Which Way Are the Winds Blowing on Sustainability Reporting?

Clear. As. Mud.

Unfortunately, this would probably be an accurate description of the perspective of US-based lease accounting and real estate teams trying to chart a path forward on ESG/sustainability compliance.

The European Union and the European Green Deal - having previously established a series of directives from the Taxonomy for Sustainable Activities in 2020 to the Corporate Sustainability Due Diligence Directive in 2024 - is now poised to reform and roll back reporting requirements in a new package. 

In the US, a new administration known for their hostility toward sustainability initiatives aims to reduce compliance measures and participation in environmental agreements even further.

On the other side of the coin, California is on the verge of enshrining stricter standards into a new law.

As the nation's largest state-level economy, companies seeking to do business with the largest US economy will now have to account for carbon data from their partners and suppliers as well as their own.

You'd be forgiven for thinking it's wise to wait this out until a clearer consensus takes hold, but waiting simply is no longer an option.

"Companies can no longer delay fully engaging in detailed ESG accounting."

Matt Waters, CPA

Director of Lease Accounting & Sustainability, CoStar Real

Matt Waters, CPA

Why Moving Forward Matters

Why is it so important to get serious about sustainability accounting and reporting now?

The most obvious answer is that this impending California legislation (SB 253) would force companies with over $1 billion in revenue, even if privately held, to detail greenhouse gas emissions according to the most stringent reporting frameworks used globally: Scope 3. This goes even beyond regulations recommended by the Securities and Exchange Commission (SEC). 

The real answer, however, is simpler than that: Because competitors aren't waiting!

Indeed, a recent survey of US-based executives from accounting and advisory firm BDO revealed that more than 75% of CFOs expect to increase or maintain their existing sustainability investments after the new US administration, despite their hostility to many ESG/sustainability initiatives.

In that same survey:

• 37% say their sustainability initiatives have fostered increased innovation and business opportunities
• 36% say initiatives increased revenue
• 30% say they've contributed to enhanced customer loyalty

The previously murky picture of the sustainability landscape for US decision-makers becomes clearer once you realize the direction that enterprises are already moving in.

Where did ESG get its start?

The Origin of ESG Accounting Standards

Where did ESG get its start?

How will it impact lease accounting?

It will become more important than ever for corporate real estate ESG data – such as utility consumption, energy certificates and varying lease structures to not only be tracked, but also verified and auditable.

Most organizations are ill-suited to meet the moment. A survey from advisory firm KPMG found that only 29% of companies consider themselves ready to subject their ESG data to an “assurance” process. Lease accountants will be responsible for the veracity of this new flood of data. If they’re not prepared with solutions that leverage automation and alerts to help them avoid costly manual errors, the impact to their organization’s bottom line could be seismic.

It's clear that flexible lease accounting solutions that have strong reporting functionality will become a critical tool in navigating this tricky landscape.  

Now's the time to evaluate your capabilities and determine whether your lease accounting tools and processes are up to the task.

What's Next for Lease Accounting in 2025?

There's more than sustainability coming, are you ready?

What's Next for Lease Accounting in 2025?