ESG: accountants can play a vital role
14 September: The skills accountants possess, specifically ensuring the integrity of data, analysing why things have changed and forecasting how they could change in the future, are all crucial to ESG investing.
Starting my career auditing hedge funds at KPMG, I never expected to end up having anything to do with environmental, social and governance (ESG) criteria – a set of standards for a company’s operations that socially conscious investors use to screen potential investments.
However, the skills accountants possess, specifically ensuring the integrity of data and analysing why things have changed and how they could change in the future, are all vital to ESG.
The area has got a lot more coverage in recent years with the Paris Climate Agreement, and that focus has only accelerated this year as people look at the sustainable foundation on which the future economy will be based.
ESG is more than just environmental initiates, as it can sometimes be mistaken. The social and governance aspects are equally important. They comprise the way organisations engage with their communities and how they treat their employees. Gender inequality and diversity within an organisation have become particular focuses in recent years.
After five years at KPMG I joined Impax Asset Management, a listed asset manager focused on investing in companies which are part of the transition to a more sustainable economy. I started as Financial Controller but am currently Head of Asset Management. I manage hydroelectric, solar and wind farm businesses across Europe.
I manage people, site constructions and project finance, but find my core accountancy knowledge supports so much of what I do. Developing project budgets with input from a host of people, from engineers to local planning officials and bankers, then interrogating the financial reporting against them. Trying to identify efficiencies and understand where costs could spiral out of control is also key to the business.
On a more traditional note, I spend a lot of my time trying to understand the accounting and tax requirements of the various countries in which we manage businesses and projects. As accountants, we can add a lot of value here: the deal executives who decide which businesses to buy don’t always have a detailed grasp of these concepts. We really take ownership in ensuring these are correct. We also have to understand the various incentives, government subsidies and tax rules around the renewable sector.
Getting more stuck into ESG has been fascinating. There are more numerical areas which accountants will naturally be drawn to. Things like how much carbon we have offset, how much wind production a site is making, for example. Then trying to explain that to our investors in terms of the number of cars off the road or the impact on household energy consumption.
However, there are things that have been completely new to me, such as planting 20 hectares of blueberries around the perimeter of one of our solar parks, arranging for solar panels to be placed on a local village hall, talking to a local farmer about reindeer breeding habits in Norway and putting in place HR policies for all the staff in the business we manage.
Whilst all of the above are not core accounting skills, you would be surprised about the transferable skills we have; be that simple project management we get from our training, the ability to read lengthy contracts and permits to extract vital information, or simply the integrity and ethics we can apply to business scenarios.
And yes, I even get out of the office on occasion.
Manish Sarwal is Head of Asset Management at Impax Asset Management.
Read more on social governance obligations at Bloomsburyprofessional.com.