A lack of talent is emerging as companies scramble to secure the specialized consultants needed to help them meet new and changing Environmental, Social, and Governance (ESG) regulatory reporting requirements. The staffing crunch is presenting a major stumbling block as corporate climate reporting evolves from voluntary to mandatory and mainstream.
The demand is driven by a variety of factors, including unfinished rules, inconsistent approaches among national regulators, and varying impacts across different industries, with the $4 billion sustainability consulting market a mere fraction of the $1.2 trillion global management advisory industry. With existing consultancies maxed out and multinationals facing tight compliance deadlines and potentially conflicting rules, companies are struggling to find consultancies with the bandwidth to help them, while consultancies are struggling to attract and retain top talent with industry-specific experience.
With available advisors in such short supply, many firms are likely to face significant challenges in securing consultants with the capacity to meet their needs. The exploding demand is sure to give rise to a wide array of new firms offering ESG advisory services, with companies running the risk of securing wholly unqualified help.
Companies aren’t just searching for outside consultants, either: they are staffing up with full-time hires for legal and financial support in order to build systems to collect and analyze new climate data to meet the new reporting requirements proposed by the Securities and Exchange Commission (SEC) and EU regulators. With demand soaring, consulting firms may find themselves in a sellers’ market for such high-demand services. According to the SEC, new climate disclosure requirements could cost as much as $6.4 billion in outside spending to prepare and audit.
Some relief may be in sight if the SEC receives a significant amount of pushback due to the difficulty or expense of reporting requirements, similar to its waiving of requirements under the 2002 Sarbanes-Oxley Act. The increasing demand presents a significant growth opportunity for the Big Four accounting firms, which specialize in regulatory compliance and are rumored to be considering separating their audit and consulting businesses, freeing themselves from potential conflicts of interest.
As the new disclosure requirements continue to evolve, the situation is sure to present both extensive challenges to businesses and tremendous growth opportunities to consultancies able to build a strong ESG practice.