Sustainability assurance seen as full of inconsistencies

Sustainability reporting standards, as well as assurance services to verify that reporting, vary widely across jurisdictions and individual practitioners and require better standardization, according to a new report.

The report, from the International Federation of Accountants, the AICPA and CIMA (representing the Association of International Certified Professional Accountants), with the help of Audit Analytics, examined global practices for sustainability reporting and assurance over that information, including the prevalence of assurance, level of assurance, and the standards used by practitioners. It found wide variations in how sustainability information is being reported by companies, and how accountants are providing assurance services to vet the information.

The report comes at a time when environmental, social and governance reporting is undergoing more consolidation, with ESG standard-setters like the Sustainability Accounting Standards Board and the International Integrated Reporting Council finalizing a merger this month to form the Value Reporting Foundation (see story). They and other ESG standard-setters like the Global Reporting Initiative, the Climate Disclosure Standards Board and the Carbon Disclosure Project agreed last fall to work together to harmonize their sometimes conflicting standards. They have come under pressure from international financial regulators to align their standards more closely to keep companies from using the lowest common denominator to promote their environmental credentials. Meanwhile, the International Financial Reporting Standards Foundation has proposed to create an International Sustainability Standards Board that it would oversee alongside the International Accounting Standards Board, and the idea was recently endorsed by the G-7 finance ministers.

The AICPA and IFAC have long been involved in encouraging accountants to provide assurance services to clients for their sustainability reporting. The AICPA operates a Sustainability Assurance and Advisory Task Force, and IFAC is affiliated with the International Auditing and Assurance Standards Board, which sets global standards for assurance services, mostly for financial reporting. The report found that the lack of consistent standards for reporting sustainability information is echoed in the types and providers of assurance. “As it stands, around half of companies reviewed are publishing sustainability information that is subject to any assurance,” said IFAC CEO Kevin Dancey and Susan Coffey, CEO of public accounting at the Association of International Certified Professional Accountants, in the report’s introduction. “For those that do obtain assurance, it is often being provided by consultants or others, and not by independent professional accountants who possess the unique combination of skills, qualifications, experience, and the professional ethical obligation to act in the public interest. It is precisely this combination of professional requirements that leads to meaningful assurance, which brings trust and confidence to sustainability information. If the status quo was ever acceptable, it certainly is not now.”

Photo: Margaret Mulligan

According to the report, 91% of the companies reviewed report some level of sustainability information, and 51% of companies that report sustainability information provide some level of assurance on it. Nearly two-thirds (63%) of the assurance engagements were conducted by audit- or audit-affiliated firms, and 88% of assurance engagements employing an audit firm made use of the International Standard on Assurance Engagements 3000 (Revised), while other service providers often rely on alternative assurance standards.

“The global community needs to consider many complex questions — should reporting sustainability information be required?” Dancey said in a statement Wednesday. “If so, should assurance be required, and by whom? With this new data in hand, IFAC is initiating evidence-based conversations with our member organizations and other global stakeholders to advance the global debate and help plot the way forward in the public interest. We will continue our commitment to this space as the reporting and assurance landscape evolves.”

While 83% of all assurance engagements result in limited assurance reports, there are significant differences across various jurisdictions. France, Spain and the U.S. had relatively high levels of ESG assurance, while Australia, Brazil, Canada, Germany, Hong Kong, India, Indonesia, Italy, Japan, Russia, Singapore, South Africa, South Korea, Spain, the U.K. and the U.S. had relatively high percentages of ESG-reporting companies. Assurance provided by audit firms or affiliated firms was highest in Argentina, Australia, France, Germany, Italy, Russia, Saudi Arabia and Spain. Of the U.S. companies that provided ESG disclosures, 71% received assurance.

“Companies that publish sustainability information that is subject to assurance by professional accountants have an opportunity to bring trust and reliability to their sustainability information,” Coffey said in a statement. “Engaging a licensed professional accountant who possesses the right combination of professional skills, qualifications, experience and is subject to independence, ethical and monitoring requirements can result in truly meaningful assurance and transparency. As it stands, only around half of the companies reviewed in this study publish sustainability information that is subject to any assurance.”