Matt Waters: Hello, and welcome to The Lease Alert, where we have conversations with the smartest, most interesting people at the intersection of real estate, leasing and accounting. 

I'm your host, Matt Waters. Let's learn something together. 

Watch the episode here or keep reading for all the best tips. 

Matt Waters: Kelly Ånerud has worked for two global accounting firms, the Auditor General of Norway, and the International Federation of Accountants. Her areas of expertise span from accounting to HR to sustainability.  

On this episode, Kelly explains the opportunities that await in ESG and sustainability, and you might be surprised to find out you are already well positioned for success.  

Kelly, welcome to The Lease Alert podcast.  

Kelly Ånerud: Thank you, Matt. I'm so happy to be here today with you and to talk about a subject that I'm very enthusiastic about. Thank you so much for inviting me.  

Matt Waters: Thanks again for joining us. And as I mentioned, I really want to hear more from you about your background. 

Tell us a little bit more about how you arrived at your current role and what you focus on now.  

Kelly Ånerud: You mentioned my background before PwC. I worked with a firm in Norway, in the U. S. and in the U. K., then spent time at the Office of the Auditor General of Norway, where I started getting involved in international standards, and the idea there was really to see how the public sector could adopt the standards that the private sector has put so much effort into preparing, that would look like the FASB standards and the international standards on auditing. 

We did a lot of work there and ultimately, those standards have been adopted in the public sector for the governmental auditors in the U. S., would be the Government Accountability Office, that type of the auditors general in the various countries around the world. During that time, I worked closely with the folks from the International Standards Setting Boards and the International Federation of Accountants and was offered a position in New York City to work with the International Federation of Accountants.  

During that time, I became very interested in what they were doing in the space of integrated reporting. This whole idea of sustainability reporting, ESG, it's really not new. It's been around for a long time. But just not in the same way as we're seeing now. That's where I first was exposed to it and thought, this is something I'm very interested in. Because as you mentioned, part of my background at Price Waterhouse Cooper was responsible for the HR function and did a lot of work in strategic HR management. 

If you think about ESG, that's the S, the social side of things. To see those types of things being included in companies, public reports, to me, it was quite exciting because it was bringing my accounting finance assurance background together with the HR background. And then working at RGP, I’ve been here for seven years, most of that time been very active, focused on lease accounting system implementations. 

Helping companies in both the public and private sector become compliant with the new standards - ASC 842, IFRS 16, and then in the public sector, GASB 87 and GASB 96. Working with all those system implementations and then thinking about ESG, I started seeing a lot of parallels. Oh, my gosh, what's happening in the ESG. 

We saw that in lease accounting. I’m starting to think about how we can build on that experience and then apply it to this new subject matter that I'm quite excited about and enthusiastic about.   

I think our accounting and finance folks have a key role to play and look forward to helping them out however we can.  

Matt Waters: Absolutely. That's a really fascinating career journey so far to me. A lot of times we hear this referred to as a cascading effect or a waterfall, but the way you mentioned that in Norway, first public companies implemented change in the form of accounting standards, and then it cascaded or had a waterfall effect into the governmental accounting standards, right? 

Now it doesn't always flow the same direction necessarily, right? But we see that in so many areas of regulation and rules. It seems different on the surface, but when you really look at it, it's a lot of these same types of skills that you've developed over the years and processes that you've helped people with. 

That can be applied in almost any of these areas, right?  

Kelly Ånerud: I think part of it was, when I think back on it now, in developing the international standards and then getting those adopted in the public sector, and similar to what we're going to see in ESG, instead of asking why, it's like, why not? 

Why would we not do this, you know? It's not why should we do, why would you not do it in the standards world? Why would we not take these very high quality international standards that have already been prepared and adopted in many, many countries in the world and then adapt them, tweak them a little bit as needed for the particular aspects of the public sector. 

And that's what we ended up doing, working with the standards board and then adding the guidance. Building on the excellent work that was already done and in the same way with ESG, why would you not seize this opportunity now to make your company even better and appeal to all these stakeholders? 

