In a recent article in Accountancy Age, Simon Konsta, Disputes Partner at DAC Beachcroft explains why the role of auditors and accountants is becoming more important in the climate change fight.
The article explores why ESG reporting is becoming more important with increasing legal pressure and greater numbers of litigation cases being taken out against some of the largest global corporates such as ClientEarth v Shell Plc. The outcome of this case was a dismissal by the judge due to insufficient data to support ClientEarth’s claim that the directors of shell had breached Section 172 Companies Act (imposing a duty to act to promote the success of the company) and Section 174 (requiring the exercise of care, skill and diligence in the running of a company).
Now, lets put aside the legal jargon and cut to the chase. The real outcome is that there was a lack of information for the directors of the company to demonstrate what the business has done in relation to ESG (Environment, Social, Government). This is where the accountants and auditors come in. It is important for them to be recommending that their clients implement a clear structure of reporting that is accurate and open to scrutiny and demonstrates the progress the business is making in the drive to reduce their carbon footprint.
However, it is not just about the environment and good ESG reporting will ensure that all the businesses activity around their workplace, their governance and their support in the community is clearly reported and trackable on a year-to-year basis. To be able to deliver effective reporting, there needs to be a framework in place, this is what a CSR strategy (Corporate Social Responsibility) will achieve. The benefits to a business are numerous and it is not just to avoid litigation. This framework will engage your workforce, reduce your staff attrition, enable you to recruit more easily and ultimately win business.
Legislation around ESG is now being implemented in many countries, including the EU, and whether it is your business directly, or your clients, where you are part of their Scope 3, most businesses will be required to provide reporting at some level in the very near future.
So don’t wait, get a framework in place so you are prepared and you will also see a positive transformation in your business as well.