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Coming Soon-ish: Greener Auditing

Well, maybe. Eventually. Some time in the future.

Over at the Harvard Business Review, there's a brief Q&A with Professor Robert Eccles about sustainability accounting standards. It's interesting because, as we've mentioned, sustainability (among other things) could become a big part of the accounting profession's future.

We first covered sustainability accounting and reporting in an interview with Professor Eccles's co-author Michael Krzus in 2010, but we don't really hear about its progress very much. In fact, the HBR post says development of sustainability accounting standards has been "slow going" the last five years.

However, the Sustainability Accounting Standards Board is becoming more visible as its founder, Jean Rogers, has been recognized as an influencer and power broker in the accounting world. The SASB also has a lot of heavy hitters on its board, including Eccles, Michael Bloomberg who serves as Chairman and two former SEC chairs — Elisse Walter and Mary Schapiro. They even have a credential! That really shows you how serious this is.

Anyway, despite the snail's pace of progress, Professor Eccles spoke specifically about what he sees as auditors' role in the process of enforcing sustainability accounting standards once they're in place:

HBR: What role will auditors play in enforcing standards?

[Eccles:] I think this is a fundamentally important question. Today you have four big accounting firms that audit around 99% of the world’s market cap. It’s not a perfect system—you still have financial scandals—but it works pretty well. Accounting standards are in place, the SEC is the enforcement mechanism, and the Big Four are monitored by the Public Company Accounting Oversight Board.

But if you look at nonfinancial reporting, there is no such apparatus. Audits are often performed by little boutique sustainability consulting firms that are paid a mere pittance for their work. Even the Big Four are paid much less to audit nonfinancial information compared to financial information. A big company can  spend $10-100 million for a financial audit, and then a few hundred thousand dollars at best for an assurance opinion on their sustainability report.  What we ultimately need is audits on integrated reports that contain both financial and nonfinancial information.

The auditors say it’s too soon because they need the standards to perform such an audit. But once companies start using SASB’s standards in their 10-K filings, then auditors will be able to treat [environmental, social, and corporate governance] information with the same scrutiny as financial information. It won’t be a perfect system, but my feeling is that it will be good enough to prevent most abuses.

Eccles says that wide adoption of sustainability accounting standards will likely come about through either market forces or…wait for it… regulation. 

Which could be, uh, challenging. Having SEC vets like Schapiro and Walter will be invaluable, but when a large portion of one political party can't even admit that climate change is happening, I'm not sure how they'll get on board with sustainability reporting.

But still! Stuff is happening and maybe the "market forces" will help things along. And, hey, some of you proud auditors may get to help in that regard.

Does anyone out there have any exposure to sustainability reporting or wild aspirations to get into it? Let us know in the comments.

How Accounting Can Help Build a Sustainable Economy [HBR]

Image: suphakit73/iStockphoto