ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)

BLOG By Rhys Madoc, CEO, UHY International October 2021

Environmental, Social and Governance is taking over from Corporate Social Responsibility (CSR) as a way for businesses to demonstrate a measurable commitment to sustainability.

ESG covers environmental impact, company culture and leadership, and takes into account factors like diversity, inclusion and board composition, as well as more familiar green and philanthropic measures.

Pressure for more responsible business is being applied by consumers, regulators and investors. ESG is an acknowledgement that sustainability in particular, is evolving from a voluntary ambition to something that increasingly feels like a requirement. Compared to CSR, ESG provides measurability.

Which is exactly where accountants come in, of course. We prove that businesses are what they say they are. We use professional expertise and experience to interrogate the evidence and come to firm, factual conclusions. We have a huge role to play in ESG reporting.

ESG reporting is inconsistent

More fundamentally, we have a role to play in deciding what ESG reporting actually involves. ESG is in its infancy, and reporting standards and frameworks are still inconsistent, which can create confusion for companies, consumers, investors – and accountants.

Paul Polman, the former CEO of Unilever, recently wrote in the Harvard Business Review that “investors are increasingly asking companies to report on their sustainability performance. Having a set of standards will greatly improve this dialogue and enable both to better understand the relationship between sustainability and financial performance”.

Accountants are already part of the development of these standards. Bodies like the International Federation of Accountants (IFAC) and International Accounting Standards Board (IASB) are pushing for the creation of consistent global criteria against which ESG claims can be judged.

Accountants are reporting specialists

Accountants are experts at setting and adhering to standards, and are trusted by corporations, investors and regulators to provide reliable information. New frameworks and standards that marry financial and non-financial reporting – showing the effect of each on the other – will cement accountancy’s position at the heart of the ESG reporting process.

Global standards for ESG will help business to develop and prove responsible practices. With that in mind, accountancy firms big and small are able to take steps today to develop the skills and specialisms required to offer non-financial auditing and reporting services to business clients.

The opportunities are clearly there for those who do. Why wouldn’t a business trust its ESG reporting to the firm that expertly completes its financial audit every year? Accountants are the right people for the job.

Clients want ESG advice and expertise

Certainly, clients want us on board as they navigate new ESG reporting standards, and we have written about this in the latest issue of UHY Global, our business magazine. In the feature The Colour of Money is Green, Joyce Bruce, sustainability and CSR manager at UHY Fay & Co, UHY’s member firm in Spain, says companies are increasingly seeking her services because of regulatory pressure to provide non-financial reports.

There is a wider perspective too. According to Datuk Alvin Tee, group managing partner of UHY’s member firm in Malaysia, “there are changing expectations of the role business plays in improving society and protecting the environment”.

That requirement is filtering through the business world, so we see for example how large firms are demanding that smaller companies prove their own environmental credentials as part of a sustainable supply chain.

Investors are also pushing for consistent, reliable ESG information, as more evidence points to sustainable businesses providing better returns in the long term. In fact, Black Rock – the world’s largest asset manager – published an ESG Integration Statement in May this year outlining the company’s ‘firm-wide commitment to integrate ESG information into our investment processes’. Research shows that three quarters of institutional investors now consider ESG factors an integral part of sound investing.

ACCOUNTANCY EXPERTISE WHERE IT IS NEEDED

As the clock ticks down towards national and global environmental deadlines, it is fair to assume the demand for ESG reporting will grow. Experts also predict that, in the near future, other business measures such as executive remuneration could also be tied to ESG metrics alongside financial performance.

If our profession acts now, accountants will be well placed to meet the environmental, social and governance reporting needs of our clients as ESG becomes established.

Green images courtesy of UHY Global magazine issue 12 ©UHY International

THE GLOBAL ECONOMY IS WAKING FROM ITS COVID SLUMBER, BUT WHAT WILL DRIVE RECOVERY? WE SUGGEST THREE POST-PANDEMIC DRIVERS OF GROWTH

BLOG By Rhys Madoc, CEO, UHY International July 2021

According to the Organisation for Economic Cooperation and Development (OECD), many national economies will recover to pre-pandemic levels in 2022. Globally, gross domestic product (GDP) will grow 5.8% this year, the OECD forecasts. This is more promising than its previous forecast in December, which predicted GDP growth of 4.2%.

While this is good news for the wider economy, businesses will want to know how it translates to their own sector. The global economic outlook may be positive, but the recovery is likely to be uneven. Here, we consider three factors likely to drive the post-pandemic rebound, and what they might mean for different parts of the economy.

