As we approach Earth Day 2023, it’s essential to recognise the significance of sustainability in the business world. With the growing environmental challenges we face, it’s crucial for businesses to incorporate sustainable practices into their operations. In this article, Mahendra Rustagi, CEO of Kreston SNR, shares his insights on how businesses can incorporate sustainability into their financial reporting and tax compliance, the benefits of investing in sustainable initiatives, available tax incentives, and how tax and accounting professionals can help businesses quantify the benefits of sustainable practices.
Mahendra pointed out that Indians have a deep respect and commitment towards the Earth, evident in their tradition of worshipping it as Mother and seeking forgiveness before any construction work. This respect for the environment is something that businesses can learn from and apply to their operations.
The business world is among the most significant emitters of greenhouse gases and other pollutants. How can businesses incorporate sustainability into their financial reporting and tax compliance?
The business/industry is responsible to the extent of about 30% of Total Green House Gases (GHG). So they have a huge responsibility to care for their environment and society in a governed manner.
The efforts of businesses in this direction of sustainability should be incorporated by way of a report which we should form as an integral part of reporting. Like in India, the top 1000 listed companies have been mandated to disclose their data related to sustainability efforts through a report called BRSR (Business Responsibility and Sustainability Report) which is attached to and forms part of financial reporting. This can help to build trust with stakeholders and demonstrate a commitment to sustainability.
Earth Day 2023 theme is ‘Invest in our planet.’ Businesses can profit significantly from a sustainable transition if they invest early on. How do you think businesses will profit – or benefit?
Early investment in sustainability would mean improved energy efficiency, lesser water consumption and less waste reduction resulting in efficient operations and reduced operating costs. All this means higher profitability. Also, improved reputation and brand image and higher valuations, motivated team of employees, loyal customers etc, so one can say the business will benefit hugely in long run.
Businesses which are better on the ESG front can stay ahead of potential future regulations, avoid the financial and reputational risks associated with non-compliance and bring long-term economic benefits. Overall, investing in sustainability early not only benefits the environment but can also bring long-term economic benefits to businesses.
What are some tax incentives available for companies that implement sustainable initiatives, and how can businesses take advantage of them?
In India, the government has not yet started any income tax incentives for sustainable initiatives, however, the government is seriously considering and granting some income tax incentives for use of renewable energy and higher directions on some social spending. The Government of India has introduced a scheme called –Production Linked Incentives (PLI ) where huge incentives are provided to a certain class of environment-friendly products manufacturing linked to production. For example, Producers of Electrolysers are being given huge incentives to manufacture Electrolysers for the production of Green Hydrogen. Also, there are incentives for Green Sustainable Buildings and Energy Efficiency through the Bureau of Energy Efficiency (BEE).
Globally, there are several tax incentives available for companies that implement sustainable initiatives. These include tax credits for investments in renewable energy, tax deductions for expenditures related to environmental protection, and accelerated depreciation for certain environmentally friendly assets. Some countries also offer tax incentives for green buildings or for companies that reduce their carbon emissions. To take advantage of these incentives, businesses can consult with tax experts to identify the specific incentives that apply to their sustainable initiatives and ensure that they comply with the applicable regulations. They can also ensure that their financial reporting accurately reflects the impact of their sustainable initiatives, which can further demonstrate their commitment to sustainability and potentially attract socially responsible investors.
How can sustainable practices positively impact a company’s bottom line, and how can tax and accounting professionals help businesses quantify these benefits in their financial statements?
Implementing sustainable practices can positively impact a company’s bottom line in several ways. For instance, it can help reduce operating costs by improving energy and resource efficiency, optimising supply chains, and reducing waste. Sustainable practices can also increase revenue by improving customer loyalty, attracting socially responsible investors, and accessing new markets. Sustainable business practices lead to an enhanced reputation, being more attractive to staff and business partners who value environmentally sustainable practices, and attracting new customers who are seeking environmentally friendly products and services. Relationship between sustainability management practices and business financial measures as higher return on investment (ROI) and sales growth have already been proven.
Tax and accounting professionals can help businesses quantify these benefits in their financial statements by identifying the relevant tax incentives and credits available for sustainable initiatives, accurately reflecting the impact of sustainable practices on the company’s financial performance, and guiding compliance with applicable regulations.
Tax and Accounting professionals can also make the businesses understand the return on investment (ROI)on their sustainable Investments by quantifying the benefits through categorisation and a scoring model for each SDG component which would help them to make informed decisions about future investments in sustainability.
In conclusion, Mahendra’s insights inform us that businesses have a significant role to play in addressing environmental challenges, and they can do so by incorporating sustainability into their financial reporting and tax compliance. By investing in sustainable initiatives early on, businesses can not only benefit financially but also enhance their reputation and attract socially responsible investors. Tax and accounting professionals can assist businesses in identifying tax incentives, accurately reflecting the impact of sustainable practices on financial performance, and guiding compliance with regulations. As we celebrate Earth Day 2023, let us all take a moment to reflect on the impact of our actions on the planet and work towards a sustainable future.
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Earth Day 2023: Ganesh Ramaswamy
As Earth Day 2023 approaches, it’s important to consider the role that businesses can play in promoting sustainability and combating climate change. Ganesh Ramaswamy, Partner at K Rangamani and Associates LLP, provides valuable insights into how businesses can incorporate sustainability into their financial reporting and tax compliance.
The business world is among the most significant emitters of greenhouse gases and other pollutants. How can businesses incorporate sustainability into their financial reporting and tax compliance?
In order to reach the Paris Climate goals businesses need sustainability reporting standards to measure their social and environmental impact more effectively. The business world expects the most significant innovations to happen soon in the corporate accounting and tax reporting standards due to the inclusion of ESG and sustainability reporting in financial statement reporting. Many businesses are embracing sustainability goals and seeking to reduce their carbon footprints. Most businesses have started sustainability reporting on a voluntary basis in their financial statements. ESG and sustainability reporting are part of the board agenda for many companies. To move forward the finance reporting function in businesses must be integrated with ESG and sustainability reporting. Moreover, the finance teams of businesses the world over should contribute to the process of setting standards in sustainability reporting.
Earth Day 2023 theme is ‘Invest in our planet.’ Businesses can profit significantly from a sustainable transition if they invest early on. How do you think businesses will profit – or benefit?
Investing in sustainable practices would definitely see businesses improving their ROI in the next decade. Building and growing a sustainable business has a lot of benefits like attracting a large pool of capital, building a stronger corporate brand, and promoting long-term growth which will definitely help the company and the investors benefit a lot. Individual and institutional investors are investing heavily in companies that proactively adopt ESG practices and have them integrated into the business strategy. Adoption of renewable energy like solar energy, wind energy and bioenergy automatically reduces costs.
Corporations that understand the importance of adapting to evolving socioeconomic and environmental conditions are better positioned to identify strategic opportunities and overcome competitive challenges. Proactive and integrated ESG policies can help companies gain a competitive advantage over other industry players. Employees generally care deeply about the companies they work for and the businesses they support, hence, they embrace values that are aligned towards social good, and environmental and social responsibility.
What are some tax incentives available for companies that implement sustainable initiatives, and how can businesses take advantage of them?
The tax incentives for businesses that implement sustainable initiatives are referred to as “green incentives” which comprise the following among various others:
Accelerated depreciation for investments in the sustainable energy sector.
Vehicle tax credit for electric motor vehicles
Grants for small businesses which take sustainable initiatives
Emission reduction credits which are encashable
Grants on salary payment to employees coming out of a green initiative.
These types of incentives can push many businesses would move in a more sustainable direction, or boost that allows these businesses to make the initial investment in green energy options or set up a new eco-friendly venture.
