It’s Time for Business Schools to Add ESG to Accounting Training

ESG isn’t a trend—it’s a corporate activity that needs to be understood, measured, and addressed by current and future accounting professionals and business leaders.

There are myriad reasons to better incorporate environmental, social, and governance principles into accounting courses. Doing so will align better with what’s happening in the real world—especially regarding private-sector and regulatory activity and their intersection—and this is perhaps the most important reason.

I recognize the need to integrate ESG principles into our classrooms and prepare our students to meet the evolving accounting-related demands of tomorrow’s business world. We all know accounting majors and courses at many universities and business schools have seen recent declining enrollment, and compensation at CPA firms has stagnated compared to people working in investment banking and consulting.

I’ve seen growing enthusiasm among students who are eager to make a meaningful impact, particularly in areas such as climate change and corporate sustainability. Strategic inclusion of ESG in accounting classes is a development that needs to continue in more schools.

Three interrelated trends may help motivate this need: more public companies issuing ESG reports, more related regulation, and evolving sustainability standards.

Rise in proportion of public companies issuing ESG reports. An estimated 90% of firms in the S&P 500 issue ESG reports in some form. That most of these high-profile businesses report on their ESG activities suggests that students working for CPA firms, regulatory agencies, and other organizations must have sufficient training to understand, evaluate, and verify the claims in such documents—for the good of all stakeholders including broader society.

Increased ESG-related regulation. Similarly, we’re seeing a rise in government mandates related to ESG practices and disclosures. For example, Germany recently legislated that companies must declare their supply-chain standards as related to ESG factors such as human rights and environmental impacts; firms must be more “ESG-aware” than ever.

Multinationals will have to take care to meet these evolving standards—not just in the EU, but also in the US and other regions as ESG-related expectations become the norm. Future business, consulting, and regulatory leaders will have to be deeply familiar with how to account for firm ESG activities and communicate them to ensure a smooth transition to this system.

Proliferation of sustainability and other ESG principles. International standards and principles for sustainability, including those that mandate ESG disclosure, are evolving. Last year, for example, the International Sustainability Standards Board issued inaugural standards reflecting a new era of sustainability disclosure in capital markets.

Given these trends and dynamics, we need to take a thoughtful approach to integrating ESG into curricula across business schools and similar educational programs. It takes students significant time to become capable CPAs and professionals who understand auditing principles related to internal controls and other firm-level dimensions.

ESG is still part of a largely voluntary disclosure system, but the landscape is changing. We must equip students fully to not only verify businesses’ ESG claims but also to understand the different—sometimes conflicting—incentives that shape ESG disclosure. In this way, our students will be able to account effectively for firm activities including as related to investments, infrastructure, operating practices, and others.

In this context, it’s important to emphasize the challenge of measurement. Accounting for ESG offers novel challenges that business-school faculty and curricula need to consider addressing. Whether in corporate finance or financial accounting, we traditionally teach that financial reporting is a critical tool to assess a firm’s return on investment. Financial statements reveal how effectively a company uses its internal resources to generate returns.

ESG-related activities—such as combating climate change, social responsibility programs, and efforts to improve corporate governance—consume resources like other investments, akin to research and development or capital expenditures. But unlike with traditional investments, the current financial reporting frameworks fail to account comprehensively for firm ESG activities.

This omission could be increasingly problematic. As more firms invest in ESG strategies, stakeholders—including investors, regulators, and customers—demand greater transparency and accountability. For example, ExxonMobil Corp. faced significant shareholder pressure from Engine No. 1 in 2021 to improve governance, reduce emission, and provide adequate disclosures on climate risks. Vanguard Group Inc. and State Street Corp. voted against Exxon’s leadership and gave Engine No. 1 powerful support.

Also, the EU Corporate Sustainability Reporting Directive mandates that large companies disclose detailed information about their ESG, significantly increasing their accountability on sustainability matters. Firms worldwide are under mounting pressure to disclose their ESG activities and demonstrate their impact.

Without an established accounting framework for ESG activities, it’s difficult for companies to communicate their efforts clearly or for investors to accurately assess them. This vacuum of reliable information leaves the door open for greenwashing.

Including ESG in accounting education will equip future accountants and financial professionals with the tools to track and measure ESG performance accurately. It will also promote a more robust dialogue between companies and investors, enabling a better understanding of how ESG factors affect long-term financial performance. Students who are well-versed in how to account for, communicate, and assess firm ESG efforts will be in high demand as firms seek to navigate this complex landscape.

Business schools have an important role to play. By embedding ESG considerations into accounting curricula, we can develop a new generation of business leaders. This will not only revitalize the field of accounting—it also will help address some of the most pressing issues facing today’s businesses and society.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Aaron Yoon is associate professor of accounting at Northwestern University’s Kellogg School of Management.

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