17 July 2024

ICGN: The assurance of sustainability reporting

Many investors are concerned that corporate sustainability disclosures may contain some unsupported claims, sometimes referred to as “greenwashing”. To enhance trust ... assurance of this information by an independent third party plays a crucial role.

Introduction
Many jurisdictions are adopting mandatory requirements for companies to report
sustainability information, notably in accordance with global standards. This is something
investors have been calling for, as they need high quality and comparable corporate
sustainability disclosures to make informed investment, risk management, and stewardship
decisions.
Yet many investors are concerned that corporate sustainability disclosures may contain
some unsupported claims, sometimes referred to as “greenwashing”.12 To enhance trust in
the quality and reliability of companies’ sustainability reporting, assurance of this information
by an independent third party plays a crucial role.
This Viewpoint starts with a guide to understand assurance of sustainability reporting, before
setting out investors’ expectations on the preparation of sustainability reporting, and on the
quality of external assurance. Finally, it presents some questions investors may ask company boards, as part of their stewardship dialogue. 

2. Understanding assurance of sustainability reporting
From voluntary to mandatory sustainability reporting and assurance
In the past few years, there has been a consolidation of corporate sustainability reporting
standards. The ISSB was created under the IFRS Foundation, with the mission to deliver a
global baseline of sustainability disclosures, focused on the needs of investors and market
participants. In June 2023, the ISSB released its first two standards. Since then, more than
20 jurisdictions made commitments to introduce these standards in their legal or regulatory
frameworks3, some of which require the assurance of the information by a third party.
Some markets have adopted their own standards and requirements. In the European Union,
the Corporate Sustainability Reporting Directive (CSRD) establishes the regulatory
framework for reporting sustainability information, with a ‘double materiality’ perspective.4
Around 50,000 companies will have to report information according to detailed reporting
standards. The CSRD requires limited assurance of the reporting in the first years, before
potentially moving to reasonable assurance from 2028, following an assessment by the
European Commission.

In March 2024, the Securities and Exchange Commission (SEC) in the United States issued
a rule requiring companies to provide climate-related disclosures in their annual reports and
registration statements. Companies are asked to obtain a third-party attestation of disclosed
1 PwC (2023), “Global Investor Survey 2023”. 94% of investors surveyed believe that corporate reporting on
sustainability performance contains at least some level of unsupported claims, often referred to as greenwashing.
2 There is no global definition of greenwashing. The European Supervisory Authorities (ESAs), for instance,
understand greenwashing as “a practice where sustainability-related statements, declarations, actions, or
communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial
product, or financial services. This practice may be misleading to consumers, investors, or other market
participants”. ESMA (2023), “ESAs put forward common understanding of greenwashing and warn on risks”
3 IFRS (May 2024), “Jurisdictions representing over half the global economy by GDP take steps towards ISSB
Standards”
4 Directive - 2022/2464.The CSRD incorporates the concept of ‘double materiality’. This means that companies
have to report not only on how sustainability issues might create financial risks for the company (financial
materiality), but also on the company’s own impacts on people and the environment (impact materiality).
Scope 1 and 2 Greenhouse Gas (GHG) emissions, with a phase-in period for large
companies to achieve reasonable assurance.5
While Governments and regulators are moving towards mandatory sustainability reporting
and assurance, some companies are also doing this voluntarily, often in response to
requests from investors. This has been mostly limited assurance, and over only a subset of
information.6
Assurance may be provided by accounting firms or other assurance providers (for example
ISO Certified providers, consultants, etc.). IFAC finds that companies in the EU are more
likely to use audit firms for assurance than other jurisdictions. In the UK, Asia and the US,
other providers tend to conduct the assurance.7

 

ICGN

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