Sustainability reporting is a form of non-financial reporting that enables companies to convey their progress towards goals on various sustainability parameters, including environmental, social and governance metrics, and risks and impacts they may face. By disclosing the sustainability report, companies are able to communicate more transparently with the public about their business activities related to non-financial management and performance aspects. Though a number of different measurement and valuation methods exist, most of them are focused exclusively on ecological aspects, i.e. impact on climate, forest decline or water. Tax and accounting professionals can help businesses to quantify these benefits by valuing the following key dimensions for sustainable development:
Effects of economic activity on the environment e.g., resource use, pollutant discharges, waste.
Environmental services to the economy e.g., natural resources, sink functions, contributions to economic efficiency and employment.
Environmental services to society e.g., access to resources and amenities, contributions to health, living and working conditions
Effects of social variables on the environment e.g., demographic changes, consumption patterns, environmental education and information, institutional and legal frameworks.
Effects of social variables on the economy e.g., labour force, population and household structure, education and training, consumption levels, institutional and legal frameworks.
Effects of economic activity on society e.g., income levels, equity, employment.
What is the role of accounting networks like Kreston Global in the education and behaviour change that firms and their clients need to take us to net zero by 2050?
Networks like Kreston Global should act as strategic visionary which understands and guides the member firms on the trade-offs among people, the planet and profits. The networks can also function as a catalyst which can align the member firms’ strategy and culture so as to develop a sustainability agenda for the member firms. It is also quite easy for networks to provide an integrator role among member firms spread over various regions so as to uphold an overall commitment to the sustainability of the network.
Kreston Global recently partnered with Treedom Agroforestry to mitigate the emissions generated by enabling our members to connect face-to-face. What actions have you taken in your firms or your personal life that you can share that will help mitigate or reduce emissions?
The initiatives taken by our firm are the following:
Pooling of cars among staff while commuting to the office
Vegan food replaces fish and meat for lunch.
Water in glass bottles replaces PET bottles.
Use of natural light during daytime.
Focus on staff recreation facilities.
Increase in per diem for employees to travel by train instead of planes.
Floor carpets are made of natural fibre and not artificial fibre.
Employees are encouraged to use cotton clothing over synthetic clothing.
Natural jute bags replace plastic containers.
To conclude, Ganesh makes note of the importance of incorporating sustainability into financial reporting and tax compliance is a vital step for businesses in reducing their carbon footprint and achieving sustainability goals. Investing in sustainable practices benefits businesses in the long run, as it improves ROI, attracts capital, and strengthens the corporate brand. Tax incentives for implementing sustainable initiatives can help businesses to make the initial investment in green energy options or set up new eco-friendly ventures. On this Earth Day 2023, let’s pause and consider how our actions affect the planet and strive for a future that prioritises sustainability.
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Earth Day 2023: Andrew Griggs
Earth Day is a global event celebrated every year on 22 April to raise awareness about the importance of protecting our planet and taking action against environmental challenges. As we approach Earth Day 2023, it’s important to consider the role that businesses can play in contributing to a more sustainable future.
Andrew Griggs, Senior Partner at Kreston Reeves and head of the Kreston Global ESG Advisory Committee shared his insights on how businesses can incorporate sustainability into their financial reporting and tax compliance, and how they can benefit from investing in sustainable practices.
1. The business world is among the most significant emitters of greenhouse gases and other pollutants. How can businesses incorporate sustainability into their financial reporting and tax compliance?
“I think there are great opportunities for UK businesses to incorporate sustainability into reporting, simply by looking at what is mandatory now for larger companies (over 500 employees) and following that lead to getting ahead of the curve as it will be mandatory for SMEs soon. From a financial management perspective, all business benefits from knowing their ESG risks and opportunities, and seeing what the impact of their business has on their wider community and stakeholders. And of course, it gives anyone looking closely at that business, be it as an investor, potential recruit or to do business with, a sense of the business culture, values and ethos.”
2. Earth Day 2023 theme is ‘Invest in our planet.’ Businesses can profit significantly from a sustainable transition if they invest early on. How do you think businesses will profit – or benefit?
“As I mentioned above, getting in early is always useful as it can take time to build a comprehensive ESG approach. I know from our own journey as a firm that wanted to have a positive impact on the world and society that the earlier you start the better. We began ours in 2018 and in March this year have achieved B Corporation certification which was one of our goals. The benefits of this inside-out approach have been substantial in terms of increasing staff engagement and morale, improving our financial performance, creating standout in the marketplace, and attracting/retaining clients.”
3. How can tax incentives for sustainable initiatives positively impact a company’s bottom line, and how can businesses take advantage of them with the help of tax and accounting professionals to quantify these benefits in their financial statements?
“Environmental tax incentives in the UK are quite good – there are capital allowances on energy efficient practices (improving heating and energy consumption) and investments in zero carbon technology (ie building infrastructure/electric car/bikes for staff etc). We know that adopting these and other measures such as turning down the heating slightly, going paperless, encouraging recycling and looking at lower water usage and plastic reduction has had a considerable impact in a positive way on our bottom line.”
4. What is the role of accounting networks like Kreston Global in the education and behaviour change that firms and their clients need to take us to net zero by 2050?
“In Kreston we have the opportunity to reach – both across our 165 member firms in 115 countries but in turn to influence and engage their clients and people. This allows us to change behaviours across a large global footprint and create impetus for change by galvanising the whole network. Our network’s impact strategy includes a committee of some of our ESG leaders to help direct and mentor other firms in this area.”
5. Kreston Global recently partnered with Treedom Agroforestry to mitigate the emissions generated by enabling our members to connect face-to-face. What actions have you taken in your firms or your personal life that you can share that will help mitigate or reduce emissions?
“As previously mentioned, as a firm we have committed to becoming a B Corporation so we can live our values of not only becoming net zero but ensuring a long-term commitment to staying net zero – and helping others to do so as well as part of being B corp.“
In conclusion, Andrew’s insights highlight the importance of incorporating sustainability into businesses’ financial reporting and tax compliance, investing in sustainable practices, taking advantage of available tax incentives, and the role of accounting networks in driving education and behaviour change. As we celebrate Earth Day 2023 with the theme of ‘Invest in our planet,’ it’s important to remember that businesses can profit significantly from a sustainable transition if they invest early on.
News
ESG reporting in North America
April 13, 2023
Experts in our ESG committee comment on the progress of ESG in North America, exploring the implications of new legislation and how it is changing doing business in the region.
ESG reporting in North America and Canada
The ESG regulatory environment in the USA and Canada is evolving rapidly, with both countries taking steps to increase transparency and accountability for ESG performance. In the USA, the Securities and Exchange Commission (SEC) has proposed new rules that would require public companies to disclose information about their ESG risks and opportunities. The rules are still under development, but they have the potential to significantly impact the way that ESG is managed by companies in the USA.
In Canada, the Canadian Securities Administrators (CSA) have also taken steps to increase ESG transparency. In 2021, the CSA published a guidance document on ESG disclosure for investment funds. The guidance document provides information on how investment funds should disclose their ESG risks and opportunities, and it is intended to help investors make informed decisions about their investments.
Both the SEC and CSA are taking a proactive approach to ESG regulation, and their efforts are likely to have a significant impact on the ESG landscape in the USA and Canada. The new rules and guidance documents are designed to increase transparency and accountability for ESG performance, and they will likely lead to more rigorous ESG reporting by companies. This will make it easier for investors to compare ESG performance across different companies, and it will help to ensure that companies are taking ESG seriously.
In addition to the SEC and CSA, there are a number of other government agencies that are taking an interest in ESG. For example, the US Department of Labor has issued guidance on how ESG factors should be considered in retirement plan investments. And the US Environmental Protection Agency has issued new rules that require companies to disclose information about their greenhouse gas emissions. The ESG regulatory environment in the USA and Canada is complex and evolving. But it is clear that both governments are taking ESG seriously, and they are taking steps to increase transparency and accountability for ESG performance. This is good news for investors, who will have more information to help them make informed decisions about their investments. And it is good news for companies, who will be under more pressure to take ESG seriously and to improve their ESG performance.
