does matter to CPAs, but those same respondents admitted to a general lack of familiarity with standards, ESG issues and concepts, and the potential impact of ESG on their firm or company. An overwhelming number of respondents from firms with 100 to 500 employees indicated that their clients had exposure risks related to supply and value chains as a result of SEC rules and the potential impact of the reporting of Scope 3 emissions, which occur indirectly (e.g., emissions resulting from purchased goods and services, transportation, and distribution).

The PICPA anticipates that the proposed SEC rules are just the start of what’s ahead for the accounting profession.

“The changes wrought by SEC rulemaking could be on the scale of those the profession had to manage with the Sarbanes-Oxley Act,” says Allison Henry, CPA, PICPA vice president of professional and technical standards. “A SOX-sized response from the profession will require investment in learning, resourcing, and knowledge building.”

This summer, PICPA Insights will release a white paper with more of its ESG survey findings, including detailed analysis from subject matter experts on how CPAs need to prepare for measuring and reporting requirements. Two of those subject matter experts – Anupam Goradia and Mihir Jhaveri of Centri Business Consulting – led an ESG-themed PICPA town hall on Earth Day (April 22). PICPA members can also check out this feature that ran in the Pennsylvania CPA Journal last year that covered sustainability reporting and ESG.

We likely will resurvey our membership on ESG later this year once the SEC proposed rules become official regulation. Stay tuned for more on that follow-up, as well as on resources and programming to help you implement ESG measuring and reporting at your firm or company.

Jim DeLuccia is PICPA’s manager of research, publications, and insights. He can be reached at jdeluccia@picpa.org.

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