The International Auditing and Assurance Standards Board plans to bolster the International Sustainability Standards Board’s proposed standards on sustainability and climate-related disclosures with its own.
The IAASB, which is affiliated with the International Federation of Accountants, submitted a
ESG funds have been growing in popularity among investors, and the pace of global climate change appears to be speeding up as heat waves blanket large parts of Europe and the U.S. this past week. Earlier this year, the ISSB issued the two exposure drafts and the comment deadline is this Friday. In its response to the proposed standards, the IAASB pointed to the importance of reliable, high-quality, globally consistent sustainability reporting that investors and regulators are able to trust.
“The reliability and quality of sustainability reporting and supporting investors’ and regulators’ trust in the sustainability information hinge on the effectiveness of the external reporting supply chain,” said IAASB chair Tom Seidenstein in a statement Tuesday. “As in financial reporting, external assurance has a key role in contributing to reporting reliability and investor confidence. This is why the IAASB’s feedback focuses on the ability of practitioners to obtain assurance on an entity’s sustainability reporting prepared in accordance with the ISSB draft standards, and why we’re committed to collaborating with and supporting the ISSB.”
In its comments, the IAASB highlighted the value of long-term cooperation between the IAASB and ISSB, as well as the International Ethics Standards Board for Accountants, to strengthen the connectivity between sustainability reporting, external sustainability assurance and ethical standards, especially as standards become increasingly refined and enhanced. Outside assurance should play a crucial role in enabling organizations to demonstrate that the sustainability information reported is reliable and credible.
The IAASB noted that it too has begun working on sustainability reporting assurance standards. During a meeting in June, the IAASB committed to developing an assurance standard for sustainability reporting. The Financial Stability Board, an international body that monitors and makes recommendations about the global financial system, has included the IAASB’s work in its Climate Roadmap. The FSB had earlier developed the Task Force on Climate-related Financial Disclosures, or TCFD, whose framework has formed the basis for a number of the standards being developed, including the ISSB’s and the Securities and Exchange Commission’s proposed rule on climate-related financial disclosures.
Accounting firms are playing an increasing role in providing clients with sustainability reporting and assurance services.
“We’ve got two standards out for consultation right now, and I think the ISSB is going to be really transformational right now not only for companies that need to report, but also for users of reporting, particularly the investors, who have been crying out for a long while now for greater levels of compatibility between organizations’ disclosures so that they can assess even organizations within the same sector on a comparable basis to determine who is tracking well and who isn’t,” said Matthew Bell, climate change and sustainability services leader at Ernst & Young.
He sees an increasing role for firms like EY to provide assurance services for sustainability reporting at companies trying to adhere to standards and rules proposed by the ISSB, the SEC, as well as the European Union’s Corporate Sustainability Reporting Directive. Meanwhile, in the U.K., disclosures in line with the TCFD framework have become mandatory for large companies this year.
“We were pleased to see that both the CSRD and SEC proposals have some requirement for assurance over time,” said Bell. “Over time we think that will head toward reasonable assurance, which is really akin to a financial audit in terms of its rigor. But companies are going to need both things. Companies are going to need support with understanding sustainability risks, and then enabling their internal processes and systems so they can report on them, and then either now or into the future they’re going to need assurance services as well.”
The IAASB also sees the need for outside assurance over sustainability reporting by accountants and auditors. “The reliability and quality of sustainability reporting and supporting investors and regulators’ trust in the sustainability information hinge on the effectiveness of the external reporting supply chain — preparers (i.e., an entity and its management), those charged with governance, users, assurance practitioners, standard setters, and regulators and oversight bodies,” Seidenstein wrote in comment letter. “As in financial reporting, external assurance has a key role in contributing to reporting reliability and investor confidence.”