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Carmen Cojocaru
Managing Partner at Kreston Romania
Carmen Cojocaru is a highly qualified professional with extensive experience in the fields of accounting, audit, tax, and business process outsourcing. Additionally, Carmen’s involvement with the ESG committee and Kreston Global highlights her commitment to promoting ethical business practices and fostering sustainable growth within the industry.
ESG reporting in the Middle East
Experts in our ESG committee comment on the progress of ESG in the Middle East, exploring the implications of new legislation and how it is changing doing business in the region.
ESG in the Middle East
ESG reporting is becoming increasingly important in the Middle East and North Africa, as investors and governments look for companies that are committed to sustainability. In this article, we will take a look at ESG reporting across the MENA, with a focus on Saudi Arabia, UAE, Turkey, Egypt, and Israel.
As stakeholders and investors seek greater transparency, the popularity of ESG is on the rise. According to Global Sustainable Investment Alliance 2020 biennial report, at the start of 2020, sustainable investment reached USD35.3 trillion for the five major markets United States, Canada, Japan, Australasia and Europe, a 15% increase in the past two years (2018-2020) and 55% increase in the past four years (2016-2020). This is expected to grow to $100 trillion by 2025.
The Middle East is not immune to this trend. Here are some ways that transparent, principles-driven businesses can benefit from this trend:
Increased investment: as investors seek out companies that align with their values, businesses that prioritize ESG principles may see an increase in investment. This can help companies grow and expand their operations.
Improved reputation: by prioritizing ESG principles, businesses can enhance their reputation among customers, employees, and the wider community. This can lead to increased loyalty and support from stakeholders.
Reduced risk: ESG principles can help companies identify and manage risks related to environmental, social, and governance issues. By addressing these issues proactively, businesses can reduce the risk of negative impacts on their operations.
Some of the world’s leading ESG investors are already active in the region. For example, BlackRock, the world’s largest asset manager, has committed to investing $500 billion in sustainable assets in the Middle East over the next five years. This growing interest in ESG is driving demand for ESG reporting from companies in the Middle East. However, the region is still lagging behind other parts of the world regarding ESG reporting.
ESG Reporting Gap in the Middle East
A recent study by PwC found that only 42% of companies in the Middle East have a standalone ESG report. This compares to 73% of companies in Europe and 69% of companies in North America. The study also found that companies in the Middle East are more likely to report on environmental factors than social or governance factors. This is likely due to the fact that environmental issues are more visible and measurable than social or governance issues. The report commented:
“Environmental issues are increasingly coming to the fore as governments in the region seek to transition from oil and gas. In the run-up to the COP26 Climate Change Conference in Glasgow, the United Arab Emirates committed to net-zero carbon emissions by 2050; Saudi Arabia and Bahrain also pledged to achieve net zero by 2060.“
“Social values, such as supporting communities, are also important for businesses in the region. This commitment was seen clearly during the pandemic when family businesses in the region actively championed initiatives to help their people, suppliers and local communities. According to the results of PWC’s Middle East Family Business Survey (2021), 84% of the region’s family businesses retained as many staff members as possible, 56% took action to support the local community and 45% provided financial support or loans to their employees.“
“Governance standards and codes are already adopted in the region and are increasingly an area of focus. A review in 2014 by the OECD highlighted that several countries in the region had issued governance codes and guidelines for banks, insurance companies, state-owned enterprises, securities companies, and small and medium-sized enterprises (SMEs). Central banks, capital market authorities and corporate governance institutes issue these guidelines and codes. As the ESG agenda advances in the Middle East, some banks in the region are beginning to screen their investment products and loan portfolios for climate impacts, illustrating how governance is in constant evolution in the region.”
Opportunities for Improving ESG Reporting in the Middle East
Despite the challenges, there are a number of opportunities for companies in the Middle East to improve their ESG reporting such as adopting international standards such as the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB) to help provide a framework for companies to report on their ESG performance in a consistent and comparable way. Sustainability Disclosure Standards being issued by The International Sustainability Standards Board (ISSB), where it has issued two exposure drafts:
1. IFRS S1 – General Requirements for Disclosure of Sustainability-related Financial Information
2. IFRS S2 – Climate-related Disclosures
The standards will likely become effective starting January 2024 and are expected to be issued by the end of Q2 2023.
Another opportunity is to engage with investors and other stakeholders. Investors are increasingly looking for companies that are committed to sustainability. By engaging with investors, companies can better understand their expectations and develop ESG reporting that meets their needs-High-quality reporting is directly related to increased value for an entity’s stakeholders. Entities with strong ESG performance, for example, are often perceived as lower-risk investments, making them more appealing to investors.
Finally, companies can also use ESG reporting to attract and retain employees. Millennials and Generation Z are increasingly interested in working for companies that are committed to sustainability. By reporting on their ESG performance, companies can attract and retain top talent.
In conclusion, ESG reporting looks increasingly important in the Middle East. Companies in the region can improve their ESG reporting by adopting international standards, engaging with investors and other stakeholders, and using ESG reporting to attract and retain employees.
ESG reporting examples
Here are some specific examples of ESG reporting from companies in the Middle East:
Saudi Aramco, the world’s largest oil company, publishes an annual sustainability report that covers its environmental, social, and governance performance. Aramco unveiled a green initiative endorsing a circular carbon economy and commitment to plant 50 billion trees in the Middle East.
Emirates NBD, a leading bank in the UAE, publishes an annual sustainability report that covers its environmental, social, and governance performance.
FAB, UAE’s biggest bank is the first bank in the MENA markets to set ‘financed’ emission reduction targets for the oil and gas, power generation and aviation industries. FAB is focused on the Net Zero push and is expanding the scope of green financing apart from operational changes.
Turkish Airlines, a leading airline in Turkey, publishes an annual sustainability report that covers its environmental, social, and governance performance.
EgyptAir, a leading airline in Egypt, publishes an annual sustainability report that covers its environmental, social, and governance performance.
Israel Aerospace Industries, a leading defence company in Israel, publishes an annual sustainability report that covers its environmental, social, and governance performance.
The challenge is to eliminate energy poverty as well as to keep the goal of capping global warming at 1.5 degrees Celsius alive.
These are just a few examples of the many companies in the Middle East that are taking ESG reporting seriously. As the demand for ESG information continues to grow, we can expect to see even more companies in the region publishing ESG reports. It has to be mentioned that ESG reporting has been made mandatory for the Public Joint Stock Companies in the UAE. EY Carbon – a strategy to decarbonise businesses by developing a credible plan to achieve net zero – is highly focussed in the region.
Companies need to consider that ESG is supported by a generation that values its principles, and this factor makes the framework an increasingly sought-after component of modern business.
News
Carmen Cojocaru
Managing Partner at Kreston Romania
Carmen Cojocaru is a highly qualified professional with extensive experience in the fields of accounting, audit, tax, and business process outsourcing. Additionally, Carmen’s involvement with the ESG committee and Kreston Global highlights her commitment to promoting ethical business practices and fostering sustainable growth within the industry.
ESG Reporting in the EU
Carmen Cojcaru from our ESG committee looks at the progress of ESG reporting requirements in the EU (European Union), and explores the implications of new legislation on businesses operating in the region.
ESG in the EU
Sustainability reporting enables companies to convey their progress toward goals on various sustainability parameters, including ESG (environmental, social, and governance) metrics and risks and impacts. This non-financial reporting helps companies communicate both positive and negative implications of their actions on the environment, society, and economy and accordingly set priorities. With the new EU CSRD-Corporate Sustainability Reporting Directive, corporates must adopt new rules and include new regulatory frameworks into their business strategies. This decision will make the EU the world leader in sustainability reporting standards and will impact around 50,000 companies across the EU (up from 11,700 currently), so the potential is enormous.
