ESG – Emerging Accounting Issues

There are many emerging accounting issues that are being discussed and debated by accounting professionals and stakeholders. We hear of issues like “The impact of technology on the accounting profession”, “use of non-GAAP measures”, “role of cryptocurrencies and other digital assets in accounting” and a trendy keyword would be ESG – stands for Environmental, Sustainability and Governance.

The role of sustainability in accounting: There is a growing recognition of the importance of sustainability in business, and this is leading to the development of new frameworks, standards and practices that take into account environmental, social, and governance (ESG) factors.

Increasing Importance of ESG

Sustainability has become an increasingly important issue in the accounting profession, as businesses and investors recognize the need to consider environmental, social, and governance (ESG) factors in their decision-making. This has led to the development of new accounting standards and practices that take into account these factors.

There are a number of accounting standards and frameworks that have been developed to guide companies in the preparation and presentation of environmental, social, and governance (ESG) information in their financial reports.

  1. International Financial Reporting Standards (IFRS): IFRS is a set of globally accepted accounting standards that provide guidance on the preparation and presentation of financial statements. IFRS does not have specific requirements for the reporting of ESG information, but it does require companies to disclose material information that is relevant to an understanding of the company’s financial performance and position. As a result, some companies may choose to report on their ESG performance in order to meet this requirement.
  2. Global Reporting Initiative (GRI): The Global Reporting Initiative (GRI) is a non-profit organization that provides a framework for companies to report on their ESG performance. The GRI framework includes guidelines and indicators that companies can use to report on a wide range of ESG topics, including environmental impacts, social performance, and governance practices.
  3. Sustainability Accounting Standards Board (SASB): The Sustainability Accounting Standards Board (SASB) is a non-profit organization that develops industry-specific sustainability accounting standards. SASB’s standards provide guidance on the specific ESG information that companies should disclose in order to meet the needs of investors and other stakeholders.
  4. International Integrated Reporting Council (IIRC): The International Integrated Reporting Council (IIRC) is a global organization that promotes the integrated reporting of financial and non-financial information, including ESG information. The IIRC’s framework provides guidance on how companies can integrate ESG information into their financial reports in a way that is relevant to an understanding of the company’s business model, governance, and prospects.
ESG issues

Global Reporting Initiatives (GRI) framework

According to the Global Reporting Initiative (GRI) framework, sustainability reports should include the following types of information:

  1. A description of the company’s strategy and approach to sustainability: This should include information about the company’s sustainability vision, mission, and values, as well as its overall approach to managing ESG issues.
  2. Data and metrics on the company’s ESG performance: This should include information about the company’s environmental impacts, such as greenhouse gas emissions and energy use, as well as data on its social and governance performance, such as employee diversity and supply chain management.
  3. A discussion of the company’s material sustainability issues: This should include an analysis of the most significant sustainability issues that the company faces, and how it is addressing these.
  4. Information about the company’s stakeholders and their views on sustainability: This should include details of how the company engages with its stakeholders on sustainability issues, and any feedback or input it has received.
  5. An assessment of the company’s overall sustainability performance: This should include a summary of the company’s ESG performance over the reporting period, and any trends or changes that have occurred.

The GRI framework also recommends that sustainability reports include a statement of assurance, which is a statement by an independent party attesting to the accuracy and reliability of the information contained in the report.

Adopting Sustainability Reporting

Sustainability reports are documents that companies use to disclose information about their environmental, social, and governance (ESG) performance. The specific contents of a sustainability report can vary depending on the company and the reporting framework it is using, but some common elements of sustainability reports include:

  1. A description of the company’s sustainability strategy and goals: This can include information about the company’s approach to sustainability and the targets it has set for improving its ESG performance.
  2. Data and metrics on the company’s ESG performance: This can include information about the company’s environmental impacts, such as greenhouse gas emissions and energy use, as well as data on its social and governance performance, such as employee diversity and supply chain management.
  3. Case studies and examples of the company’s sustainability initiatives: This can include details of specific projects or initiatives that the company has undertaken to improve its ESG performance.
  4. Information about the company’s stakeholders and their views on sustainability: This can include details of how the company engages with its stakeholders on sustainability issues, and any feedback or input it has received.
  5. A discussion of the company’s challenges and opportunities related to sustainability: This can include an analysis of the risks and opportunities that the company faces as it relates to sustainability, and how it is addressing these.
  6. An assessment of the company’s overall sustainability performance: This can include a summary of the company’s ESG performance over the reporting period, and any trends or changes that have occurred.

Example of generic ESG Policies

Environmental Policies

  • Set targets for reducing energy consumption and greenhouse gas emissions
  • Implement processes to minimize waste and reduce the use of hazardous materials
  • Implement programs to recycle materials and minimize the environmental impact of transportation

Social Policies

  • Implement fair labor practices, including fair wages and working conditions
  • Promote diversity and inclusion in the workplace
  • Develop programs to support the local community and address social issues

Governance Policies

  • Implement strong ethical standards and codes of conduct for all employees
  • Ensure transparency in decision-making and financial reporting
  • Establish processes for stakeholder engagement and communication

Back to Home

Back to GO Blog