Publicly traded companies in the U.S. face increased pressure from the investment community and the public to provide sustainability disclosure. This has led companies to review, select and prepare to disclose their environmental, social and governance (ESG) practices, activities, and performance data.
Currently, there are several widely accepted ESG frameworks that emphasize different ESG elements. Each framework has its own scoring metric and reporting technique. But there is no minimum reporting standard that includes validation and assurance of critical performance measures.
But as ESG reporting becomes more common, there is a rising expectation of transparency and comparability as well as a demand for complete and accurate information.
The truth is, ESG reporting today is largely at the discretion of the company that produces the report.
Each company determines the elements to include in ESG reports based on what is available and what they believe will provide value to their most important stakeholders. The company also decides whether or not to obtain assurance over the disclosures they select.
Certainly, the prevailing ESG frameworks expect conformance, and each has its own requirements.
But without validation, how can stakeholders be confident of the accuracy of the information the company provides?
The Matter of Obtaining Assurance
In the U.S., public companies are not required to obtain assurance over ESG reports. But in investment and leadership circles, there is a growing sentiment that some level of assurance is beneficial given the potential risks. Leading companies have started to post assurance reports to lend credibility to metrics in their ESG reports.
As a result, users of ESG reports may have a less favorable view of companies that report ESG information and metrics without providing external validation. A lack of external validation may open up a number of reservations related to incomplete or misleading disclosures.
Third-party assurance provided by a CPA firm such as Weaver is perceived as more objective, reliable and beneficial to reduce significant reporting risks and yield trustworthy reporting.
The levels of assurance vary along with the types of opinions offered by the auditor. Limited assurance attest engagements have become fairly common for ESG reporting and are viewed as the baseline level of assurance for key disclosures. For these types of engagements, the audit firm will be able to state that, based on the procedures performed and evidence obtained, that nothing came to their attention that causes them to believe that the information is not, in all material respects, prepared in accordance with the defined criteria (i.e. negative form of expression of the auditor conclusion).
On the other hand, a reasonable assurance opinion will result in the auditor being able to state that, based on the procedures performed and evidence obtained, the information reported conforms in all material respects with the defined criteria (i.e. positive form of expression of the auditor conclusion). While this engagement provides for a stronger assurance statement from the auditor, it also involves more effort by both management and the auditor.
Defining your ESG Reporting Strategy
With the choice of numerous voluntary ESG reporting standards and no authoritative requirement as to which specific disclosures must be reported, companies face decisions that will likely yield scrutiny and questions from their stakeholders and potential investors.
Companies in the early stages of ESG reporting, or those that are not sure whether their current ESG reporting program is achieving maximum benefits, may need to define, or rethink, their ESG reporting strategy. An audit firm with experience in ESG issues can provide guidance on the most important issues to be examined.
Specialized firms with expertise in sustainability can
- Assist in developing a reporting roadmap adapted to a company’s strategy and ESG reporting objectives,
- Provide process improvement support to bolster, for example, the extraction of the right data from your existing systems and reports, and
- Advise on how to present the information in a clear, understandable and useful format.
Weaver Assurance and Advisory Experience
As one of the largest providers of EPA attestation services in the U.S., Weaver has been at the forefront of environmental compliance and assurance services for the last decade. Through our Energy Compliance Services practice, Weaver is one of only four firms whose Renewable Fuel Standard (RFS) Quality Assurance Plan (QAP), RIN-tegrity®, is approved by the U.S. EPA for domestic and foreign renewable fuel producers, as well as renewable fuel importers.
Weaver also provides a range of risk advisory services such as enterprise risk management, business process improvement and internal audit. Our experienced team is familiar with the standards, as well as the process challenges that go with collecting, compiling and reporting key information for the marketplace.
If you’re interested in exploring ESG reporting assurance options or advisory needs for your company, Weaver can assist. Find out more about current standards and the issues involved in environmental, social and governance reporting at weaver.com.