What exactly does the news refer to?
It implies and affects: strategy and policies, non-financial KPIs, governance on sustainability issues, double materiality, risk assessment and management, and taxonomy; therefore, it impacts the reporting standards. In short, CSRD requires organizations to focus on the objectives related to sustainability issues and to report on progress, including both prospective and retrospective information in achieving them. The new sustainability reporting rules will apply gradually, starting in 2024. The biggest challenge regarding the matter is the vague information.
More details about the standards will be known in June 2023, when the first set of ESRS adopted by the European Commission is expected, followed by the second set in June 2024.
To whom do these new sustainability reporting rules apply?
The reporting requirements will apply to all large companies, all listed companies (except listed micro-enterprises) and non-EU companies with branches or subsidiaries in the EU above certain size thresholds.
Listed SMEs will have the option to use simpler, proportionate standards and the option to not apply the directive for 2 years after entry into force. The CSRD also specifies reporting requirements for listed SMEs.
Reporting timeline of ESG in the EU:
Public-interest entities with more than 500 employees from 1 January 2024 (the first report will be published in 2025);
Large companies (that exceed 2 of the size criteria: over 250 employees and/or EUR 40 million turnover and/or EUR 20 million total assets) from 1 January 2025 ( the first report being published in 2026) ;
Listed SMEs from 1 January 2026 (first reports in 2027, deferral to 2029 possible);
Non-EU companies with branches/subsidiaries in the EU from 1 January 2028 (first reports in 2029).
Reports will have to be subject to independent assurance, provided by auditors or other assurance service providers, initially it will be limited assurance.
The International Sustainability Standards Board (ISSB) is a new standard-setting board created by the IFRS foundation trustees to assist investors and other capital market participants with useful information about companies’ risks associated with their activities from the ESG perspective.
In 2023 they are expected to finalize the two exposure drafts published by ISSB; one setting out general sustainability disclosure requirements and the other on climate-related disclosure requirements.
“The CSRD requires the company’s statutory auditor, another auditor (according to Member State’s option) or an independent assurance services provider (IASP) (Member State’s option), to provide limited assurance on a company’s reported sustainability information. Member States should set out equivalent requirements for IASPs around quality, independence, and oversight in line with the Audit Directive.”
The International Audit and Assurance Standards Board (IAASB) is developing a standard for sustainability reporting assurance, which you can learn more about here.
In addition, the International Ethics Standards Board for Accountants (IESBA) is developing suitable globally-applicable ethics, and independence standards in support of transparent, relevant, and trustworthy sustainability reporting. Learn more about it here.
NFRD is still in force
Just a reminder that the rules introduced by the Non-Financial Reporting Directive ( NRFD), (applicable to large public-interest companies with more than 500 employees), are still in force until companies have to apply the new rules of the CSRD.
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Karla Pastor
Head of Sustainability at Kreston FLS
Karla Pastor is a seasoned financial operation professional with a wealth of experience managing head office operations. She is responsible for ensuring the smooth and efficient execution of all-around financial operations, managing the network’s CRM system, and overseeing HR and IT functions. Karla directly supports the Executive Director, coordinating members’ meetings and annual event logistics worldwide. Karla is also the Head of Sustainability at member firm Kreston FLS, showcasing her commitment to promoting sustainable business practices.
ESG Reporting in Latin America
April 12, 2023
Today, each country in Latin America has a wide variation in the implementation of practices that have a positive impact on environmental, social, and corporate governance (ESG) issues. Although there is a social demand for these issues and several companies have voluntarily adopted ESG practices, there is currently no standardized or dominant framework in Latin America to accelerate their adoption. Here we have given a synopsis of ESG regulation in the largest economies in Latin America with the intention of providing a context for the region.
ESG interest in Latin America is growing
In Latin America, a path is opening up that has been adopting different forms or measures to make visible the efforts, or lack them, of companies and governments to make progress on ESG issues. As a result, ESG reporting is at a very early stage in Latin America. However, in recent years, there has been growing interest in the implementation of ESG as a guiding tool on social and environmental issues.
According to the International Bar Association Latin American Regional Forum[1], by 2022, most ESG-related practices are in the environmental, compliance, banking and corporate areas. About 80% of the firms that have incorporated ESG in internal practices. The most popular is around recycling followed by community activities and programs to avoid discrimination. Only 3 countries have reported that they are developing an ESG taxonomy. Unfortunately, this results in a problem of greenwashing[2], the main obstacle to implementation.
UN commitments
One of the frameworks that can best address social and environmental aspects are the UN Sustainable Development Goals (SDGs) and according to the UN, all countries in Latin America and the Caribbean are committed to the SDGs, however, of these, only 19 countries[3] are required to report their actions and results. It should be noted that some countries may have different levels of commitment to progress on the SDGs. In Latin America, most of the firms that adopt some ESG commitment relate it to these goals.
The following table shows examples of ESG and climate change regulations to provide a context for the variation in regulations.
Country
ESG Related Regulations
Description
Climate Change Related Regulations
Argentina
N/A
There is currently no specific national regulation for ESG reporting by companies. However, some companies in Argentina are voluntarily adopting mainly environmental practices.[4]
Renewable Energy and Energy Efficiency Law (Law 27.191)[5]
BC Resolution No. 139/2021 and BC Instruction Standard No. 153/2021
In September 2021, a package of solutions and requirements on ESG disclosure was launched. There are other financial instrument regulations such as the criteria for granting rural loans.
National Policy on Climate Change (PNMC)
Chile
Ministry of Finance launched a Taxonomy to promote green investments[7]
Taxonomy is presented as a tool to define a common language between what is understood as environmentally sustainable. In addition, ISO 26000 is voluntary, but has been implemented by 50% of the multinationals. It consists of providing companies with guidelines and orientation for adopting socially responsible behavior with their environment, considering the social and environmental impacts they may produce.[8]
Law on General Bases of the Environment (Law 19300)[9]
Colombia
Green Taxonomy and External Circulars 008 and 020 adopted by SFC in 2022
Promotes and facilitates the channeling of resources towards sustainable investments and defines the primary guidelines for the development of green finance. instructions on the content of the prospectus for environmental, social, and/or industry and knowledge economy bonds.[10] Companies have also adopted standards such as ISO26,000 on a voluntary basis.[11]
There is significant weight in laws on environmental protection issues. Law 1931 of 2018[12]
Mexico
Sustainable Finance Committee. such as: 1) Sustainable Taxonomy (Ministry of Finance and Public Credit); 2) Leveraging Capital Mobilization Opportunities (Comisión Nacional del Sistema de Ahorro para el Retiro or Consar and Banxico); 3) ESG Risk Measurement (Banxico), and 4) Disclosure of Information and Adoption of ESG Standards (CNBV; Comisión Nacional Bancaria y de Valores).
CNBV (regulator of banking and public companies) will present aggregated results of these diagnostics and will conduct a pilot application of the taxonomy with the participation of voluntary financial institutions, with three main objectives: climate change, financial inclusion and gender inclusion.[13]
Compendium of 13 laws and regulations derived from the different standards (NOM, NMX) applicable to each environmental area; water, soil, air, rural development, waste, among others.[14]
Peru
N/A
There is currently no specific regulation for CSR reporting by companies. However, some companies in Peru are voluntarily adopting sustainability reporting practices.
The purpose of the Framework Law on Climate Change is to establish the principles to reduce the country’s vulnerability to climate change, take advantage of the opportunities of low-carbon growth and comply with the international commitments assumed by the State.[15]
Note: It is important to note that this table is not exhaustive and that the situation in each country may be subject to changes and updates.
In conclusion, although there are governance bodies in some countries working with ESG and green taxonomies, and while there is still no mandatory ESG reporting, all countries have climate change regulations. There is progress, but there is no regulation on reporting.