And we can talk about that. I know you have a few other things you want to talk about and I'm sure we'll touch on these there, but there’s a lot of exciting opportunities out there. So why not?  

Matt Waters: Let's dive right into ESG because I mentioned in the beginning of our podcast here, we focus on accounting, real estate, and leasing. 

I think everybody has heard of ESG at this point, Kelly, and I know we could spend an hour, right? We only have a few minutes here. We could spend an hour or a whole day defining ESG and the pillars and everything. But can you, in just a minute or two, summarize what is ESG?  

Kelly Ånerud: I'll tell you the way I think about it. 

People may have their own interpretations, but the way I think about it, there are two things out there: you've got sustainability, and you've got ESG. How are they similar? What's the difference?  

I like to think of sustainability as the very broad area that relates to behavior. And the interesting thing is that because I had a lot of my professional career in Norway, so a definition of sustainability was developed by the United Nations Brundtland Commission back in 1987, and Gro Harlem Brundtland, she was the Prime Minister of Norway. 

When I was looking up that fact, that made it extra interesting to me. This definition of sustainability relates to behavior. And it was defined as meeting the needs of the present without compromising the ability of future generations to meet their own needs. So that's the way I like to think of sustainability. Very broad, related to behavior, behaving in a way now that won't compromise our kids and our grandkids future.  

Then ESG, I like to think of it as a framework. A framework with three pillars. You've got the E, which is environmental. There we're talking about climate change, emissions, pollution, water, waste management, deforestation, all those things. 

You've got the S, which is the social pillar that relates to diversity, human rights, health and safety, data privacy.  

And then the G, which is governance, relates to business ethics, executive compensation, board diversity, those kinds of things.  

And the other concept that I like to build in, so the third thing that I think about when I think about this very broadly and more conceptually, we've got the sustainability is behavior, the ESG is the framework with the three pillars, and then we've got the move from a shareholder economy to a stakeholder economy, and that's really the thinking that organizations really need to consider the broader group of stakeholders, including your customers, your vendors, your employees, potential recruits, the communities that you operate in, how is your business perceived by all these groups and how is your business impacting these groups? 

Because I think what we're seeing with many of them, especially in the younger generation, if a company is not socially inclined or focused on good policies related to the climate and environment, that may not be an organization that they want to work with. They're making decisions based on this type of information that's out there. 

Many companies also are setting requirements for their vendors, that if you want to do a proposal for a particular company or become a vendor, you have to have a certain the sustainability area, or you have to have a report that you disclose on these items.  

They are making some conscious decisions too, about how they select the people that they want to work with. It's the stakeholder economy concept. I think that is really coming into play here more and more.  

Matt Waters: Great summary. I appreciate that. And you also connected with me.  

I'm a parent and as a parent, I make decisions all the time strategically for my kids. Setting them up for the future, right? Everywhere from where they go to school, where we live, what activities we do on the weekends, right? Just to boil it down in very simple terms, I love the way you put that, making decisions today that are best for the future really does hit home with me as I think about the way I do that all the time as a parent. 

Kelly Ånerud: Exactly. And then take it one level down to, to grandchildren and what's it going to look like then? What's the world going to look like at that time and what can we be doing now to do what we can to make sure that that's going to be a good place for them.  

Matt Waters: You already touched on another hot topic that we can't get into very much in the time we have, but the talent shortage is another hot topic. 

And what I want to ask you about next is, why is ESG becoming so much more important for companies to focus on? I think you've already touched on that in the recruiting aspect and the stakeholder aspects, but why is the profile rising so much for ESG and sustainability right now for companies? 

Kelly Ånerud: I think there are several things that one can think about in that regard. And again, it's not anything new. It's been around for a long time. As we just talked about, the Brundtland Commission that came up with this definition of sustainability was from 1987. It's been a while. 

