Sonia Hupalo is currently an ESG and sustainability consultant at Deloitte under the audit & assurance team. She advises clients on how to disclose their sustainability efforts in financial reports. 

Sonia didn’t start her career focused on ESG. As a Wellesley alum, Sonia majored in Environmental Studies and Economics. She was interested in renewables throughout college. When she graduated, she landed a role at National grid, focusing on the intersection of real estate and sustainability. She seized every opportunity she could to do sustainability-related work during her day-to-day life. “But I didn’t enjoy the environment. I was at a low-point in life,” she remembered. Almost two years in, Sonia decided to leave, and was certain she wanted to continue her sustainability journey. 

“I came across a Wellesley alum through one of our school’s newsletters, and I reached out to her because I thought she was a badass,” Sonia chuckles. Turns out that alum is a partner at Deloitte Digital. The alum told Sonia that Deloitte is building up their sustainability team, so Sonia’s background seemed like a great fit. With the alum’s introduction, the audit & assurance sustainability team recruited her. Sonia joined this new team when it was 33 people big. Now the team is over 150+. 

The focus of this team is to examine a company’s documents to assess whether its statement reflects a true and fair view of the organization. It is this kind of work that ensures the integrity of ESG reporting.  

I interviewed Sonia concerned that ESG is really just a form of greenwashing. Greenwashing refers to companies that claim to be more environmentally friendly than they actually are. 

“Well, it depends on what you mean by ESG. The name itself doesn’t say anything about what people are doing.” 

This is Sonia Hupalo’s response when I asked her what she thinks of the criticisms ESG faces. “I have rarely run into clients that are deliberately misleading on a whole,” Sonia responds. “People still intend to do the right things.” 

Sonia is confident about the work she does, mainly ESG reporting. ESG reports disclose information covering an organization’s operations and risks in environmental stewardship, social responsibility, and corporate governance. Consumers look to ESG reports to figure out if their dollars are supporting a company whose values they align with. Investors look for qualitative and quantitative information to make investment decisions. 

She argues companies might appear to be engaged in greenwashing because there is a lack of standardization across ESG reporting. Unlike the EU, ESG reporting is not regulated in the US. Thus, different frameworks for ESG reporting have emerged over the past few decades. Companies pick and choose the framework that makes sense for them. Every company is at a different ESG stage, the discrepancy makes it hard to compare and assess the progress companies are making as a whole.

Yet, a lack of standardization does not mean the current ESG reporting framework is not trustworthy. Each ESG reporting standard has its own set of requirements and emphasis. “[W]e have to follow them when it comes to auditing,”Sonia explains. In fact, one of the services Deloitte offers is to align the ESG reports to the standard frameworks to make sure they meet the requirements. 

There are many ways to go about ESG reporting. Take greenhouse gas emissions as an example. Some companies choose to report emission intensity whereas others would report total emissions. I asked Sonia why that was the case.  

“It has to do with materiality. Mission intensity is a valid way to report emissions, it is just not the only way,” Sonia explains. “I wouldn’t say that any one of them is misleading, it is just very hard to look across companies. It is starting to improve, but it is gonna take some time.” 

Materiality is an accounting concept that defines why and how certain issues are important for a company. The Securities and Exchange Commission defines it as “a matter is ‘material’ if there is a substantial likelihood that a reasonable person would consider it important.” Companies do their own material assessment because the SEC does not want to continuously add or update the underlying disclosure rules as new issues arise. This provides flexibility for the companies but the downside is a lack of standardization across companies and sectors. 

Since material assessment is company specific, it is also one of the services Deloitte offers to its clients. Through interviewing stakeholders, workers, and other company employees, Deloitte determines what issues and metrics are important to display for the company. 

Sonia remains hopeful of ESG. She sees the lack of standardization across ESG reporting, but she also sees the changes that are happening. She explained to me that there has been growing motivation for ESG reporting due to a few factors. 

First, companies are facing more regulations. The SEC is working on consolidating and standardizing ESG reporting. On March 21, 2022, the SEC issued a proposed rule that would require organizations to provide certain climate disclosures in its annual reports. This proposal marks a turning point in the US. If it is finalized, climate reporting would move from being voluntary to being required for public companies. Additionally, climate information will be disclosed in a consistent format and integrated into SEC filings. This will help reduce greenwashing and misleading reporting. 

Another factor is the investing world is pushing for more and better reporting since they want to invest in accordance with sustainability principles. Consumers are also demanding more transparency. All of these factors function as motivation to push more work around ESG reporting. 

“I personally don’t care what their motivation is as long as they do it,” Sonia chuckles. If ESG can help companies improve their sustainability, no matter their motivations, it will be an important victory.