ONE: CONSUMER SPENDING

This is the big one. In many countries consumers are sitting on large reserves of cash they were unable to spend during lockdown. An unprecedented 6-20% spike in savings rates across China, the US and Western Europe in 2020 suggests that consumers have the disposable income to drive post-pandemic recovery. That is already boosting economies in the Middle East, where oil production is beginning to recover. Many African economies are also starting to rebound.

The OECD agrees about the potential for a “rebound of consumption, notably of services.” Leisure, hospitality and retail are clearly the big winners here, but the ripples will be felt through manufacturing, food production, logistics and more. On the downside, the big loser could be international travel and tourism. There is a chance that the consumer boom will have faded before borders are fully unlocked.

So how sustainable is a consumer-led recovery in the longer term? Quite simply, we do not know. Consumers around the world are spending money on restaurant meals and cinema tickets as economies open up, to “make up for lost time.” How long this spending spree will last depends on how much the pandemic has altered behaviour.

Nervous consumers may want to keep larger savings pots for peace of mind after the pandemic experience. If more people switch to permanent home working, retail and hospitality that serves the daily ebb and flow of commuters may suffer.

TWO: tech-led productivity surge

One potential driver of growth is the fact that, post-pandemic, we are all a bit more efficient at doing what we do. That is not because of any Covid-induced superpower. It is simply because companies have been forced to adopt new technology and processes during the pandemic that would otherwise have taken years to become fully accepted.

We have also noticed across the UHY network that Covid-19 has pushed some client businesses to adopt process innovations that were technologically possible, but largely under-utilised before the crisis.

The story is largely about technology, though pandemic home working may also have hastened the decline of inefficient and rigid top-down company hierarchies. The uptake of cloud computing, automation and robotics, among others, has been marked – one study suggested companies digitised many activities 20 to 25 times faster than they had previously even thought possible.

Economists have calculated that these innovations could result in 1% labour productivity growth to 2024, leading for example to per capita GDP increases of around USD 1,500 in Spain and USD 3,500 in the US. They say this would be a “stunning outcome” but accept that it depends on these innovations filtering down through entire economies, and not being limited to large ‘superstar’ companies. But regardless of the exact result, many sectors such as ICT, healthcare, construction and retail, seem likely to record the biggest gains.

THREE: THE GREEN ECONOMY

Governments around the world have expressed the desire to “build back better” after the pandemic. At the same time, populations have lived through a global crisis, with citizens of wealthier nations experiencing empty supermarket shelves and limitations to freedom for perhaps the first time. Looking ahead, environmentalists hope Covid has brought home the realities of crisis management in a very real way – and consequently a fresh perspective on uncontained climate change.

Whether that will prove true is unknown, but governments have responded to the pandemic with a range of fiscal stimuli for green infrastructure projects. In the United States, this faces a long battle to get through Congress, but President Biden’s recent USD 2 trillion stimulus package for the US economy includes significant investment in public transport, clean power and energy-efficient buildings. Around the world, governments from Chile to Canada say they are putting climate action at the heart of post-pandemic ‘build back better’ strategies.

There is a caveat: environmentalists argue that many of these announcements mask more damaging actions, like financial support for fossil fuel companies and airlines through the pandemic. But regardless of the environmental outcome, post-pandemic growth seems likely to be driven to some extent by either direct government investment in sustainable infrastructure or preferential treatment (often through tax incentives) for green businesses. Green manufacturers and construction companies stand to gain most here, though the sustainable energy and transport sectors will also benefit significantly.

Good advice is crucial

In all these sectors, good advice will be crucial for businesses looking to thrive in a changed, post-pandemic world. As part of a global network with vast experience in a wide range of sectors, UHY member firms can help companies and entrepreneurs find new investment, tap into government support and benefit from tax incentives. Operating in every major economy, our professionals provide the on-the-ground expertise businesses need when moving into new international markets. For more information, email Rhys Madoc, CEO, UHY executive office, who will be pleased to help. Or visit the publications page of our website – you will find plenty of free resources to help you in your own journey of recovery and growth.

