BIG4 ESG: Risk or Opportunity?

The Big Four, the ones who have been pushing the implementation of “Common ESG Reporting Standards”, have been accused in recent days by a group of 24 institutional investors (pension funds, banks, asset management firms, etc., managing a total of $4.5 bn), of carrying out insufficient assessments with regard to the potential impacts on companies’ balance sheets of the “green transition”. Also, the additional threat is that investors may vote against their reconfirmation as auditors if they do not change their analysis in this area. 

In addition, and perhaps not surprisingly, at the COP 26 conference (the 2021 United Nations climate change conference) in Glasgow, auditors did not play a leading role. 

However, the part of auditors will be crucial with regard to these issues over the coming years (but also months) due to the increasing pressure from institutional investors. 

For example, according to the FT, Mark Carney, former governor of the Bank of England, said that 450 global financial institutions managing $130 bn in assets had joined Glasgow, and have pledged to use their financial power to promote decarbonization and achieve zero net emissions targets by 2050.

Also citing the FT, another leading exponent in the world of sustainable finance, Larry Fink, CEO of BlackRock, highlighted an extremely important issue, which particularly affects Italy and various other European countries characterized by an enormous number of SMEs. In fact, what Mr. Fink underlined is that the judgement and analysis of auditing firms are focused almost exclusively on large listed companies, and there have also been explicit demands to impose certain targets and climate limits on private capital as well. 

But, in addition to the big players in the sustainable finance industry, governments around the world (e.g. the UK) are also coming on board, and in the coming periods will make mandatory for companies to be transparent about their zero-emission plans. 

Certainly, this will facilitate the work of the auditors, but there are still many doubts: “There is controversy, for example, around how to measure the efficacy of the carbon offsets market, or the green credentials of energy sources such as natural gas” (FT, 2021).In addition, there is a great degree of uncertainty about what the future will hold, especially with regard to carbon emissions and the price of carbon. It will therefore be a great challenge for the Big Four, which, however, over the years have been faced with transition situations several times and have always come out of them in a positive way. 

So, in conclusion, will they be able, even this time, to stand up to the market with regard to such a delicate and contemporary issue?

Let us know through our social channels.