BDO forms ESG Center of Excellence

BDO USA recently established an ESG Center for Excellence and named partner and executive team member Christopher Tower as the firm’s first-ever ESG strategy and services leader.

The firm has identified environmental, social and governance reporting as a key component of its strategic vision for the future. Tower was tasked last month with overseeing the firm’s ESG strategy and integrating sustainable business practices into BDO’s culture and operations, while also overseeing a variety of services to help clients with their own ESG initiatives.

Firms like BDO have been taking more interest in the ESG space as companies come under pressure from investors and regulators to disclose more information about how they are responding to the accelerating pace of climate change.

The new Center of Excellence will give BDO clients and professionals access to ESG technical subject matter knowledge and solutions. Senior leaders across the firm will have strategic oversight of the center, as well as the firm’s internal focus on ESG and the delivery of ESG services and solutions to BDO clients. 

 “It has a unique focus,” said Tower. “What we did was we designed a triangle. At the top of the triangle we have an ESG leadership team, which is made up of team members that are cross functionally situated throughout the firm, with all the business lines and core business services. We also created a corporate strategy team to focus on our deep drive of ESG into our culture and operations, and we created a services strategy team to curate a list of services to help our clients be successful. In the middle of that triangle is the Center of Excellence. Some of the team members in those groups are also members of the Center of Excellence, and that Center of Excellence is designed to store and manage knowledge, to provide education, to internal stakeholders and external stakeholders, designed to help our teams provide ESG services to our clients so they can thrive. And it’s designed to help us as we are taking our own ESG journey at BDO.”

Several of the team members have been hired specifically for the new group or they’ve moved within the organization. BDO also has several other positions that it’s looking to fill.

The new group is being set up at a time when the ESG accounting space is going through a number of changes, including the recent establishment of an International Sustainability Standards Board by the International Financial Reporting Standards Foundation at the United Nations COP26 climate change conference last fall. That group is still in the process of being set up, but it will be eventually consolidating the Value Reporting Foundation, which includes the Sustainability Accounting Standards Board and the International Integrated Reporting Council under its wing in June, along with another ESG standard-setter, the Climate Disclosure Standards Board (see story). Another ESG standard-setter, the Global Reporting Initiative, plans to work with the ISSB as well.

“There are a lot of changes in process, but all meaningful changes that will galvanize the financial reporting focus of the EU community and in the U.S.,” said Tower. “I think those changes will take out some of the noise in the system.”

He pointed to reports and studies last year from the International Federation of Accountants and the Center for Audit Quality about the confusion of competing standards.

“When you look at it, it’s like alphabet soup because each company has reported somewhere under between three and five standards, whether it’s SASB or GRI, UN SDGs and TCFD,” said Tower. “As a result of this drive, these international and domestic changes that are occurring in the standard reporting will coalesce and bring together and unify the reporting. I think that will be a driver for more enhanced and deeper reporting.”

He noted that the European Union’s proposed Corporate Sustainability Reporting Directive is also likely to force more companies to provide ESG reporting. The proposal from the European Commission would require companies with 40 million euros in revenue, 20 million euros on their balance sheet total, and 250 full-time employees to report.

“One of the key drivers that’s noteworthy is the CSRD in the EU, and that requires financial reporting for companies over a certain size and a certain number of employees of more comprehensive ESG, not just climate, and it requires limited attestation,” said Tower. “There are estimates that impact over 50,000 companies in 2023. If you look at the domino effect, you have the CSRD drive, you have the regulations that are happening in all the countries, the U.K., Canada, Germany, and even Singapore now has a requirement for reporting that has come out. You’ve got the regulation side, you’ve got the drive to stakeholder activism and stakeholder inclusion and stakeholder focus on ESG. All of those are pushing companies, and it’s competitive pressure. If a company thinks this is a passing fad and they are going to escape the need to report, it has probably the wrong view because they’re going to find themselves pretty soon not being competitive, because their competitors will be reporting and their investors and other key stakeholders will be expecting reporting from them.”

