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Thursday, Nov 30, 2023

Accounting Gets Clean and Green

By THOM SENZEE Contributing Reporter The trend toward cleaner and greener companies means more business for the accounting industry. A few giants in the business have latched on to this practice area while other smaller firms are eyeing it to see whether they want to become involved. In Woodland Hills, and nationally, global professional services giant Ernst & Young has one of the most formalized and concerted “cleantech” programs in the industry. “I think we have a strong focus and an ability to serve our clients with regard to cleantech opportunities because of our years of experience with venture startups, biotech, medical-device makers and other new technology firms,” said Tim Teagle, area director of business development for the company’s Pacific and Southwest region. “There’s a lot of things we do in our advisory services department, such as helping companies get LEED-certified as well as helping them to capture energy credits,” said Teagle, who oversees business development at Ernst & Young’s Woodland Hills office. LEED certification refers to a set of requirements set forth by the U.S. Green Building Council that, when met, can yield numerous benefits to companies with an interest in the LEED-certified structures. But defining the term cleantech is not so clear-cut. “We look at cleantech as part of a broader series of topics that investors, companies, executives and consumers are focused on,” said Ernst & Young partner, Joe Muscat. “Addressing climate change is in that process, and there are incredible, new opportunities in cleantech for market leaders.” But the idea of offering accounting services specific to clients’ cleantech programs is still new to accounting. “I think cleantech practice areas are going to be more of an individual phenomenon right now,” said California Society of Accounting and Tax Professionals president, Linda Dong. “The tax benefits aren’t huge yet, and until Congress passes some new laws it’s going to have more to do with whether or not promoting greener practices as they serve their clients is part of a company’s core values ,rather than it being financially beneficial.” Yet according to Muscat, who is director of cleantech and venture capital at Ernst & Young worldwide, cleantech is something that is on the minds of CEOs, CFOs and boards of directors these days. “Clean technology encompasses a diverse range of innovative products and services that optimize the use of natural resources or reduce the negative environmental impact of their use while creating value by lowering costs, improving efficiency, or providing superior performance,” Muscat said. “That’s what we’ve come up with and I think it is a good definition.” He believes the first agenda item during a cleantech consultation should be to ask clients to decide which of three cleantech strategies they want to pursue: “Is it going to be a cost strategy; is it going to be a revenue strategy, or is it going to be a transparency program?” Muscat asked. In a cost strategy, his firm would guide a company through a process of shrinking its carbon footprint while, for instance, saving on energy costs. However, a revenue strategy would have the client company hopping aboard the green train while appealing to “a different class of customers” in addition to those who are already sold on its products or services. “The benefits ultimately get measured in qualitative and quantitative ways,” Muscat said. “You measure against growth or cost savings.” But, he says, soft measures are equally important. “I know that what we’ve done in terms of our own cleantech efforts have been motivating for our workforce,” he said. “I have anecdotally measured greater excitement and morale; it’s made Ernst & Young a more interesting place to work.” While revenue and cost strategies for cleantech financial activities can be qualitatively and quantitatively measured, the third strategy asks clients to consider a “softer measure.” “Transparency is simply finding ways to let consumers and shareholders know as much as possible about your carbon emissions, and we help our clients find ways of doing that,” Muscat said. “The benefit there is really more P.R. than monetary.” Yet in the San Fernando Valley region, many firms are taking a wait-and-see posture toward this new sector of the accounting business. In fact, some of the firms we contacted were not familiar with the term “cleantech” at all. But some were “It’s a field we’re aware of, but we are involved in other interesting areas right now,” said Craig Szabo, president of Szabo Accountancy Corp. in Calabasas. “Some members of my tax department have knowledge about it, but we’re really specialized in real estate, gaming, sports and entertainment.” Even local accounting heavyweight Miller, Kaplan, Arase & Co. (MKA) was uneasy about going on the record regarding its work in cleantech accounting. “We have dealt with it in the past,” an MKA spokesperson said in an e-mailed statement. “But we don’t focus on it. Less than .5 percent of our overall revenue deals with cleantech clients and those cleantech clients don’t get all their cleantech needs serviced through just us.” But for other firms, such as Encino’s Singer, Burke and Co., offering cleantech accounting services is no different than recycling and reducing paper usage, which the firm did some time ago. “It’s very much in our consciousnesses,” said firm partner, Mathew Burke. “Because a lot of our clients are entertainment-related we get questions all the time, like ‘can you recommend an investment portfolio that is green?'” Burke says cleantech thinking led to a paperless accounting practice at Singer, Burke and Co. before people were using the term cleantech. “That’s just a part of our value system internally,” he said. “But for our clients, we don’t have a separate cleantech unit. Advising them to invest in developments that also protect wild lands and help conservationists in Wyoming and Idaho is one part; we also have clients who have gotten credits for setting up solar.” In fact, Burke’s firm has eked out a green investment slice of carbon-heavy energy consortium The Carlisle Group. Just around the corner from Singer, Burke and Co., in Encino, Mel Kohn, managing partner at Kirsch, Kohn and Bridge, says his firm is not soliciting cleantech business specifically. “We are familiar with it and we know the tax codes,” he said. “Solar is one of the biggest issues in this area, whether it’s a building or a shopping center.” Kohn believes his firm will ramp up its cleantech activities later this year, and perhaps designate the discipline as a distinct practice area. “If Congress passes more incentives there will definitely be more people working that kind of business in accounting,” Kohn said. But according to Ernst & Young’s Joe Muscat, companies need not be “in” cleantech to be able to benefit from cleantech accounting services ,especially on the tax front. “That’s a big area for us,” he said. “We are advising on strategies to monetize programs in the tax code, and we have a very active practice on advising clients as far as filing appropriate returns and documenting the projects they do. This is big.” One caveat looms for companies considering pro-environment undertakings, Muscat cautions. “You have to walk the walk, not just talk the talk,” he said. “If you announce a major program but don’t follow through with substance, you will lose all credibility with people who care about the environment.”

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