ESG auditing practice booming for EY

EY is seeing a boom in demand for ESG auditing, amid expectations of a hardening regulatory approach.

Demand for ESG audits are booming, EY says. Picture: AFP

It’s boom time for professional services firm EY’s ESG auditing practice, with client demand surging amid expectations of a hardening regulatory approach to disclosures.

The Reserve Bank, the Australian Prudential Regulation Authority and the Australian Securities & Investments Commission have warned about the need for business to address ESG reporting.

In response, businesses have moved to lock in reporting of environmental, sustainability and governance disclosures, with the latest reporting season featuring flurry of releases on the topics.

To meet demand, EY Oceania has boosted its ESG auditing practice, appointing Mathew Nelson as chief sustainability officer. The move reflects demand from clients for non-financial auditing of ESG claims they are making as well as questioning claims being made by others they are dealing with.

EY, formerly Ernst & Young, is one of the largest professional services firms in the world, with revenues topping $40bn.

Mr Nelson, who previously led EY’s climate change and sustainability practice, said the creation of his role was part of a broader move by the firm to lift its own ESG practices.

“As a professional services firm we’ve got a relatively small footprint compared to the big impact we can have through our clients,” he said.

“Our second pillar relates to helping our clients through their sustainability journey.”

Mr Nelson said the last two years have seen a big lift in ESG reporting demands.

The range and nature of EY’s non-financial disclosure reporting has grown significantly since the firm established the division in the 1990s.

“The nature of assurances that we provide is very much driven by market demand. In most circumstances assurances are still voluntary,” Mr Nelson said.

He said EY was playing a key role in fact-checking ESG claims made by clients. This included sending staff to inspect sites and provide assurance of claims being made, but the level of investigation depended on how much a client was willing to pay.

EY chief sustainability officer Mathew Nelson.

“In the non-financial assurance space most engagements are limited assurance, just because the scale of the processes you’ve got to undertake and to see across an entire operation is challenging,” Mr Nelson said.

“Non-financial assurances, by their very nature, tend to be a lot more inquiry-based. At the same time we also do the standard assurance work looking at the systems and processes they’ve got, undertaking substantive testing to look at numbers to see if they match up.”

Mr Nelson also said there was increasing interest in “green bonds”. “We look at claims and frameworks, to determine what classifies as sustainability finance,” he said.

ESG reporting has increasingly become a part of normal business practices.

Assets tied to ESG investing strategies are expected to rise to around $US50 trillion ($70 trillion) by 2025, according to estimates by Bloomberg.

Mr Nelson said EY expected regulation clarifying ESG criteria to come into effect in “a few years”, noting clients were already keen to know what they needed to report. “Many of our clients are keen to start adopting the (International Financial Reporting Standards) once they’re finalised,” he said.

ASIC is watching with interest several court cases concerning ESG reporting.

Santos has been taken to task by the Australasian Centre for Corporate Responsibility, which alleges it made misleading claims to investors about its capacity to produce clean energy and its pathway to net zero emissions.

Commonwealth Bank shareholder Guy Abrams has taken the bank to court over its financing of oil and gas projects.

DWS, Deutsche Bank’s asset management subsidiary, was recently raided by German police as part of a probe into alleged “greenwashing” – the misleading portrayal of a product’s environmental or social credentials.

EY previously handled DWS’s auditing, but was dumped in 2020 in the wake of the Wirecard scandal.

Former DWS executive ­Desiree Fixler has accused the firm of making misleading statements in its 2020 annual report over claims the group invested almost half its $900bn in assets using ESG criteria.

DWS’s 2021 report slashed its ESG assets by 75 per cent on the year prior.