With stakeholders, regulators, and consumers increasingly calling on businesses to report on their environmental, social, and governance (ESG) impact, a significant opportunity arises for the tax and accounting profession—and AI can play a major role in taking advantage of this trend.
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The growing importance of ESG accounting
Much like the audits of financial statements, third-party assurance from an accounting firm can help ensure that a company’s ESG report is of high quality and reliable—and this expertise is in high demand.
According to Thomson Reuters 2023 State of Corporate ESG report, businesses are:
- Seeking to invest and integrate third-party solutions that, in part, help them stay abreast of international regulatory requirements and keep up to date with ESG global news.
- Looking to mitigate supply chain risk by increasing transparency around their vendors’ and suppliers’ business practices.
- Interested in incorporating artificial intelligence (AI) to connect disparate data and yield better ESG analysis and insights, in particular for greenhouse gas (GHG) emissions tracking.
In addition, under new IRS rules published in 2023, corporations can offset up to 75% of their federal income tax liability, which may result in a rebate of taxes already paid to reinvest in ESG-positive opportunities. Accounting firms have a unique opportunity to assist in this area.
However, the collection, management, and reporting of ESG data pose significant challenges for many businesses. Whether it’s gauging sustainability or quantifying the ethical impact of supply chains, the manual collection and aggregation of ESG data, along with understanding associated regulatory requirements, can overwhelm your clients. Many find it challenging to even initiate the process.
And that’s where your expertise comes in. Many forward-looking accounting firms are expanding their service offerings to provide clients with ESG-related data, assurance, and tax optimization strategies. This includes providing clients with ESG audit support to validate the efficacy of controls, conducting activities to identify gaps, assess risks, and formulating recommended courses of action for companies.
What is the role of AI in ESG accounting?
From a tax and accounting perspective, ESG considerations rely heavily on data. However, ESG data can be a challenge to collect, manage, and report on. Your clients can easily get overwhelmed by the aggregation and analysis of this data and understanding the related regulatory requirements.
However, the introduction of AI is marking a transformation in data collection and analysis. This opens the door for accounting firms to harness this power to improve and enhance client service related to ESG accounting.
AI algorithms can quickly analyze vast datasets, identifying patterns, anomalies, and potential risks with exceptional speed. In addition, AI facilitates predictive analytics, which can help auditors anticipate potential risks and trends based on historical data. By incorporating AI, auditors can significantly enhance the ESG risk identification and decision-making process.
With the ability to continuously learn from auditors’ interactions, AI and machine learning algorithms can also adapt to changing industry regulations. This means AI tools become more sophisticated over time, helping you ensure ESG compliance for your clients.
As an example, AI can be leveraged to automate the reporting of emissions data (including Scope 3 carbon accounting), ensuring compliance with sustainability reporting standards and reducing the administrative burden of managing emissions data.
What is the future of ESG accounting?
Accounting firms have a burgeoning role to play in determining the integrity of their clients’ ESG accounting data and providing guidance on ESG reporting procedures. This includes ESG audit support that verifies the effectiveness of controls, as well as activities that identify gaps, assess risks, and provide tax strategies.
At the end of the day, an organization’s success and reputation are inherently tied to its ESG strategy. By offering your clients ESG accounting and compliance services, you can help them remain competitive and compliant while building trust and credibility with their investors, customers, and stakeholders.
Interested in ESG accounting?
As accountants navigate the landscape of ESG accounting, the role of the accountant and auditor will become increasingly vital. Having audit software that has confirmation service and integration with third-party data analytics will help your firm become more efficient in the age of artificial intelligence in ESG.
Learn more about trends in ESG by downloading the 2023 State of Corporate ESG Report and prepare for a successful tax season with Winning Strategies for a Profitable Tax Season.
Learn more about how to build out your firm’s ESG offering with this helpful infographic.
You can also learn more about Thomson Reuters ESG resources to support your firm’s launch.