To speak to an expert about your ESG reporting obligations in Latin America, please contact us.
Versión en Español
Hoy en día, cada país de América Latina tiene mucha variación en los niveles de implementación de prácticas que tengan un impacto positivo en temas ambientales, sociales y de gobierno corporativo o ESG (por sus siglas en inglés). A pesar de que existen una demanda social en estos temas y varias empresas han adoptado prácticas voluntarias de ESG, actualmente no existe un marco estandarizado o dominante en América Latina para acelerar su adopción. Éste articulo consta de una síntesis acerca de las regulaciones en ESG en los países de mayor economía en América Latina con la intención de dar un contexto de la región.
Los reportes de ESG en América Latina
En América Latina está abriendo un camino que ha ido adoptando diferentes formas o medidas para hacer visible los esfuerzos, o falta de ellos, de las empresas y de los gobiernos para avanzar en temas de ESG. Como consecuencia, los reportes de ESG se encuentran en una etapa muy temprana en América Latina. Sin embargo, en los últimos años, se ha despertado un creciente interés en la implementación de ESG como instrumento de guía en temas sociales y medioambientales.
De acuerdo con International Bar Association Latin American Regional Forum[16], en 2022, la mayor parte de las prácticas relacionadas con ESG son en la parte medioambiental, compliance, bancaria y corporativa. Cerca del 80% de las firmas que han incorporado ESG es en el manejo de sus propias actividades. La más popular tiene que ver con reciclaje seguido de actividades comunitarias y programas para evitar la discriminación. Únicamente 3 países han reportado que están desarrollando una taxonomía en ESG. Lamentablemente esto da como resultado un problema de “greenwashing[17]” dando como resultado el principal obstáculo en su implementación.
Compromisos conla ONU
Uno de los marcos que mejor pueden abordan aspectos de sociales y medioambientales son los Objetivos de Desarrollo Sostenible (ODS) de la ONU y de acuerdo con ella, todos los países de América Latina y el Caribe están comprometidos con los ODS, sin embargo, de éstos, únicamente 19 países[18]tienen obligación de reportar sus acciones y resultados. Cabe destacar que algunos países pueden tener diferentes niveles de compromiso en cuanto al progreso de los OSD. En América Latina, gran parte de las firmas que adoptan algún compromiso de ESG lo relaciona con estos objetivos.
En la siguiente tabla se pueden observar el ejemplo de regulaciones referentes a las ESG y cambio climático para dar un contexto de la variación en regulaciones.
País
Regulaciones relacionadas ESG
Descripción
Regulaciones relacionadas con el cambio climático
Argentina
N/A
Actualmente no existe una regulación nacional específica para la presentación de informes de ESG por parte de las empresas. Sin embargo, algunas compañías en Argentina están adoptando voluntariamente prácticas principalmente medioambientales.[19]
Ley de Energías Renovables y Eficiencia Energética (Ley 27.191)[20]
Resolución BC No. 139/2021 y Norma Instrucción BC No. 153/2021
En septiembre 2021se lanzó un paquete de soluciones y requerimientos en declaración en ESG. Existen otras regulaciones de instrumento financieros como el criterio para otorgar créditos rurales.
Política Nacional sobre Cambio Climático (PNMC)
Chile
Ministerio de Hacienda lanzó la Taxonomía para fomentar inversiones verdes[22]
Taxonomía se presenta como una herramienta para definir un idioma común entre lo que se entiende por medioambientalmente sostenible. Adicionalmente, ISO 26000 Es voluntaria, pero ha sido implementada por el 50% de las multinacionales. Consiste en brindar a las empresas directrices y orientación para adoptar un comportamiento socialmente responsable con su entorno, considerando los impactos sociales y medioambientales que puedan producir.[23]
Ley sobre Bases Generales del Medio Ambiente (Ley 19300)[24]
Colombia
Taxonomía Verde y circulares externas 008 y 020 adoptada por la SFC en 2022
Promueve y facilita la canalización de recursos hacia inversiones sostenibles y define los lineamientos primarios para el desarrollo de las finanzas verdes. instrucciones sobre el contenido del prospecto de bonos ambientales, sociales, y/o de economía de la industria y del conocimiento.[25] Las empresas también han adoptado normas como ISO26.000 voluntariamente.[26]
Hay un peso significativo en leyes en temas de protección ambiental. Ley 1931 de 2018[27]
México
Comité de Finanzas Sostenibles. como: 1) Taxonomía Sostenible (Secretaría de Hacienda y Crédito Público); 2) Aprovechamiento de Oportunidades de Movilización de Capital (Comisión Nacional del Sistema de Ahorro para el Retiro o Consar y Banxico); 3) Medición de Riesgos ESG (Banxico), y 4) Divulgación de Información y Adopción de Estándares ESG (CNBV; Comisión Nacional Bancaria y de Valores).
CNBV (órgano regulador de banca y empresas públicas) presentará resultados agregados de esos diagnósticos y llevará a cabo una aplicación piloto de la taxonomía con la participación de instituciones financieras voluntarias, con tres objetivos principales: cambio climático, inclusión financiera e inclusión de género.[28]
Compendio de 13 leyes y reglamentos que se derivan en las diferentes normas (NOM, NMX) aplicables a cada rubro ambiental; agua, suelo, aire, desarrollo rural, residuos, entre otros.[29]
Perú
N/A
Actualmente no existe una regulación específica para la presentación de informes de OSD por parte de las empresas. Sin embargo, algunas empresas en Perú están adoptando voluntariamente prácticas de informes de sustentabilidad.
Ley Marco sobre Cambio Climático tiene por objeto establecer los principios a fin de reducir la vulnerabilidad del país al cambio climático, aprovechar las oportunidades del crecimiento bajo en carbono y cumplir con los compromisos internacionales asumidos por el Estado.[30]
Nota: Es importante tener en cuenta que esta tabla no es exhaustiva y que la situación en cada país puede estar sujeta a cambios y actualizaciones.
En conclusión, a pesar de que existen órganos de gobierno en algunos países trabajando con ESG y taxonomías verdes, aún no hay ninguna obligatoriedad en temas de ESG, pero todos los países tienen regulaciones de cambio climático. Hay un avance, pero no hay regulación en el reporteo.
Para hablar con un experto sobre sus obligaciones de presentación de informes ESG en América Latina, póngase en contacto con nosotros.
[17] Es el acto de confundir a los consumidores en relación con las prácticas medioambientales de una compañía o los beneficios que aporta para el medio ambiente un producto o servicio.
[18] Argentina, Bolivia, Brasil, Chile, Colombia, Costa Rica, Cuba, Ecuador, El Salvador, Guatemala, Honduras, México, Nicaragua, Panamá, Paraguay, Perú, República Dominicana, Uruguay, Venezuela
Kreston Global ESG Committee member, Head of Technical and Compliance at Duncan & Toplis
Stuart is an FCA-qualified chartered accountant with more than ten years of practical accounting and audit experience.
He leads the technical developments for Duncan & Toplis. This covers audit, financial reporting and maintaining the quality of work.
He has recently been appointed to Duncan & Toplis’ operations board and has become a member of the ICAEW’s influential Ethics Advisory Committee. Stuart also sits on the Kreston Global ESG Committee.
ESG reporting in the UK
March 8, 2023
ESG reporting in the UK applies to entities that are classified as ‘large’ for reporting periods beginning on or after 1 April 2019, there has been a requirement to report on energy use and associated greenhouse gas emissions.
For accounting periods beginning on or after 6 April 2022 UK company law has mandated disclosure covering climate-related matters for certain entities. Disclosure must include a description of:
Governance arrangements for climate-related risk assessments and opportunities, including a description as to how an entity identifies such risks, how they assess them and their response.
How this risk assessment links to the overall risk management process.
The most significant risks identified and their impact on an entity.