I think really what we're seeing is that things are getting more traction now because of this move from voluntary reporting to mandatory regulations. If you haven't been willing to do it now, you're going to have to do it. Some companies are going to have to do it because we see that in the EU, for example, with the CSRD, the requirements there for companies to report. 

Those are companies that are doing business in the European Union. It's not necessarily one that has its headquarters there or something. There are a lot of large American corporations and other corporations that maybe have their headquarters outside of the EU but are impacted by those regulations as well. 

You've got the development of the international standards now with the ISSB and so there's this concept of interoperability that the standard setters are working together to help to make it as easy as possible for adopters. When back in the day, when we were developing the international standards on auditing and the other international standards around ethics, and so on, it was a lot of harmonization going on convergence. 

You had all these different sets of standards out there. And I think what standard setters have learned from that experience is let's try to avoid that happening again. Let's start working together from the beginning, having together standards and frameworks that can then be widely adopted and slightly adapted so that we don't have that need to converge. 

I think we're way ahead this time when it comes to the international standards for compliance, for sustainability. But it's the move to the mandatory regulations. I think that with the SEC rule now, and we know that when came out earlier this year, but it's been stayed now because of some legal challenges. 

In the meantime, you have regulations that apply in Europe. You have regulations that apply in the state of California. For companies doing business in California, again, you don't have to be headquartered there, or based there, or incorporated there. But if you're doing business there, you may be subject to the regulations on emissions reporting and climate related disclosures.  

That's one thing I think that moved from voluntary reporting to mandatory regulation as well as this idea of the stakeholder economy and the demands that are coming from investors that are coming from talent, future generations looking for where they are going to want to have their careers with companies that they want to be associated with or not.   

It's really becoming a social license to operate much more than before. If you're not doing it, you risk being excluded from, for example, RFPs. I heard something recently about that. That's one good reason is just those three letters RFPs to make sure that you are eligible to bid on projects. 

Matt Waters: Request for proposal. When a vendor wants to even have the eligibility to submit their services for consideration at a company, they fill out an RFP.  You're saying that if they don't check certain boxes around sustainability and ESG. They may not even be considered.  

Kelly Ånerud: They may not even be considered, and I think that applies especially in the governmental sector as well. I'm based in Northwest Arkansas, the home of Walmart.  

And Walmart has recently done amazing things with their project Gigaton. And they hit their goal early, but they're not stopping. They're continuing just to take it to the next level. And I think that's the number one thing you see there is that they've put a lot of focus on sustainability and working together with their vendors to make sure that a lot of innovation and creativity is going into this to ensure sustainability. 

Another cool area to think about with my HR background - this interests me anyway – is executive compensation. We see Coca Cola, recently there was a headline, where they are building sustainability related goals into the executive compensation scheme.  

Only about last week I saw something about Lego. Everybody knows Lego. It's a Danish company, Scandinavian, and they've taken it a step further. Not only their executives, but all employees will now have sustainability goals linked to their compensation schemes in some way. I thought that was a very interesting development to see.  

Matt Waters: That hits pretty close to home there when you start talking about all employees, compensation potentially tied to ESG metrics.  

Kelly Ånerud: I don't have the details of exactly what they're doing and how they're doing it. But what caught my eye was they were taking it from the executive level and expanding it to the entire organization. 

You can think about tone at the top. Setting that tone at the top and cascading it down then through the whole organization.  

Matt Waters: There's no doubt ESG sustainability initiatives are becoming more and more important, the reporting around those initiatives, that's also becoming more and more important because if you're going to tie things like compensation to ESG and sustainability, you have to have a way to measure it and report on it. 

I think you touched on that for sure with the concepts around SEC regulations and international regulations. Actually, it's starting to sound very familiar, the way this process is going. You mentioned several words there that sounded so familiar to me, and you'll understand why I'm laughing here in a minute. 

Remember a few years ago we had this idea of convergence around a big topic of accounting? It seems like it was something to do with leases, right? I joke, but many of us lived through that convergence process with the IASB internationally and the FASB here in the U.S. Ultimately, we did not converge entirely, although much of those standards, IFRS 16 and ASCH 42, ended up being very similar. 

