The International Auditing and Assurance Standards Board proposed new rules Wednesday for providing outside assurance on a company's sustainability reporting efforts as questions are arising about the efforts of the largest firms to provide such assurance.
The
"Our proposed ISSA 5000 is a crucial step in enhancing confidence and trust in sustainability reporting," said IAASB chair Tom Seidenstein in a statement Wednesday. "This proposal directly responds to the International Organization of Securities Commissions recommendations and complements the work of other standard setters, including the International Ethics Standards Board for Accountants. Corporate reporting, whether financial or sustainability focused, is more trusted when it receives external and independent assurance based upon globally accepted standards independently developed in the public interest."
The IAASB drafted the proposed ISSA 5000 standard to work with sustainability information prepared under a variety of other reporting frameworks, including those issued by the European Union, the ISSB, the Global Reporting Initiative, the International Organization for Standardization and others. The standard can be used by both professional accountants and non-accountant assurance practitioners when performing sustainability assurance engagements.
The IAASB is planning to do outreach to get input from different types of stakeholders, with a series of four roundtables set to start in September. The IAASB also intends to participate in virtual, regional and national events, many of them held in partnership with other organizations, during the consultation period.
"Receiving the broadest range of views from our stakeholders will improve both the quality of and trust in the final standard," said IAASB vice-chair and Sustainability Task Force chair Josephine Jackson in a statement. "Our unprecedented commitment to outreach will allow us to engage directly with a much wider group of stakeholders to gather the valuable insights we need to finalize a high-quality robust standard."
The proposed standard is available now in English and will be available in French, Japanese, Portuguese and Spanish in the weeks ahead. The IAASB is asking for comments by Dec. 1 through its
ESG assurance questions
The move comes as some GOP-led states in the U.S., such as Florida and Texas, have been passing laws aimed at discouraging financial firms from providing investment funds aimed at promoting environmental, social and governance goals. House Republicans in Congress recently held
An environmental nonprofit called ClientEarth sent a
"In particular, we are concerned that, in some cases, this may indicate that accounting standards, audit standards, or associated legal requirements have not been met, and it remains our view that an urgent improvement in practice is required," said the group. Last month, ClientEarth
Some smaller firms are trying to provide sustainability assurance services, including in Europe where regulations like the European Union's Corporate Sustainability Reporting Directive are taking effect.
"There's lots of different things that accounting firms can offer clients without necessarily addressing or adequately considering all of the climate-related risks," said Christina Tsiarta, head of advisory services for sustainability, ESG and climate change at Kreston Global in Cyprus. "So far, there hasn't been lots of regulation requiring audit firms to report or adequately help clients manage climate-related risks. Where there have been regulations, such as in the EU, it's not very consistent, and it's very limited in scope. Now we're slowly seeing that changing and evolving. But as a result, even auditors themselves don't have sufficient knowledge, skills and understanding of how to adequately and accurately measure and monitor and address, which means that they can shy away from that. But with regulation coming, we expect that to change. We expect more and more auditors to see these risks as material for the organizations they work with, and that will require them to build their capacity in skills and training to be able to adequately recognize them, monitor them, calculate, manage, address and minimize. We are probably going to see the landscape evolving as more and more auditors understand how this is related to their work, why it's relevant to them and why it's important for their clients to do so."
Independence, knowledge and time problems could be holding back some auditors from getting more fully involved in providing assurance on sustainability reporting.
"One element may be the lack of independence," said Laurent Le Pajolec, a member of the CSR and ESG committees at Exco A2A Polska in Warsaw, Poland, also part of the Kreston Global network. "If auditors would be more independent, it would be simpler to tell the reality to the customers they are wrong or it will cost such an amount of money to make a provision for the potential costs or sales of carbon contributions for all of the emissions they do."
He pointed out there may also be a lack of support from the company, the board and shareholders who are reluctant to have additional costs taken out of the dividends they expect. Lack of education is also a factor. "It is difficult to be an engineer to identify, for example, what are the sources of emissions of CO2 for a company," said Le Pajloec. "Each sector has its own specialty."
The engineers and staffers who are providing the necessary information may not have enough time to gather it all in time. "It's about all stakeholders coming together to support the whole process, which is why it's so difficult because you've got all these different players who play a different role in the puzzle," said Tsiarta. "They all need to work together to get the required results."
An international banking industry working group known as the Partnership for Carbon Accounting Essentials
"If you're ignoring part of the picture, then you're essentially giving a false image of what your impacts are," said Tsiarta. "And then the whole chain is wrong. How are you going to address and manage something that's not the whole picture? Everyone needs to be truthful about the boundaries and the scope of what they're doing."
Le Pajolec gave the example of shampoo sellers. "If you decide to make a lot of mousse and you're using more hot water for your customers, you're responsible for Scope 3," he said. "If you make less mousse, so they will take quicker showers, then you will decrease Scope 3."