Corporate reporting standards for environmental, social and governance issues are evolving in the United States. But in the European Union, ESG reporting is already a way of life for most big companies.
“Right now, it’s kind of like the post-Depression era was for financial reporting — like the Wild West,” said Jennifer Jones Rivers, a senior accounting lecturer at the Terry College of Business.
“U.S. companies are trying to issue these sustainability reports to make their investors and stakeholders feel OK about the sustainability efforts of the company, but there’s no consistency to the reporting across companies. Accountants specifically are equipped to provide assurance, but assurance is not currently a requirement … It’s an interesting time where a lot of developments are taking place in the landscape of sustainability reporting And the EU, specifically, is much more advanced at this point in creating that framework and setting reporting requirements.”
Rivers led a group of 20 Terry College students on a tour of northern Italy over the summer to talk with accountants and executives who adapted to the new rhythm of bookkeeping and reporting. The trip allowed students to trace the history of financial reporting — from the original documentation of double-entry bookkeeping in northern Italy in 1494 to today.
The trip coincided with the EU’s adoption of standardized ESG reporting regulations — Corporate Sustainability Reporting Directive — that will impact the EU’s 11,000 largest businesses in January 2024 and all businesses with more than 500 employees in the near future. During site visits to Ferrari, EY’s Italian headquarters, fashion houses in Milan and distilleries, the students saw how the new reporting guidelines and adoption of non-financial reporting affected business operations in real time.
For Katy Carroll, an economics and international business major who studied Italian and is interested in international or intellectual property law, meeting with EY accountants and the other companies made her realize the value of understanding international cultural values and regulatory structures.
“I want to work with companies looking to expand their operations overseas,” Carroll said. “To go to a different country with that level of regulation and learn how to navigate all that — people have to be knowledgeable about it. I’m interested to see how that need will continue to grow in the coming years.”
In addition to the Italian companies, the students and Rivers toured the countryside and visited ancient Parmesan factories and lakeside villages.
They learned medium-sized businesses were stressed by the coming regulatory changes, but there was a cultural and consumer demand that companies release more of this information.
“The thing that really shocked me about Italy — they’ve already made such strides with environmentally friendly things and integrating it into business,” Carroll said. “There seemed to be a sense of pride about it there.
“There’s a lot of governmental pressure,” she added. “But I think consumers are increasingly demanding it as well.”
No matter what company they visited, employees enthusiastically touted their carbon footprint reductions and what they were doing to become more sustainable.
“Even if we didn’t ask those questions, they made sure to make a point to talk about what they’re doing to be sustainable,” she said. “We had companies showing us their solar panels and talking about their reporting. In the U.S., that’s a growing trend, but there isn’t quite as much of a deep-rooted pride in it.”
Understanding the cultural differences that show up as differences in regulatory models is something she would not have understood without visiting the country, she said.