The current sustainability reporting and assurance landscape is rapidly evolving, with important stakeholders showing an increased interest in sustainability-related corporate reporting information. Trust in such reporting is a key issue for many stakeholders, in particular investors who are increasingly using this information for capital allocation and other decisions.
Assurance over sustainability-related information is not something new; however, the importance placed on the reliability of such information is radically increasing, suggesting that a new era of sustainability reporting and assurance is emerging.
In response to this growing demand, regulators across the globe have urged the development of robust international standards on sustainability information. Some jurisdictions are moving towards mandating assurance over sustainability reporting, which will require boards to make sure that their ESG assurance is provided by qualified and regulated professionals.
According to a recent IFAC research study, most professional accountants currently providing sustainability assurance use the IAASB’s standards and guidance on assurance engagements other than audits or reviews of historical financial information (ISAE 3000 (revised), ISAE 3410 and the Extended External Reporting (EER) guidance).
A need for new standards
Although these standards remain robust and appropriate, the IAASB’s global outreach suggested that there is a need for new standards that provide more specificity for assurance on sustainability reporting. In response, the IAASB approved a project plan in September 2022 committing to develop a new overarching standard, namely ISSA 5000. The new standard will build upon the existing ones, with a focus on key priority areas.
ACCA is currently working on a major research project aiming to raise awareness of the existing standards and guidance for sustainability assurance engagements. The project, which will be published in early 2023, aims to reach a common understanding of the practical implications of the IAASB’s identified key priority areas. The research will contribute to the public dialogue in shaping sustainability assurance standard-setting for the future.
As part of shaping the dialogue, ACCA has conducted roundtables globally with assurance practitioners to better understand and inform the community about the key practical challenges practitioners currently face when using ISAE 3000 (revised).
Practitioners shared their views on the priority areas and suggested that there are currently misconceptions on ‘limited’ versus ‘reasonable’ assurance in sustainability-related engagements. The risk is that these misconceptions create a whole new ‘expectation gap’ on assurance over reported sustainability information.
‘How’, not ‘what’
On the suitability of proposed reporting criteria, some participants of the roundtables mentioned that the developments in sustainability reporting seem to be focusing on the ‘what’, rather than the ‘how’. Participants are worried that too much subjectivity is being introduced into sustainability reporting. This makes providing assurance more of a challenge, as subjective information is not assurable.
Also, the use of the work of experts in sustainability assurance engagements goes beyond the remit of experts in financial statements (FS) audits and this needs to be considered by standard-setters, boards and other key interested parties.
Our research findings will set out the practical challenges that practitioners currently face and offer insights on how to deal with them. For instance, our examples show that sustainability reporting includes a lot of forward-looking information, which can be challenging to deal with from an assurance perspective.
Exercising professional judgment and scepticism is crucial in this context and participants suggested that FS audit practitioners possess the skills required to cope in this fast-moving environment.
The right skills
Our research suggests that the foundation of assurance and analytical skills that professional accountants already have are very important when providing sustainability assurance services. Our participants suggested that these skills are transferable.
However, we should not underestimate the additional investment in skills and knowledge required to operate truly effectively in this new and developing area of work. As the sustainability reporting ecosystem evolves, deeper understanding of the subject matter knowledge will be needed.
The growing risk of greenwashing that comes with this new reporting should not be underestimated either. Guided by ethics and integrity, professional accountants are bound by the International Ethics Standards Board (IESBA) Code of Ethics and the fundamental principles (integrity, objectivity, professional competence and due care, confidentiality) still apply in the sustainability reporting and assurance context.
Being honest and straightforward when preparing or assuring sustainability-related information should underpin every professional accountant’s behaviour. IESBA also recently published non-authoritative guidance with ethics considerations in sustainability reporting specifically addressing the issue of greenwashing.
The IESBA board is also currently working on the developments of ethics and independence standards for sustainability-related topics: one additional challenge is the inclusion of non-professional accountants in the provisions of the Code.
As these providers may be part of unregulated professions or, in many instances, do not make any reference to a specific framework for the ethics-related considerations in their sustainability assurance work, this may have implications in the perceived credibility of the assurance provided.
ACCA believes that professional accountants have a central role in sustainability reporting and assurance and that the profession is able to draw from its depth and breadth of knowledge and experience to drive change towards a sustainable and equitable future for all.
Finally, the role of boards in the wider sustainability reporting ecosystem should not be underestimated. Starting by making sure that ESG assurance is provided by qualified and regulated professionals, boards can significantly contribute to ensuring sustainability-related information is credible, reliable and trusted.