How able to cope with the risks identified an entity is covering different scenarios.
Specific targets (including KPIs) used by an entity to manage identified risks and how the entity is performing against those risks.
Such disclosure is not required for all entities and has been introduced only for:
UK companies that have more than 500 employees and are either traded, banking or insurance companies.
UK companies listed on AIM with more than 500 employees.
Other UK companies that have more than 500 employees and a turnover of more than £500m.
LLPs that have more than 500 employees and a turnover of more than £500m.
In addition, in the UK, the listing rules mandated by the Financial Conduct Authority (FCA) require premium-listed and standard-listed companies to make disclosures under the TCFD (Task Force for Climate-related Financial Disclosure) framework. Further details on this can be found at https://www.fsb-tcfd.org/publications/.
Transition Plan Taskforce
2022 also saw the launch of the Transition Plan Taskforce (TPT). The aim of this group is to standardise the disclosure framework relating to the communication of the transition plans (to net zero) of UK private companies, to ensure that consistent, detailed, robust and credible plans are in place. Further details can be found at https://transitiontaskforce.net/.
Although mandatory disclosure of ESG-related matters is currently focused on the largest entities, entities of all sizes should feel encouraged to start to bring in ESG matters into their reporting and strategic decisions. All companies will benefit from being aware of the risks that they face from ESG matters and on the impact that their activities have on a wider stakeholder group.
If you would like to talk to one of our experts about your ESG reporting obligations in the UK, please get in touch.
The article in Compliance Week outlines how the European Union is set to shake up corporate reporting on environmental, social, and governance (ESG) goals by introducing new regulations. Companies are being urged to use 2023 to prepare for these changes and stakeholders’ expectations.
Regulators in the EU have been increasingly vocal about the need for companies to act more sustainably and report their actions and progress in achieving ESG goals in a more meaningful and transparent manner. Last month, the EU agreed to pass legislation to do just that.
Action
The Corporate Sustainability Reporting Directive (CSRD) will introduce more detailed reporting requirements for large and listed companies on non-financial areas such as environmental impacts, social rights, human rights, and corporate governance. The directive will ensure that sustainability information will sit alongside financial information and be audited, which means that the initial compliance cost for companies could be significant as the amount of data that needs to be collected will likely increase, along with the number of people involved in the integrated reporting process.
The CSRD will apply to large companies already covered by the EU’s non-financial reporting directive from 2025 and other companies incrementally year-on-year through 2029, depending on their size and/or revenues. For the 2025 financial year, companies with a net turnover of 40 million euros (U.S. $42.5 million) or more, at least €20 million (U.S. $21.2 million) in assets, and 250-plus employees will need to report. Around 50,000 organizations in the European Union or with EU-based subsidiaries will need to comply.
CSRD Updates
In a Nov. 9 speech, Mairead McGuinness, European commissioner for financial stability, financial services, and the capital markets union, said, “For the first time …we are putting sustainability reporting on an equal footing with financial reporting.” She added that the final text of the CSRD provides a good basis for alignment with the EU’s proposed Corporate Sustainability Due Diligence Directive, which is currently being negotiated between the European Commission, European Parliament, and the European Council and aims to further improve long-term corporate governance.
On Nov. 23, the European Financial Reporting Advisory Group, which provides technical advice to the European Commission, submitted its first draft of CSRD standards, which the commission must review/amend before making them available for public consultation in the spring. Under the 12 standards, companies would be required to publish comprehensive and comparable information about their sustainability, from their environmental impact regarding pollution, climate change, and biodiversity to workers’ rights, communities affected by their operations, and the impact on customers.
Stuart Brown, Kreston Global ESG committee member was invited to comment, stating he felt that businesses should not feel overwhelmed by the new compliance directive, but see it as an opportunity to assess their own ESG risks.
Get in touch to discuss your ESG reporting with one of our experts.
News
Stuart Brown
Kreston Global ESG Committee member, Head of Technical and Compliance at Duncan & Toplis
Stuart is a FCA qualified chartered accountant with more than 10 years of practical accounting and audit experience.
He leads the technical developments for Duncan & Toplis. This covers audit, financial reporting and maintaining quality of work.
He has recently been appointed to Duncan & Toplis’ operations board and become a member of the ICAEW’s influential Ethics Advisory Committee. Stuart also sits on the Kreston Global ESG Committee.
ESG in 2023: how the latest regulation changes affect accountancy and audit
January 19, 2023
Both nationally and globally, standards are being developed to make ESG reporting accurate, consistent and reliable.
With global temperatures in 2022 hitting record levels, and existing inequalities deepening as a result of economic crisis, the need to take action on environmental, social and governance (ESG) issues is ever more pressing.
Accountants will need to meet those regulations depending on their jurisdiction, as well as respond to demand for rigorous scrutiny of organisations’ ESG performance.
Where do ESG regulations stand now?
Historically, a major challenge for ESG reporting has been a lack of consistent, agreed standards. In 2021, EY estimated that the number of ESG regulations and standards had nearly doubled in the previous five years, with more than 600 provisions in place globally.
Without a clear and comprehensive standard to follow, it’s hard to compare and effectively assess organisations’ ESG performance – or to be certain that the information they report is based on sound data. Among other challenges, this has led to the problem known as ‘greenwashing’, where companies misrepresent their ESG credentials (knowingly or not) to appear more environmentally and socially responsible.
But developments are underway to manage this.
Two major sets of ESG standards are currently in development: the European Sustainability Reporting Standards (ESRS) in the EU, and two new International Financial Reporting Standards (IFRS), applying internationally.
With both expected to be finalised in mid-2023, this should help to pull together requirements from different advisory bodies, so that ESG reporting is more consistent and accurate.
ESRS includes 12 draft standards in total, two of which cover general requirements, while the other 10 focus on specific ESG matters.
These take what’s known as an ‘inside-out’ approach to reporting, looking not only at the financial impact that ESG matters might have on an entity, but also at the impact its own activities have on the wider environment or a wider scope of stakeholders.
To reflect this, they use the concept of ‘double materiality’ to determine which information companies must disclose. This includes impact materiality (issues that affect the wider world) as well as traditional financial materiality (issues that affect the company’s value).
In November 2022, the EU Council approved the corporate sustainability reporting directive, which requires certain entities – making up about 50,000 companies in total – to disclose detailed information on their ESG impacts in line with ESRS.
We can expect the standards to become mandatory for more companies in the years to come. At this stage, it also looks like entities that operate in the EU will be included if they meet certain criteria, even if they’re based outside of it.
Worldwide: IFRS S1 and S2
The International Sustainability Standards Board (ISSB) has drafted two standards, IFRS S1 and S2, covering general and climate-related disclosures.
Compared to ESRS, these standards take more of an ‘outside-in’ approach, focusing mainly on the financial impact of ESG matters on an entity’s enterprise value. These only use traditional financial materiality.
These international standards will not be mandatory – instead, requirements will be mandated by individual jurisdictions.
What do accountancy firms need to do?
When these standards come into force, accountancy firms will need to meet the ESG reporting requirements that legally apply to their jurisdiction.
That’s the absolute minimum firms will need to do, and it won’t apply to all businesses at once – but in reality, stakeholders will start to put pressure on firms of all sizes and all industries to report their ESG activities, and operate their business in an ESG-positive fashion.
Mid-tier accountancy firms are already starting to see more and more questions from potential new clients asking what ESG policies and procedures they have in place, and to back up those policies and procedures with data.
For example, take a large entity that has detailed ESG policies in place and needs to report on its wide-scope carbon emissions. If that entity is looking to appoint a mid-tier firm as its auditor, it would want to know as much as possible about that firm as one of its suppliers.
Firms also need to ensure that their knowledge of ESG reporting requirements is up to date so they can advise their clients. This is an ever-growing area, and firms will miss an opportunity if they cannot provide this service.
