09 December 2009

The EPA makes its move, SEC next? Implications?

The EPA makes its move, SEC next? Implications?

First things First - I'm ignoring Copenhagen; It's a talk fest with the real work either already done, or still to come.

The news from the EPA really couldn't be better, and the timing is just right. The EPA issues their finding that CO2 is dangerous. This allows the EPA (Environmental Protection Agency) in the United States to create regulations for allowable CO2 emissions, if necessary bypassing congress. The Clear Air Act was specifically designed to allow the EPA to regulate in situations where the politics of the issue would otherwise stop progress.

So what are the implications for the accounting firms? There definitely will be winners and losers.

First, the EPA:

First, here are some links - a Wall Street Journal article, and to two from the EPA.

WSJ Article

This is also especially important as it signals that the official policy of the United States government, post Bush years, is that Climate Change is real, and that it will have a significant negative impact on people.

In the WSJ article there is the following paragraph:

The EPA's finding "could result in a top-down command-and-control regime that will choke off growth by adding new mandates to virtually every major construction and renovation project," U.S. Chamber of Commerce President Thomas Donohue said earlier in a statement. "The devil will be in the details, and we look forward to working with the government to ensure we don't stifle our economic recovery," he said, noting that the group supports federal legislation.

I suspect that this quote could apply to almost anything that the EPA or any arm of government might do to help protect the widest range of people. In fact, I expect the very same opening quote could have been used against the introduction of standards for scaffolding on building sites, air quality internal to building (Legionnaires' disease anyone?) or even to power stations and acid rain (well, they are Canadian trees after all, so why impose costs on American business to protect Canadian trees?).

Now the SEC:

The timing reinforces my prediction that we will also see mandated CSR/ESG (Corporate Social Responsibility / Environmental, Social and Governance) reporting by the SEC in the near future. 

Of course, the SEC may choose to focus specifically on a standard such as CDP (Carbon Disclosure Project) which very specifically requests companies to measure, monitor and disclose the carbon (and other greenhouse gas) emissions.

The "softer" standards such as the GRI (Global Reporting Initiative) might have to wait, as there is yet to be a finding that oppressing labor in the developing world is harmful to American citizens. So that facet of CSR/ESG reporting might have to wait, but I hope not.

But wait, there's more - The Accounting Firms:

The accounting and auditing profession could find itself right back in the "good old SOX days". There simply are not the trained or experienced resources to provide assurance over such reports, certainly not if mandated by the SEC. We could find the accounting firms building their practices rapidly.

The Winners:

The winners in the accounting profession will be the firms that:

1. Have built strong CSR practices. They will have the resources to "loan" to the audit side of the house when it comes to audit season.
2. Those firms with a "global reach" provided they also have established CSR practices or networks.
3. The smaller assurance shops, if they find a firm for alignment.

The Losers:

1. Firms that fail to see this coming, or reject CSR as an unimportant policy issue will find that they do not have the skills or experience to enter the market effectively. The well established firms could "pick off" the juiciest clients.
2. Regional or national firms that do not build their global networks of potential providers, regardless of brand or badge on the door.
3. Any firm that takes an existing standard, turns it into a questionnaire, and "forgets" to cite the copyright of the actual standard (I've actually seen that done, taking the GRI's G3 and turning it into a questionnaire with zero attribution).

No comments:

Post a Comment