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ESG an “immense” market for mid-tier accounting firms to tap into

June 5, 2023

As Menzies becomes the latest accounting firm to launch an ESG service line, Accountancy Age looks at the factors for and again investing in sustainable audit

The ESG market is becoming an increasingly rewarding service area for mid-tier accounting firms despite the current lack of reporting requirements faced by small and medium sized organisations in the UK, market participants have said.

Menzies, a major player in the UK accounting sector’s mid-market, unveiled its expansion into ESG services earlier this month, arguing that such strategies have become a must-have for SMEs. This claim is endorsed by Richard Singleton, the firm’s head of finance and sustainability, who argues that the general scarcity of ESG service lines among mid-tier accounting firms is misguided.

“You have the big boys at the top, but theirs’ are obviously much more geared towards assurance, because the big companies in their client bases have to follow certain frameworks and regulations,” he says. “That kind of thing doesn’t exist for SMEs just yet, so a lot of mid-market firms think ‘well why should I bother?’”

All UK listed companies, banks or insurers with more than 500 employees are currently required to submit disclosures under the Taskforce on Climate-Related Financial Disclosures (TCFD) framework. The disclosures span four key areas: governance; strategy; risk management; metrics and targets.

A similar framework produced by the International Sustainability Standards Board is set to become effective in January 2024. The UK government has expressed its intention to align these standards with that of the TCFD in the interest of establishing a globally comparable framework.

But in spite of SMEs not falling within the scope of these frameworks, Singleton argues that the value of building an ESG strategy is still clear for such organisations.

“We know that, somewhere down the line, a lot of those clients are going to face some regulations. So the key for us getting in there and giving awareness of ESG and helping them to start their journey.”

‘Lots of different pressures’
Singleton also stresses the variety of “threats” that SMEs can face as a result of neglecting ESG strategy, citing potential issues such as employee dissatisfaction and competitive disadvantage for businesses tendering for contracts.

“A lot of my conversations are around where that pressure is coming from. It’s about identifying those potential threats,” he says. “The point is to sit down and look at the bigger picture. Often it’s the case that external pressures such as consumer demand and regulatory scrutiny don’t exist just yet, but the pressure is still there internally.”

Singleton argues that, as a result, of this the demand for ESG services has “trickled down” into the client bases of smaller and mid-tier accounting firms.

This is echoed by Gemma Gathercole, strategic engagement lead at the ACCA, who argues that the need for SMEs to engage in ESG despite a lack of regulatory scrutiny is rapidly increasing.

“While SMEs are not currently obliged to follow many reporting requirements placed on larger entities, we expect these to start to filter through, both as part of supply chains to larger businesses and also through societal pressures for all businesses to know their ESG impact and what they are doing to be sustainable,” she says, arguing that this is an “immense market to tap into” for mid-tier firms.

A ‘gap in action’ among mid-tiers
In light of what she believes is a key area of focus for SMEs, Gathercole goes on to argue that mid-tier professional services firms “can do so much” in the provision of ESG services, arguing that they can “bring integrity to the process with their wealth of practical information, tools and resources”.

Concurring, Singleton argues that “accountants are naturally really well placed to help with ESG”, and that mid-market firms must seek to apply their expertise in this area rather than waiting for the regulatory obligation to trickle down.

“Not only does this sit within our business advisory mindset, but also the piece around data and measurement is in our DNA too. So what we’ve decided to do is get in there earlier and turn this into an advisory service rather than waiting for the assurance side to come down through regulation.”

Similarly, Nicolet Ciobanu, head of sustainability at Cooper Parry – a mid-market firm with plans to grow its ESG service line – argues that SMEs’ attention to ESG “is growing rapidly”, and that “accountants, as their trusted advisors, have an important role to play in this”.

“We’re helping our clients by advocating on the ESG importance and undertaking a root and branch review of the sustainability of their business, identifying main risks and opportunities and all the reporting that comes from that,” she says.

[Accountancy Age]

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