You mentioned so many things there, and that there's an international body of knowledge and work that's being developed. There's a US based equivalent and to a certain extent they are converging. Not in every area, but they do play off of each other and reference each other in many cases. And that is actually not the only parallel with lease accounting. 

I really would like to hear from your perspective as somebody who was deep in the trenches with companies preparing for lease accounting just a few years ago, and now you're in those very similar trenches dealing with some of these same people at companies getting ready for ESG and sustainability reporting. 

Why do you think the similarities are? Between Lease Accounting and ESG, Kelly?  

Kelly Ånerud: Well, it's a great question. I'm glad you asked it because I started thinking about that last year and started to look into some of the aspects of ESG and what we were doing in our organization and how we can assist our clients in meeting the compliance requirements and so on. And oh my gosh, there's so many similarities here to the way we approached our services on the lease accounting side. 

One of the differences, I think is that lease accounting was big, but I feel like ESG is just massive. I think of it as an elephant, it's huge. And I've heard others say, “oh, well, if you thought lease accounting was big, well, ESG, you know, it's enormous.” How do you break down that elephant? 

I think that's one of the challenges that we're going to have. You know, there's just so many aspects. If you think about the European standards, there are many of them. They touch on all of the pillars, the E, the S, and the G. Not only the climate related emissions and disclosures, but all the other social and governance aspects as well. 

But I think compliance with the new standards, that's the initial driver. Just like we saw in lease accounting, we've got to be compliant. There's a new standard out there, we've got to be compliant with it. I think in the ESG area, there's a new standard out there, but there are multiple standards out there and requirements out there. 

So which ones are you subject to? Are you subject to the ones in Europe? Are you subject to the ones in California? What about the SEC? There may be other things that you need to consider.  

Another thing we saw with lease accounting is the importance of executive sponsorship. At some point you're going to have competing priorities and having that tone at the top, having an executive sponsor that's saying this is important because when folks are going to have to reach out to gather information and so on, they need to have that tone at the top. That support behind them with lease accounting.  

We saw the need for working cross functionally so the accounting and finance folks didn't sit on all this information. You have real estate departments sitting on real estate leases. Some of them very material, very significant. You had fleet or transportation departments with all of the tractor trailer leases or rail cars, IT Departments were leasing computer equipment.  

With E.S.G., we're going to be going even beyond that. Some companies have sustainability departments that accounting and finance will be working with. Others don't, but I think you're going to be working with facilities departments. You're going to maybe be working with HR for the social side of things. 

And then what about the data? That was a huge thing with the lease accounting. It ended up being often the longest. Line on the project plan, the longest time, where is your data? Who has it? What format is it in? Structured, unstructured. What technology are you using to capture the data? What is the quality of the data? 

Because ultimately, just like lease accounting, you're going to be presenting this information for assurance. It's going to be audited. Let's just say if we take it to the top level, the most stringent requirements would be starting with limited assurance and ultimately reasonable assurance around the ESG data. 

So how are you going to make sure that all these other folks out in the organization who you've never worked with before are providing you with data? And that there are processes and controls around it that will allow it ultimately to be submitted for audit and audited successfully?  

That's exactly what we saw with lease accounting. With lease accounting we have the advantage of companies and folks now having been through a round or two of audit and having seen where maybe some of the deficiencies are and how they need to improve on things. So, take that learning and build upon that and You know, apply that to ESG. 

And we see companies now creating positions, ESG controllers, where they're actually looking for folks. I think accounting and finance folks would have a great background for those types of jobs. They have the analytical skills and they understand the compliance and the need for processes and controls and diligence around all of this and disclosure and reporting.

It creates a lot of opportunities for our finance and accounting folks. If you think of ESG as a relay race, the accounting and finance folks are the ones that are going to take the baton, the final mile. They're going to be the ones to disclose and report and ultimately be responsible, right? For that data, how are you going to get there?  

