It might not be the most glamorous topic, but audit and assurance are unsung heroes of corporate governance.

If investors want to be able to use sustainability-related financial information in a similar way to traditional financial reporting, to fully integrate it into investment decisions and stewardship activities, then we need companies to prepare it in a similar way. Companies need to have appropriate processes and controls in place, with good governance oversight and sign off from the board, and we need high quality assurance of that information to build trust in the data.

Until now, companies have largely been reporting sustainability information on a voluntary basis, and doing so from a wide range of “stages in their journey” of data and process maturity. Some companies have been seeking voluntary assurance of that information, but not all of them, and the types and scopes of assurance have varied widely.

All of that makes a lot of sense whilst a market develops, and reporting matures – but we are about to see a big shift to mandatory reporting and assurance.

The Corporate Sustainability Reporting Directive (CSRD) requires a range of companies to report against the European Sustainability Reporting Standards (ESRS) standards, with a double materiality perspective, and to provide limited assurance of their sustainability reporting for 2024 activities, in reports published in 2025.

This is going to be a game changer and represents a big challenge for companies. Investors will see a lot of reporting, a lot of assurance reports, and probably – a wide range of outcomes of that assurance.

As an industry we are not really used to that – most audit reports are “clean” opinions on the financial statements and there is a lot of trust built into the system that allows investors to feel comfortable relying on company financial reporting. This is a result of a mature and regulated system.

The sustainability landscape is different. We will see a range of both “limited” and “reasonable” assurance opinions, with outcomes that include “clean bills of health”, “scope limitations”, “emphasis of matter” and “qualified opinions”. What does this mean? What should we do about it? If investors see “limited” or “qualified” on a sustainability assurance opinion and think it can’t be relied on, that would be counter-productive, as those opinions give us an indication of where the company is on its journey. A qualified opinion is just as important as an unqualified opinion because what we’re seeing is the assurance provider alerting the user when something isn’t working, or the data isn’t up to standard. That can be a trigger for engagement.

Who is doing the assurance is also potentially going to be different to financial audits; the standards are still in development, but will allow for a range of providers. How will theassurance providers ensure quality, how will they build skills and capacity, how will they be regulated? There is a lot still to work out here.

But we can’t just wait and see – these reports and this assurance is coming, so we need to think about it and understand what it means. Because we need to use the information now.

ICGN is putting in place a series of ways to bring people together to discuss and learn about this important topic, to get the ball rolling we have:

• A member-only webinar interview with Barry C. Melancon, President & CEO of AICPA & CIMA on the 8 July.
• A plenary session, ‘Standards for sustainability reporting and assurance’, with the Chairs of the International Ethics Standards Board for Accountants (IESBA) and the International Auditing and Assurance Standards Board (IAASB), the Vice-Chair of the International Sustainability Standards Board (ISSB), and a representative of the Japan Financial Services Agency at the ICGN 2024 Annual Conference, 15-27 July.
• An Investor Viewpoint on the Assurance of Sustainability Reporting, to be published on 15 July.

Come and join us to get involved.