The demand for ESG reporting is increasingly being magnified by the supply chain. “If a company takes its journey and then focuses on its supply chain, which is a key element of ESG, it then requires its suppliers to have an ESG focus if they’re going to do business with them, so it’s got a multiplier effect,” said Tower. “Every single company that takes ESG seriously will have a domino effect downstream on another 10 to 12 companies. These things are starting to happen. Companies are getting multiple requests from their customers: Show us your code of conduct, show us your focus on ESG, sign onto our code of conduct. It’s really accelerating very quickly. We’re going to see a huge change in the U.S. for the middle market and public company environment as a result of the stakeholder drive and the downstream supplier ESG drive.”

The Securities and Exchange Commission is also expected to soon require climate risk disclosures after it issued a request for comment last year that drew extensive comments. ESG also includes reporting on social issues such as diversity, and more reporting may be required on that as well. “We’re all waiting for the SEC’s issuance of a draft rule, or something for comment,” said Tower. “There’s been a nod that one’s going to be on climate and one’s going to be on human capital, so our understanding is that two are coming out, but we have no additional knowledge as to whether they’re going to be a principles-based disclosure or a rules-based disclosure, whether they’re going to specify the specific rule of focus, i.e., are they going to reference to TCFD [Taskforce on climate-related Financial Disclosure] or not. We don’t know, and I think the profession is deeply awaiting the issuance of those so we can dive into them and go into them and help our clients with them when they come out.”

As the European Union and the Securities and Exchange Commission move to require more ESG reporting, demand for accounting firms that can provide assurance services is likely to increase among corporate clients. “One of the interesting aspects is the directive that has come out from the European Commission,” said Tim Gearty, national director and editor-in-chief at Becker Professional Education, which provides training in ESG reporting and auditing for accountants. “In that, they have actually insisted on what I’ll call limited assurance starting in 2024 in Europe. This is going to expand the reach of this legislation from just about 12,000 companies to 50,000 companies. The United States, with the new chairman of the SEC, Gary Gensler, has emphasized this is a high priority for his organization. And of course President Biden has said this is one of his top priorities.”

The Public Company Accounting Oversight Board may get involved as well. During a recent AICPA conference in Washington, D.C., PCAOB officials mentioned that one of the high-priority items for them is going to be ESG reporting, Gearty noted.

The SEC push could spur demand for audit, assurance and attestation services. “One of the interesting areas that Chairman Gensler has mentioned is that when the wizards of Wall Street establish sustainability funds, which are becoming incredibly popular with investors, they want to have more disclosures about what are the criteria they use to allow an entity to be part of that fund,” said Gearty. “Was it they just stated they’re green, or is it that they started to move in that direction, or is it the progress they have made? That will become essential, and all of that needs to be verified so audit has to be part of this process at this point in time. When it comes to this area, there are very few of the organizations in the Fortune 500 that are actually utilizing attestation standards. This is a huge area for growth in the CPA profession.”

Tower is receiving support in his ESG mission from the leadership of the firm. “Christopher Tower’s assurance experience and background, combined with his personal passion for environmental and social causes, makes him the ideal leader to oversee our firm’s ESG efforts and initiatives,” said BDO USA CEO Wayne Berson in a statement last month. “As trusted advisors to the middle market, we can have a significant impact in our communities by not only further integrating ESG into our own culture and operations but at the same time helping our clients build long-term resilience by integrating ESG into their own business models.” 

Tower points to several factors why he may have been chosen to lead the firm’s new Center of Excellence. “I thought, why me? Why did they pick me for this role? It’s interesting,” he said. “There are probably four key reasons why they picked me. First, I have a track record of getting things done. I’m known as a high-impact builder. Secondly, if you look at my background as an auditor of public companies, I have a controls-based data-reporting focus, which are key elements of ESG, gathering data and reporting is a key element and transparent reporting, processes that make sure that reporting is accurate. But there are two other reasons. One, I have a strong passion for ESG because I have two parents who were psychotherapists and established the first psychotherapy clinic in Berkeley, so I grew up with a strong passion for helping people thrive and their wellbeing. I grew up in the Bay area where there’s a strong passion for the environment and everything that lives in it. But lastly, but not leastly, as a gay man I undertand and embrace the underly tenets of diversity. I think that’s highly important, focusing on diversity. Diversity in thought, diversity in culture, diversity in background, are really important for this role. I’m really excited the firm has decided to galvanize this focus in this way to really lead with our core purpose of helping people thrive.”