By Jessica Salerno-Shumaker, OSCPA senior content manager
It would be a mistake to view environmental, social and governance (ESG) factors as “fluffy,” says one expert.“The biggest misconception is that this is some political agenda and somebody's trying to impose their values on business,” said Mary Adams, founder of Smarter Companies. “This is happening because the largest investors in the world see these issues as ‘value relevant.’ It's not about somebody judging what you should or shouldn't do.”
Examples of ESG can range from diversity of turnover, employee well-being and even the type of lighting in the office. It covers numerous areas, all of which impact how a business is viewed by its customers and investors and ultimately influence the future success of the business.
One of the reasons Adams said ESG might be viewed as “soft” is because most professionals aren’t fully equipped to understand it yet. She said many people trained in the sustainability area of companies are focused on a specific set of metrics, such as carbon output, but aren’t necessarily equipped to connect that with the financials of an organization. This is where the accounting profession can play a key role in understanding how sustainability metrics interact with the financials of a company.
“I think the challenge we all face is how do we put on our learning hats,” she said. “And how do we find ways to connect the dots?”
The point of sustainability is to consider the long-term, which Adams said forces businesses to look beyond meeting immediate goals in the next month or year. When done correctly, understanding and embracing ESG can help companies better predict and invest in the future.
There is still much to learn as ESG evolves for businesses, she said, but it’s a growth opportunity for accountants.
“Hopefully, we see this as an opportunity,” Adams said. “Not just a scary challenge. The one thing that's nice about this is that it all continues to be new. There's nothing wrong with admitting that we're on a journey and we're learning every day.”
And to hear more from Mary Adams on ESG, register now for one of the Ohio Accounting Shows.