UHY Global magazine – our twice-yearly business magazine on hot topics around the world

UHY Global Directory – detailing every office in every country, with full contact details

UHY Doing Business In… country guides – a great place to start your international journey

UHY Capability Statement – featuring case studies from our clients’ point of view

Why UHY? – a quick guide to the benefits of choosing UHY as your trusted advisor

Photo acknowledgements:
Shoppers: Melanie Lim on Unsplash
Homeworker: Brooke Cagle on Unsplash
Watering: Markus Spiske on Unsplash

International ambition makes sense post-covid, but make sure you are fully prepared to meet the challenges ahead

BLOG By Rhys Madoc, CEO, UHY International May 2021

Albert Einstein’s assertion that “in the midst of every crisis lies great opportunity” is perhaps a crumb of comfort in the harsh Covid-era commercial landscape. Business is suffering through the crisis, but vaccines and better treatments have brought hope that the worst might soon be over. Companies have started looking to the future, at opportunities to build back better, and many organisations are now eyeing international markets as part of their post-Covid plans.

spread the risk, take the opportunities

Covid has revealed the risk of depending on a single national market. Countries have been impacted to different degrees, depending on factors such as population density, mobility, healthcare systems and the effectiveness of government action. Yet international businesses have been able to keep trading in one country and even on one continent, while operations elsewhere were suspended for extended periods.

And the continued benefits of international expansion still apply. Manufacturing or selling products and services across borders opens up new markets, creates economies of scale and diversifies risk. E-commerce has made accessing global customers easier than ever, offering what can appear a world of almost limitless opportunity for expansionist businesses. Building operations in new jurisdictions is a post-Covid strategy that can make a lot of sense.

Fortune favours the well informed

Overseas expansion will always be a calculated risk, but it is a risk stacked in favour of companies who are properly prepared. For all its potential, moving into new markets is not a quick fix. It takes investment, planning, time, and on the ground expertise. If you do not want to run up against hurdles from the very start, make preparations early and ask advice.

trading and complying

The challenges of simply buying and selling in another country – from unfamiliar tax regimes to the deal-clinching details of foreign business etiquette – are easy to underestimate. Even the localisation of web content or sales materials can be a complex task, and there are many questions that you must have answers to, such as how well your products and services are known, what is required to secure effective distribution, and how sales cycles differ from those you are used to. You need to understand how reliable the communications infrastructure is, including transport links and broadband services.

Most importantly, you must access, understand and comply with local laws and business regulations. The challenges of local production are greater still, and establishing a way forward to acquire, for example, the workforce you need, means local knowledge is paramount.

Ask the experts

In all these areas, and more, advice from a knowledgeable and trusted third party is invaluable. UHY is a global network of accountancy and consultancy firms operating in over 100 countries with offices in nearly 330 of the world’s major business centres. When you contract the services of a UHY member firm, you not only get all the local knowledge you need, but also access to the collective knowledge of commercial specialists from around the world. This means whatever your challenges, our member firms will have solutions.

35 years ago the UHY network was founded to help businesses take advantage of new opportunities overseas. Ever since, our member firms have been working closely together to make sure clients enjoy long term cross-border success.

think global, plan local

Early local input to your strategic and operational plans can make a real difference. Market research, an identification of customers, competitors and sales channels, and a thorough risk and opportunity analysis will ensure your first approach is sound. Exploiting foreign markets takes time, focus and investment. We believe you should leave nothing to chance.

As your plans progress, our member firms will guide you through the practicalities of business in your chosen market.

They can coordinate with government bodies on your behalf to ensure compliance with the full range of local registration and filing requirements. And when your overseas operation is up and running, our offices can help you meet local accounting and auditing requirements, accurately and on time.

tax

The significant complexity of multiple tax regimes can quickly become a barrier to overseas ambitions. Crucially, UHY tax experts will ensure you are paying the tax you need to pay, and never more than that. Issues of transparency, country-by-country reporting, profit repatriation, foreign tax credit systems or internal trading compliance and transfer pricing should only be handled by specialists with the required local expertise.

people

In the early stages of setting up an international operation, relocating senior staff to the new location creates challenges not just with income tax, but also with interpretation of different labour laws, definitions of citizenship and the rights and responsibilities of residents and non-residents. UHY member firms are well versed in the intricacies of human resource management and a comprehensive range of expatriate and mobility services includes international payroll, personal tax, advice on remuneration and benefits based on local circumstances, and social security implications.

UHY is a global network with a global vision: to become the first choice trusted advisor for our clients and future clients all over the world. We are the network for doing business locally, nationally, regionally and internationally. Helping businesses find new revenue streams and customers in another country, or on another continent, is one of the most important roles we play. If you are looking to expand overseas, you can rely on a network with global ambition at its core.