Matt Waters: Oh, wow. You brought back some memories for me because when lease accounting first started ramping up before we even had a final standard, I worked at the Home Depot and we realized it was going to be big. 

This lease accounting change, putting operating leases on the balance sheet for the first time was going to be a huge change. Undertaking it was going to have a big impact on our financial statements. The audit committee and the board of directors started asking questions, as they should. 

I was in charge of lease accounting. The questions made their way to me. I started thinking through this, I started thinking, who do I need to talk to around the Home Depot to just start to get a handle of all the leases that are out there and set up a meeting. I invited what I considered my first group of stakeholders, which was about this long of a list, maybe a quarter of a page. 

Then I started thinking of other people. I'd be driving home in my car. I'd be like, “oh, I, you know, there's actually another stakeholder.”  

The next day I would forward the invitation to them. Eventually I had to book a bigger conference room and actually have one of those tiered, the stadium seating style conference rooms because it just touched so many areas. 

And that was lease accounting. I think ESG is going to have a similar trajectory with some of the similar stakeholders behind it. You may even need to book the auditorium, right?  

I really think for accountants, for real estate professionals, for lease administration professionals, because you think about leasing, right? Leasing involves assets. What has a carbon footprint? An asset. There are just so many parallels here. We don't really have time to talk about all the ways that these two concepts connect except just to say, you are very wise in calling out this as a career opportunity for our listeners, perhaps, who have had a successful project experience with lease accounting. You have gotten that now to a steady state, and you're kind of looking for the next project to elevate your career to the next level, right? This could be the area to get into, and I love the way you pointed that out, Kelly.  

We're wrapping up here, but for our final question is if somebody is interested in getting into this, and maybe they've been assigned by their boss already, “hey, I want you to tackle this evolving ESG puzzle,” or maybe not.  

Maybe somebody is listening and thinking, “oh, well, you know, I could actually go to my boss and be the one to present this as an idea of something that I could tackle as the next puzzle.”  

Either way, what would be the first step that they could present to their boss and just start talking about this journey about getting started on ESG and sustainability? 

Kelly Ånerud: Like you say, they have a transferable skill set. They've already done all of these things that we've talked about, and you can apply those skills now to this new subject matter area of ESG. How to get started? What folks need to avoid is the paralysis.  

Because, again, it's massive. It's the elephant, giant area, but you got to go beyond that paralysis. You can't let that happen. I just say, don't wait, get started early, get started with what you have. Data is going to be one of the biggest challenges. We know that just like in lease accounting, start talking to folks, creating interest, getting sponsorship. 

And one thing that we are advising our clients to do is think about doing a compliance readiness assessment. It's going to touch on all of these things. It's going to touch on what regulations you are going to be subject to. It's going to talk about your stakeholders and who you're going to have to engage. 

It's going to talk about your data, where it is and how you're going to get it and your inventory of emissions, but starting to consider your risks and that kind of thing. And potentially even just run it by the auditors. What are they seeing, what are they thinking about. 

This is going to be subject to assurance at some time. The idea of, first of all, feeling confident that if you've already done this with lease accounting, you've got a transferable skill set. That will apply in this exciting new subject matter area. Then consider doing a compliance readiness assessment to get you well positioned to get a running start and get ahead. 

You don't want to get behind on this. That's what we saw with lease accounting. The folks that waited ended up being not very well positioned for success, put it that way. We want to help position our clients for success. That's what we'd recommend.  

Matt Waters: Well said. Folks, this is Kelly Ånerud. 

She's the vice president at RGP, an ESG and sustainability expert with a vast amount of knowledge and a very interesting career record across the board. Working internationally and ultimately now bringing her skills for her clients at RGP.  

Kelly, thank you again. I really enjoyed talking with you today. 

Thank you for listening to The Lease Alert. I'd be grateful if you would like and subscribe wherever you listen. Until next time, keep learning and leasing!