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Big Four accounting firms rush to join the ESG bandwagon

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The sustainability boom has moved trillions of dollars into environmental, social and governance funds and brought a new stakeholder-led agenda to corporate boardrooms.

Now the Big Four accounting firms are jumping on a bandwagon that offers two tempting opportunities: an expansion of what companies must account for, and a chance to rebrand a scandal-plagued profession as experts on climate change, diversity and winning consumers’ trust.

PwC put the booming demand for ESG advice at the heart of a $12bn investment plan it announced in June that will involve adding 100,000 employees and launching “trust institutes” to train clients in ethics.

Bob Moritz, its global chair, said the investment would redefine and rebrand the firm “to make sure we’re valuable for what our clients need and what the world needs”.

Deloitte, in turn, announced a “climate learning programme” this month for its 330,000 employees. KPMG’s ESG work has included helping Ikea to analyse social and environmental risks linked to the Swedish furniture retailer’s raw materials, and advising on the first green bond issued in India.

Alongside EY, all four have been at the table as business groups try to thrash out new international standards for measuring sustainability.

But as their new ESG focus looms larger in their marketing, some partners question the extent to which it will transform their businesses and warn that it may expose the firms to a backlash if they fail to live up to the standards they promote.

The Big Four are responding in part to a rise in clients’ budgets for developing net zero emissions plans and other sustainability initiatives. Tracking nonfinancial metrics such as companies’ carbon footprints, and not simply their financial results, gives them a chance to generate more fee income and improve profit margins.

The introduction of standardised ESG reporting metrics for companies would also create more work for accountants. This will potentially be facilitated by the proposed International Sustainability Standards Board, a body that could be created by November to mirror the role the International Accounting Standards Board plays in setting financial reporting standards.

“One of the challenges the profession has faced . . . is that the audit or financial statements were viewed by some as a compliance function,” said a former senior partner at PwC.

“If [companies] look at something as a compliance or commodity purchase they grind the price. If they look at it as something that adds value, they’re willing to pay the appropriate price for the value that the service provider provides.”

Chart showings soaring sustainable funds sales

Beyond accounting, the ESG trend also offers the Big Four other opportunities.

There will be increasing ability to cross-sell expertise such as adding climate-related criteria to the design of executive pay packages, a partner at another Big Four firm said. The number of global companies that include environmental or social metrics when deciding executive pay has already doubled since 2018, according to the latest annual report from ISS ESG.

The aim of PwC’s “New Equation”, which includes a rebranding based on “trust”, was to seize on an “inflection point” as companies consider how to explain their impact on society after the pandemic, said a person briefed on the plans.

Instead of simply “answering the question we are asked”, it wants to “frame” clients’ questions and enlist PwC teams with expertise relevant to other stakeholders such as employees, the person added. Consultants advising companies purchasing new technology, for example, could help to support workers who risk losing their jobs as a result, the person said.

That consultants and accountants see ESG as a commercial opportunity is clear. Less clear is whether the scale of the changes in their organisations will match the marketing hype.

At times, the firms struggle to articulate what their focus on broad concepts such as “trust” and “sustainability” means in practice.

Punit Renjen, Deloitte’s global chief executive, recently posted a tweet about an article by some of the firm’s senior thinkers on “the link between trust and economic prosperity”.

“Trust is all-encompassing,” the piece declared. “Physical. Emotional. Digital. Financial. Ethical. A nice-to-have is now a must-have; a principle is now a catalyst; a value is now invaluable.”

A solar power farm
The Big Four are responding in part to a rise in clients’ budgets for developing sustainability initiatives © Roslan Rahman/AFP via Getty

The “climate learning programme” is Deloitte’s latest climate-related initiative. For all the promotion, it amounts to a 35-45 minute online presentation, a handful of interactive elements and an invitation to staff to reduce their personal climate impact.

While the Big Four emphasise climate change and equality in their marketing and recruitment materials, much of their investment is in unrelated areas. PwC’s strategy announcement focused heavily on “trust” and “sustainability” but much of the $12bn it plans to invest will go towards two other key growth prospects: technology and Asia.

The bulk of its 100,000 net new jobs are expected to be in technology, capitalising on demand from companies seeking help with cyber security, cloud platforms and data science. Only some will relate to ESG; PwC has not given a number.

A quarter of the new investment will go towards doubling PwC’s business in Asia, where the consulting market alone has grown by a third since 2015 to $32.9bn, according to Source Global Research, but accounts for less than 15 per cent of PwC’s revenues.

Asia-Pacific revenues of the Big Four

However, despite the buzz around climate and social impact, consulting firms’ continued interest in other growth opportunities suggests they recognise that ESG advice will not displace, or even reshape, all of their existing operations.

They are also pushing deeper into sustainability consulting despite critics claiming that the outperformance of ESG-themed strategies is illusory or will be shortlived.

Two Harvard professors concluded this month that the US Business Roundtable’s 2019 statement heralding a new era of stakeholder capitalism was “mostly for show”. The roundtable’s members include the heads of the Big Four accountants as well as the competing consultancies Accenture, Bain & Company, Boston Consulting Group and McKinsey.

Even if they are hedging their bets by investing in technology or regional shifts, jumping so publicly on the ESG bandwagon and holding themselves up as beacons of trust also carries risk for consultants.

“I think they will become a target for activists,” said the UK managing partner at another accounting firm of PwC’s plans, arguing that by promoting its ESG credentials the firm would attract scrutiny of its own record.

“It doesn’t take much . . . for someone to find PwC in country X is not quite complying with its own carbon emissions [standards] or is servicing clients that have got an awful profile or history of modern slavery.”

Asked whether PwC’s focus on trust was a hostage to fortune given the scandals that have plagued its industry, Tim Ryan, chair and senior partner of PwC in the US, said: “There’s always a risk in leading. We’re not perfect but we’re massively investing to make sure everything we do is to do with improvement.”



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