COSO Releases New Guidance for Internal Controls Over Sustainability Reporting

On March 30, 2023,  The Committee of Sponsoring Organizations of the Treadway Commission (COSO) released a study and guidance for organizations to achieve effective internal controls over sustainability reporting based on COSO’s widely used Internal Control-Integrated Framework.

Over the past two decades, COSO has been the leading framework that public companies utilize to assess internal control over financial reporting (ICFR), as required by Section 404 of the Sarbanes-Oxley Act (SOX). The new COSO guidance takes the components and principles from the Internal Control Integrated Framework of 2013 and applies them to sustainability reporting.

According to COSO’s news release announcing the study and guidance, “COSO believes its use will help build trust and confidence in ESG/sustainability reporting, public disclosures and enterprise decision-making.”

“More companies are now in various stages of implementing controls and governance processes over the collection, review, and reporting of sustainability information, including creating multifunctional teams that bring together a company’s sustainability, finance and accounting, risk management, legal, and internal audit professionals,” said COSO Chair Lucia Wind. “In many ways, sustainable business reporting is still subject to evolution and innovation. As a result, it will be a process of continuous improvement including building internal capacity and relevant assurance.”

The Institute of Internal Auditors (IIA) also issued a news release identifying these notable aspects of the ICSR guidance. It quoted Brad J. Monterio, The IIA’s Executive Vice President of Member Competency and Learning and sustainability subject matter expert, who served as a co-author of the supplemental guidance. Mr. Monterio provided the following context for how the report can be useful to Chief Audit Executives and Audit Committees in strengthening their organization’s sustainability reporting:

“While organizations have largely followed their own journey into sustainability reporting to this point, forthcoming standards and regulation have provided the impetus for quicker action,” said Monterio. “This newly released guidance is an opportunity for Chief Audit Executives to engage with their audit committees, the C-suite and the risk management team to help their organization build confidence in their sustainability reports among their internal and external stakeholders.”

The IIA noted these key elements of the study:

• References to the role of the internal audit function in sustainability reporting in the scope of the guidance, reflecting their integral part of ICSR.
• Key themes to consider as organizations continue their journeys toward establishing and maintaining an effective system of internal control over financial and sustainable business information.
• Insights from companies that are leading the way on ICSR to help more firmly establish the practice within the internal audit profession.

COSO is an independent body jointly sponsored by the American Accounting Association (AAA), the American Institute of Certified Public Accountants (AICPA), Financial Executives International (FEI), the Institute of Internal Auditors (IIA) and the Institute of Management Accountants (IMA).

For information about how to apply COSO’s internal control over sustainability reporting to your business, contact us. We are here to help.

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