When you want responsible business advice, should you seek the services of a giant global auditor, or a small, specialist assurer?
Corporate responsibility – like any business activity – is supported by a large and diverse community of advisers and consultants. Among this community, the Big Four international audit and consulting firms stand out for the role they play.
PricewaterhouseCoopers, KPMG, Ernst & Young and Deloitte enjoy a powerful reputation and access to the corridors of power. But what is their role in bringing about sustainability, and how much can they really achieve?
Their history began as accountants and auditors, in the earliest days of the modern corporation, so it is no surprise that these functions remain the central work of these firms today, producing about half of all revenues. The remainder comes from services such as tax planning, due diligence, financial advice and consulting.
Sustainability-related services are primarily in the categories of assurance and advisory.
Assurance: These services include checking data, systems and preparation protocols for sustainability reports; review of report content in line with assurance standards; and verification of data for specialist reporting programmes (eg carbon emissions for use in trading schemes). Assurance can be given against several recognised standards, including ISAE 3000, AA1000, GRI and others.
Advisory: These services are often centred on systems and processes, increasingly aimed at embedding sustainability issues into standard business practices. This might include internal audit functions, human resources, supply chain management, due diligence, governance and many others.
Hitting the mainstream
The Big Four firms have all worked to scale up their offerings on sustainability issues in recent years. This has included raising senior-level awareness internally to understand sustainability challenges their clients may be faced with, and integrating key skills and knowledge across the more traditional services the firms provide.
These activities seem to reflect a growing mainstreaming of sustainability issues within the corporate sector generally and a recognition that their business demands these issues be integrated fully.
According to Wim Bartels, KPMG’s global head of sustainability assurance, this has to do with the realisation that corporate responsibility is becoming more of a “normal business issue that relates to value growth, cost optimisation and risk management rather than a purely ethical issue”.
Bartels says business processes, systems, internal management and governance, controls “all logically link to a firm like KPMG”.
Nick Main, Deloitte’s global managing director of sustainability and climate change services, also highlights how business services are changing. He believes that “within five years, you wouldn’t talk about doing a strategy project, or an M&A transaction, or supply chain solutions without including sustainability as part of it”.
Similarly, Geoff Lane, a partner at PwC, speaks of the company’s recent efforts to mount what he calls a “proportionate response” to the risks and opportunities sustainability issues present to their clients. “Issues of sustainability are close to our core brand. The model is not to build a stand-alone sustainability hub, but to embed the relevant skills and competencies into all of our services.”
Meanwhile, Doug Johnston, Ernst & Young’s UK director of climate change and sustainability services, says that as his clients integrate sustainability on a day-to-day basis, they are “asking us to integrate sustainability into what we do”.
And sustainability is now on the boardroom agenda. “Our work in this area is increasingly commissioned by the COO, CFO and CEO, whereas in the past it was predominantly the sustainability heads,” Johnston says. “They’re concerned with the big strategic things and are asking us to look at them through the lens of sustainability.”
While things are constantly changing, the Big Four have been part of the corporate responsibility scene for as long as there has been a scene. But why? What do they bring to the party? The answer can be found in the notions of scale, approach and brand.
Scale: and then there were four
There used to be eight big international accountants, until mergers took them to six, and then five. When Arthur Andersen collapsed following the Enron debacle, four firms were left standing – four global firms that had relationships with virtually every company of consequence on the planet.
This degree of reach gives the Big Four unique access. They have the potential to influence enormous numbers of companies and their stakeholders, including investors, regulators and others with equally impressive influence potential. But do they use this influence?
Not in the way that many corporate responsibility professionals tend to view it. Influence, for the Big Four, is not about advocacy – the historical role of the financial audit firms is fundamentally an independent one. It is rather about implementing sustainability in business practices.
In that sense, it depends on clients expressing a demand, rather than the firm’s ability to create momentum where none exists.
PwC’s Geoff Lane says: “We’re not a campaigning organisation; we’re an independent, fact-based organisation. We can’t take an evangelical point of view. We need to recognise the right space for us to work in. We can have lots of private, challenging conversations within that space.”
Wim Bartels says that KPMG no longer needs to discuss with its clients the need to “care” about energy security, for example. “We leave that aspect aside and come instead from the business perspective – how should the company deal with the issues and risks from a business perspective, and how can company value be enhanced through sustainability?”
The extent to which the Big Four press a sustainability agenda is limited, in part by culture, and in part by business model. Culturally, these firms are conservative, and perhaps counter-intuitively, the breadth of their relationships in the corporate world may make them even less inclined to speak out, from concern to balance the array of interests their clients have on any given issue.
