Assurance of Sustainability Reporting

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© Scott Graham

The development of global reporting frameworks and disclosure regulations in the area of sustainbility is key. One of the most important aspects is disclosure quality and assurance.

Based on a Sustainable Investor Poll on TCFD Implementation by the Global Sustainable Investment Alliance (Dec 2019) 59 percent of investors were very dissatisfied (19 percent) or somewhat dissatisvied (40 percent) about the climat-related disclosure of publicly traded companies.

87 percent of investors believed that markets are not consistently and correctly pricing climate risks into company and sector valuations.

EER (Extended External Reporting) frameworks, standards and assurance could build trust for stakeholders as explored by experts participating in the UNCTAD ISAR WBCSD Webinar on “Assurance on Sustainability Reports: Current Practices and Challenges” in 2020.

The EU commission provided information on audits and assurance in connection with the CSRD proposal.

What does the CSRD proposal say about the audit of sustainability information?

“The proposal would for the first time introduce a general EU-wide audit (assurance) requirement for reported sustainability information. This will help to ensure that reported information is accurate and reliable. It should go a long way towards addressing the concerns of investors and other stakeholders about the reliability of the sustainability information that companies report today.

Although the objective is to have a similar level of assurance for financial and sustainability reporting, a progressive approach is needed. The Commission is proposing to start with a ‘limited’ assurance requirement. This represents a significant advance on the current situation, while not imposing a ‘reasonable’ assurance requirement (a stronger, more demanding level) for the time being. A limited assurance requirement is less costly for companies, and better corresponds to the current capacity and technical ability of the market for audit (assurance) services. Reasonable assurance of sustainability reporting is difficult at this stage in the absence of sustainability assurance standards. The proposal therefore gives the Commission the possibility of adopting such standards. If the Commission does adopt sustainability assurance standards, then the legal requirement would automatically become a requirement for reasonable assurance instead of limited assurance.

The Commission’s proposal allows Member States to open up the market for sustainability assurance services to so-called ‘independent assurance services providers’. This means that Member States could chose to allow firms other than the usual auditors of financial information to assure sustainability information.” (Source: EU Commission, Q&A on CSRD)

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