ESG is the acronym that refers to the three main areas of environmental, social and governance concern that companies face in their business, and relates strongly to accounting, which is a critical function to provide accurate and reliable financial information to the interested parties. In the context of ESG, accounting plays a vital role in providing information about the company's performance in relation to its issues.
One of the important points about accounting in an ESG context is measurement and disclosure. Accounting in this context has the ability to measure and disclose financial and non-financial ESG-related information. ESG reports help you understand a company's position on issues such as carbon emissions, diversity, occupational health and safety, water use, compensation policy, corruption, and more.
Standardization is another important point in this relationship, as ESG accounting has been the subject of efforts to standardize ESG metrics and reporting. Several international and national bodies, including the International Organization for Standardization (ISO), the International Accounting Standards Board (IASB) and the Global Reporting Initiative (GRI), work on standardizing ESG metrics.
Risk assessment and decision making are also included in this context. ESG accounting is helpful in assessing ESG risks. Investors, analysts and other interested parties can use ESG information to assess a company's potential risk in relation to its issues. This includes risks such as regulatory fines, loss of reputation, environmental impact, among others. In decision-making, the ESG information provided by accounting helps make decisions about investments, loans, acquisitions and other businesses.
Some international surveys involve ESG and accounting, such as "Carbon Accounting and Carbon Management in Firms: The State of Research", conducted in 2020 by Bessler, W., & Zimmermann. This study reviewed the literature on carbon accounting and carbon management in companies, highlighting the importance of accounting in measuring and managing carbon emissions. Another survey was "The Impact of Environmental, Social, and Governance Disclosure on Firm Value: Evidence from European Companies", from 2021, conducted by Sohail, MS, & Hussain, M. A, which investigated the impact of ESG disclosure on firm value company, highlighting the measurement and disclosure of ESG information through sustainability reports.
Accounting plays an important role in measuring, disclosing, assessing risks and opportunities related to ESG issues. The ESG information provided by accounting helps you make informed decisions regarding investments and other business-related matters.