Nick Main of Deloitte says: “We do have potential influence but it would be inappropriate to think we can instruct clients in what to do. We can and do keep them alert to changes – changes to the way consumers view the issue, changes to the risks they face and changes to their strategic options.”
Approach: following the rules
The Big Four approach to service provision tends to emphasise those services that can be replicated and based on objective criteria, often referred to as conformity assessment. Andy Savitz, former PwC partner and founder of Sustainable Business Strategies, says: “The Big Four are trained to look at things objectively and independently and reach conclusions based on highly defined guidance.”
This, according to Bartels, means that even if projects are undertaken in far-flung locations by numerous team members, the results are nevertheless reliable: “If you do a job with KPMG, you would get global coverage in terms of team and methodology, and as a consequence, you would have a harmonised approach.”
Where clear guidelines exist, the Big Four have scale and coverage to be able to provide the service to anyone, anywhere. In fact, their business model often requires such economies of scale, as it plays off the firms’ traditional strengths, while also keeping limits on their fees.
Andy Savitz believes that in the absence of regulation that would really require the input of Big Four firms, companies will look for cheaper or more flexible alternatives. But, he says: “The accounting firms become world-class when 500, 1,000 or 5,000 companies need to have a similar service. Then they can invest the resources to become leading experts.”
But Main cautions: “In the sustainability area, companies’ needs will be quite specific. If you look at what two companies in same industry are doing, they might be dealing with very similar issues, but doing it in very different ways. Moreover, this is not a mature market, where people know what the answers are and can go and buy the solutions they need. Much of this is tailor-made.”
Not all observers believe the Big Four have been successful in providing uniformity or reliability of approach, and point to inconsistencies.
Mark Line is executive chairman of the Two Tomorrows Group, a sustainability and corporate responsibility assurance and advisory specialist. He says: “I can think of many examples of Big Four auditors doing great work, but equally, I have seen the most dismal, uninformative assurance statements prepared under the same Big Four brand.”
Line questions whether the firms are truly global practices, using the same standard and achieving uniform professional practice wherever they operate.
Brand: trust us
One advantage the Big Four have held in corporate responsibility services is their already-established reputations, especially in the assurance area. Ernst & Young’s Doug Johnston says: “There has been an increasing recognition that the information in a sustainability report is used by the investment community, and generally businesses believe a Big Four brand will have more resonance with that audience.”
The decision to hire a particular firm is based not just on external stakeholders’ needs, but also on internal traditions and expectations. As a result, says Mark Line: “A corporate buyer can sometimes lack confidence in what’s required from a sustainability strategy, which leads to ‘safe’ decisions.”
But the brand alone isn’t always enough to carry the day when it comes to delivering on the requirements of any particular service.
Andy Savitz argues that traditional sustainability assurance is one example in which the “signature” of the firm carries some weight, but it results in a highly technical analysis that “is basically incomprehensible to the average stakeholder or reader”.
Savitz says that when companies seek to communicate about their sustainability practices, they should question which is more credible: a statement from a Big Four firm that nobody can understand, or a statement from an independent stakeholder organisation that describes in plain language what the company has done well and not so well. “From the average reader’s perspective, the latter is much more powerful,” he argues.
While the Big Four do some things well, there are still services better suited to more specialist firms.
Bartels says there are specific “focus areas within sustainability” where a company that really specialises in that area has a role to play. He suggests that, for example, one firm may be well known for helping develop a sustainability vision, strategy and stakeholder input, while another may be known for working on economic impact in developing countries.
Boutique domain
The detailed engineering or scientific aspects of sustainability are also not typically the domain of the Big Four. Doug Johnston says: “We’ve got environmental engineers in Ernst & Young, but you wouldn’t tend to come to us to design an engineering solution for climate mitigation.”
Geoff Lane adds: “Companies don’t normally come to us if they’re trying to take an advocacy position on something. And given our size and restrictions we have to operate in – we are a regulated industry – we have to consider carefully some types of innovations and opportunities to partner. Our real strength is delivering an operational strategy.”
And boutiques can also offer something different, if clients need it.
Mark Line says smaller consultancies can be well placed to operate “at the boundary between numbers-led, performance-based assurance and the more interesting question of whether a company’s accounts meet stakeholder needs”. This is an area of growth, he argues, as it attracts clients that “crave a ‘different’ perspective or a novel approach”.
Or more simply, companies want a consultant – whether Big Four or not – willing to tell it how it is.
Judy Kuszewski is a UK-based independent sustainability writer and consultant. Until 2008 she was director of client services at SustainAbility.
“Corporate responsibility is becoming a normal business issue rather than a purely ethical issue” Wim Bartels, KPMG
The Big Four have the potential to influence enormous numbers of companies and their stakeholders
One advantage the Big Four have is their already-established reputations, especially in the assurance area