Accountancy firms – and auditors especially – are also well-placed to support businesses in their efforts to avoid greenwashing. Auditors are used to critically analysing information, taking a sceptical view where needed, and reporting their findings and opinions. They may already be highlighting ‘other information’ that they know is not consistent with financial data as part of the audit report.
These skills are key to preventing exaggerated or inaccurate environmental reporting.
Greenwashing isn’t always intentional, so firms can help to advise their clients on what might be classified as greenwashing and steer their reporting away from it – another much-needed service for increasingly ESG-conscious clients.
Get in touch to talk about how ESG regulation is changing audit reporting.
News
Kreston launches new ESG task force for member firms
December 12, 2022
As part of the new strategic plan, Kreston Global has launched an ESG Advisory Committee. The committee will be set up as a task force to help guide the network through key areas of ESG and sustainability focus.
The task force, which will be led by Kreston Global Board member and Senior Partner at member firm Kreston Reeves, Andrew Griggs, will comprise expertise from across the network. Our task force members are :
Stuart Brown, Head of Technical and Compliance, Duncan & Toplis; Carmen Cojocaru, Managing Partner, Kreston Romania; Laurent Le Pajolec, Managing Partner and Board Member, Exco A2A Polska; Ewan McClymont, Director of Business Development, Bishop Fleming; Karla Pastor, Head of Sustainability, Kreston FLS; Ganesh Ramaswamy, Partner, K Rangamani and Associates LLPi; Mahendra Rustagi, Chief Executive Officer, Kreston SNR; Christina Tsiarta, Head of Sustainability, ESG & Climate Change Services, Kreston ITH; Pam Tuckett, Partner and Head of Education, Bishop Fleming and Sheree Harrison from CBIZ MHM.
The three areas are assessing the regulatory environment within which our member firms operate internationally; providing guidance for member firms to implement sustainability strategies, and developing ESG advisory services for clients.
The task force aims to begin to issue some guidance and support to firms by early Autumn and report back to the World Conference in Dubai in December 2023.
News
Kreston Global firms discuss sustainability commitments
September 28, 2022
The IAB has just published their ESG supplement, with commentary from Kreston firms Kreston ACA Pac, Kreston ITH, Kreston Reeves and Kreston SNR about their ESG and sustainability plans and policies.
Christina is a consultant and certified project manager, specialising in ESG, sustainability and climate change, with 13+ years of expertise. Christina has successfully supported multiple organisations across the public and private sectors, covering a range of industries (e.g. HORECA, food & beverage, energy, telecommunications, waste, banking, transportation and construction), to operate and grow sustainably and resource efficiently.
What is ESG?
May 26, 2022
ESG, or environmental, social, governance, a prominent buzz word in the business world recently, refers to the criteria for measuring the sustainability impacts of a company. Neither ESG nor sustainability, however, are new terms or concepts. In fact, sustainability, which refers to the ability of an organisation to balance its short- and long-term needs, so that short-term success for an organisation does not risk its long-term survival, was first defined by the Brundtland report “Our Common Future”back in 1987.
To help distinguish the two terms, if sustainability is the framework to make an organisation responsible on a number of areas, then ESG criteria make the efforts of an organisation pertaining to sustainability measurable and quantifiable.
Why is ESG important?
ESG has gathered considerable attention in recent years largely due to three main factors.
ESG criteria incorporated into evaluations have proven to helpimprove risk management and lead to comparable, if not higher returns over the long-term, compared to traditional financial investments. For example, according to Forbes Advisor, JUST Capital’s JUST U.S. Large Cap Diversified Index (JULCD), an index that tracks the performance of large, public companies with high ESG scores, outperformed the Russell 1000 index for three years in a row.
There is growing attention and desire by the five main groups of stakeholders (i.e. workers, communities, customers, shareholders and the environment) for organisations to manage their ESG impacts, known as the social license to operate. Companies are expected, amongst many other issues, to:
address their climate change risks;
utilize renewable energy sources;
minimize their carbon footprint;
divest from fossil fuel investments;
adopt standards of responsible business conduct internally and externally;
address corruption and money-laundering;
display LGBTQ+ equality and racial diversity in the workplace and on boards; and
implement transparent and accountable governance structures.
These actions translate into investor and consumer choices that impact the organisation’s financial performance. Mike Walters, CEO of USA Financial, says that “companies that consider the needs of and impacts on each of their five stakeholder groups, become well-run companies, and well-run companies become good stocks to own”.
Organisations have been facing growing regulatory pressure to take action and report on ESG. The list of applicable legislation at the EU and national level is dynamic and ever growing, but currently the most prominent pieces of EU legislation in this remit are:
the EU Taxonomy Regulation (2020/852), which establishes a list of environmentally sustainable economic activities to create security for investors, protect private investors from greenwashing, help companies to become more climate-friendly, mitigate market fragmentation and help shift investments where they are most needed; and
The regulatory environment is complemented by a long list of voluntary standards and frameworks for reporting on sustainability and ESG. Some of the most widely adopted by companies globally are:
As markets emerge from the COVID-19 pandemic, the importance of an organisation’s ESG performance has only been reinforced, according to the World Economic Forum. Organisations have been forced to focus on long-term sustainability over short-term profits, and those that embed ESG metrics into their core business strategies now, will build long-term sustainable value. BlackRock, the largest investment company in the world, has built the industry’s largest suite of ESG exchange traded funds to enable more individuals to invest sustainably. Their CEO in his 2022 letter noted that: “We focus on sustainability not because we are environmentalists, but because we are capitalistsand fiduciaries to our clients. …Every company and every industry will be transformed by the transition to a net-zero world. The question is, will you lead, or will you be led?”
It is clear that companies need to increase their focus on ESG issues. Any company risks having its image tainted and stock value decline otherwise. Take for example Tesla, which made headlines recently for being removed from the S&P 500 ESG index, due to a poor score. To ensure companies operate and grow sustainably, they need more support to improve their knowledge and skills on ESG issues, so that they can better manage their impacts, better communicate their actions and better perform on market indexes.
Kreston firms can help support your company in its ESG journey. Please search for your nearest Kreston Global office here and they can help signpost you to the countries you need support in.
News
Kreston takes action on Earth Day
May 12, 2022
Environmental sustainability is essential for our earth, as climate change is ever-growing all businesses can adapt to support this. Accountants and auditors are in the best place to be able to give advice to clients on ESG and aid with sustainability frameworks in the future.
At COP 26, held in November 2021, one of the primary decisions was to reduce the global carbon footprint, by phasing out the usage of fossil fuels and increasing the usage of renewable energy. India made commitments at this meeting, including achieving Carbon Neutrality by 2070. The GOI has already issued guidelines for the large corporates (top 1000 companies by market capitalisation) to prepare Business Responsibility and Sustainability reports, effective from the current financial year, 2022-23.
Kreston SNR Advisors have positioned themselves as experts within their sector, promoting awareness of ESG and advising corporates regarding its framework—including policy formulation, implementation and reporting.
In the last year, Kreston SNR has been associated with many programs related to the environment, including International Climate Summit 2021 (New Delhi, Sept 2021) as a knowledge partner. Over 35,000 people participated in the summit, part of which were nine technical sessions by eminent speakers, including a few Nobel laureates. Along with many ministries under the GOI that partnered with the summit, Norway also showed its support as the country partner.
Kreston SNR Advisors has an advisory board with distinguished scientist Dr JP Gupta, as the Chairman, and other experts as members and are in the process of building a strong team with relevant experience to ensure the delivery of quality services.
Kreston Global has today welcomed A4 GroUP, based in Slovakia, to its global network.
A4 GroUP was established in 2021 by merging two companies with more than 15 years of tradition in the market which created one of the largest consulting companies in Slovakia, providing audit, tax advisory, legal and accounting services, payroll services and specialist services such as ESG reporting and cybersecurity. It advises a range of companies and government institutions, including Bratislava’s international airport, The City of Bratislava, The Slovak Republic’s Ministry of Justice, the Supreme Court of the Slovak Republic, and the National Bank of the Slovak Republic, on multiple issues of data security. The A4 GroUP has 44 employees, and five founding partners, including Head of Advisory Julius Cincala.
A4 GroUP is rebranding as Kreston Slovakia to be able to better serve its international clients looking for global reach
Liza Robbins, Chief Executive of Kreston Global, said: “It is with great pleasure that I welcome A4 GroUP to the Kreston Global network. We are experiencing an unprecedented level of growth, a tribute to the exciting work carried out across the network in recent months and years. We will be working with our newest colleagues to build their links across the network as they explore new opportunities both at home and abroad.”
Julius Cincala, Partner and Head of Advisory at A4 Gro, said: “Kreston Global are an established presence throughout the world and as such they were our first port of call when we made the decision to build our international profile. We look forward to supporting our existing and future clients in their aspirations in the region.”
News
Theo Theodoulou
Chair of Kreston Global Audit Group and Audit and Assurance Director at Kreston Ioannou and Theodoulou
Theo is a non-executive board member of the Cyprus Securities and Exchange Commission (CySEC), and leads the Audit Committee of CySEC. In 2018, he was appointed as the Finance Director of one of the biggest football clubs in Cyprus, Anorthosis Famagusta (Football) Public Limited.
Theo’s portfolio covers M&A due diligence, investment appraisals, forensic audit, internal audit and risk management advice, as well as corporate governance best practice.
ESG: Why SMEs should take responsibility
April 26, 2022
In my view, today’s SMEs lack the knowledge and expertise to understand what net-zero really means and this creates a significant knowledge gap. The gap is widened depending on the industry where the SMEs are involved. The more complex the industry the business operates in, the wider the gap becomes. For example, a service provider like a law firm has a much easier task in identifying their footprint and taking action in achieving net-zero compared to a HORECA business where more complex areas are involved in achieving net-zero such as for example food waste management. The majority of SMEs at the moment are proactive on their CSR plan which also involves environmental initiatives but without any real measure of their contribution.
The knowledge gap is a result of the fact that many jurisdictions of today are yet to introduce mandatory ESG compliance reporting and therefore the majority of businesses of this size would currently have ‘net zero’ targets as a secondary priority. Take, for example, the European Union’s directive on environmental reporting which currently provides some guidance but still lacks the appropriate support required. This is further enhanced by the need that all EU members have to transpose the directive into local legislation and this is still in progress.
The challenges faced by SMEs compared to their large corporate counterparts is that a large corporation has the resources and tools to be able to assess its carbon footprint and be able to take mitigation measures whereas an SME would have net zero as a secondary priority and would not invest in such tools or resources.
Small and medium-sized accountants can support their SME clients by being proactive and promoting the importance of assessing their environmental impact and providing knowledge guidance which will effectively reduce the knowledge gap. In addition, an accountant can act as a cost-effective solution for SMEs by providing services that will assist these businesses to assess their risk and impact, and provide mitigating solutions, compared to the higher cost of having in-house resources for this specific task.
News
ESG accounting practices accountants should know
April 22, 2022
ESG accounting practices are coming in to sharp focus, driven by climate change legislation to deliver net-zero. The 2050 deadline agreed by the 193 countries that are signed up to the Paris agreement is already impacting larger multi-national corporations who are changing the way they operate. SMEs and the supply chain eco-system are next to feel this change. This “trickle-down” effect means that it is no longer just affecting the Big Four.
Neil Johnson, a freelance journalist, recently covered the subject in an article on the ACCA website here, where he interviewed Kreston Global member, Kreston Reeves, on their journey to net-zero. They commented,
“There is evidence from many businesses, including Kreston Reeves, that by becoming carbon neutral (or aiming for net-zero) can be hugely beneficial. For example, this can be a big attraction for new candidates/employees to join the business. In addition, it can help improve retention rates of staff if an employer can demonstrate strong social responsibility practices,” said Corporate Partner James Peach and audit senior Dan Firmager.
An accountancy practice’s client base is a great audience with which to share a net-zero story, in the hope that it will resonate with some and may lead to action from others to help support climate action.
Internally, it can be galvanising tool that strengthens and enforces company culture.
Kreston Reeves continues to focus on reducing carbon to work towards the more stringent goal of net-zero. “We are very keen to focus more on our carbon output and to minimise this as far as possible. This is part of our assessment of net-zero and how we can achieve this. It is important that every business or individual does not become complacent and simply rely on the ability to offset whatever CO2 is emitted. The more than can be done to reduce emissions, the better result for the environment and for our future generations,” said corporate partner James Peach and audit senior Dan Firmager.
There are online carbon calculators for businesses, such as this from the Carbon
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This cookie is set by the GDPR Cookie Consent plugin. It is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others
11 months
This cookie is set by the GDPR Cookie Consent plugin. It is used to store the user consent for the cookies in the category "Other".
cookielawinfo-checkbox-performance
11 months
This cookie is set by the GDPR Cookie Consent plugin. It is used to store the user consent for the cookies in the category "Performance".
CookieLawInfoConsent
1 year
Records the default button state of the corresponding category & the status of CCPA. It works only in coordination with the primary cookie.
device_id
10 years
Cookie used to maintain a local copy of the user's unique identifier.
viewed_cookie_policy
11 months
This cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not a user has consented to the use of cookies. It does not store any personal data.
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Cookie
Duration
Description
__cf_bm
30 minutes
This cookie, set by Cloudflare, is used to support Cloudflare Bot Management.
bcookie
1 year
LinkedIn sets this cookie from LinkedIn share buttons and ad tags to recognize browser ID.
bscookie
1 year
LinkedIn sets this cookie to store performed actions on the website.
currency
1 year
This cookie is used to store the currency preference of the user.
lang
session
LinkedIn sets this cookie to remember a user's language setting.
li_gc
6 months
Linkedin set this cookie for storing visitor's consent regarding using cookies for non-essential purposes.
lidc
1 day
LinkedIn sets the lidc cookie to facilitate data center selection.
UserMatchHistory
1 month
LinkedIn sets this cookie for LinkedIn Ads ID syncing.
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Cookie
Duration
Description
ac_enable_tracking
1 month
This cookie is set by Active Campaign to denote that traffic is enabled for the website.
device_view
1 month
This cookie is used for storing the visitor device display inorder to serve them with most suitable layout.
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Cookie
Duration
Description
__kla_id
2 years
Cookie set to track when someone clicks through a Klaviyo email to a website.
_ga
2 years
This cookie is installed by Google Analytics. It is used to calculate visitor, session and campaign data and it also keeps track of site usage for the site's analytics report. The cookie stores information anonymously and assigns a randomly generated number to identify unique visitors.
_ga_M0XVMQMRZ1
2 years
This cookie is installed by Google Analytics.
_gat_gtag_UA_188891991_1
1 minute
This cookie is set by Google and is used to distinguish users.
_gat_gtag_UA_7661078_5
1 minute
This cookie is set by Google and is used to distinguish users.
_gid
1 day
This cookie is installed by Google Analytics. It is used to store information on how visitors use a website and helps to create an analytics report on how the website is performing. The data collected includes the number of visitors, the source of visitors and the pages visited in an anonymous form.
AnalyticsSyncHistory
1 month
Linkedin set this cookie to store information about the time a sync took place with the lms_analytics cookie.
CONSENT
16 years 5 months 19 days 16 hours 12 minutes
These cookies are set via embedded YouTube videos. They register anonymous statistical data e.g. how many times the video is displayed and what settings are used for playback. No sensitive data is collected unless you log in to your Google account, in that case your choices are linked with your account, for example if you click “like” on a video.
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
