Transparency and accountability are big problems concerning environmental, social, and governance (ESG) reporting. It’s a little ironic as one of the aims of ESG reporting is transparency. Thankfully, one way to tackle that is sustainability reporting assurance. It essentially audits a company’s sustainability reporting, verifying the data presented and claims made. 

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In an Ernst & Young global survey, 41% of CFOs admitted that their ESG reporting falls short of assurance standards. Various factors are to be blamed – from flawed data collection to poor adherence to standards. Clearly, there’s a strong need for assurance of ESG reporting. 

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In this article, we’ll explore sustainability reporting and assurance, explaining its need and how it can benefit companies regarding climate accountability and trust building. Let’s go! 

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What is sustainability reporting assurance?

Sustainability report assurance refers to a third-party audit of a company’s ESG reporting. Assurance ensures that the reporting aligns with a specific standard and that the data used to compile the report is up-to-date and accurate. 

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Assurance is typically carried out by an external party certified to do so (a company can choose a licensed third party to audit its ESG report). Unfortunately, you can’t do it yourself – too many ways to cheat the system. While ESG reporting assurance isn’t required under most mandatory ESG reporting regulations, it authenticates the report's findings. 

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How is sustainability report assurance carried out? 

Licensed assurance providers may offer various assurance services, ranging from simple data verification to comprehensive reviews of the entire report. The scope of assurance depends on the company seeking it.

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For instance, a company may hire a licensed assurance provider to certify a sustainability-related claim in its reporting. The third party will analyse the data and information the report is based on to check for any claim's veracity. Similarly, such third parties may also offer the audit of the ESG report, verifying reported findings and claims altogether. 

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For the most part, assurance providers compare data to sustainability reporting standards to ensure compliance. To do that, the provider will need access to the company’s data and that of its suppliers and vendors. 

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A sustainability assurance service may also include audits of internal policies and frameworks. The provider may consult with different company stakeholders to verify information. 

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In short, the assurance provider reviews financial performance, policies, and compliance with standards and regulations. If the provider discovers discrepancies in data or non-compliance with standards, they will provide a detailed report on their findings. 

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Sound intimidating? Don’t worry, it’s not. If you run a legitimate business, you have nothing to fear, and the auditor will nudge you in the right direction to ensure you comply with the standards.

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Why consider ESG report assurance?

If not mandatory, why spend resources on assurance of your company’s ESG reporting? Surely that’s throwing money down the drain? Well, it offers significant benefits for both the short- and long-term. Here are just a few of the benefits:

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Compliance with standards

First and foremost, assurance of a sustainability report ensures that it follows the established standard. This is also important from a compliance point of view because not following the reporting standard can result in penalties from regulators. Discovering deviations from the reporting standards can help you avoid further scrutiny and fix issues before the report is sent to the regulatory body. 

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Verification of data

Your sustainability report is only as good as the data it’s based on. If the data is insufficient, you can’t gauge your activities' real environmental or social impact. Bringing in an external auditor can ensure that the data used is, in fact, accurate. 

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Inaccuracy in ESG data results in underreported emissions and messes up target-setting. Your company can’t set the emissions reduction targets needed to curb the environmental impact, so your efforts may fail to make the needed impact. Now that sounds like money down the drain! 

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Assurance of sustainability reports can also uncover errors and deviations in data provided by your suppliers, that is, if you report Scope 3 data, which is now mandatory as per the European Union’s Corporate Sustainability Reporting Directive (CSRD). Companies can authenticate and verify the data they collect but can’t do the same for its suppliers. So, assurance can be a way to verify its reported data. 

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Credibility of report

An economic and social benefit of third-party assurance of ESG reports is that it builds credibility. It shows that what you say is the truth, and customers have a sixth sense for that sort of honesty.

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As a result, your company will attain a positive reputation for its environmental initiatives and goals. Both consumers and investors have a strong interest in ESG reporting. Assuring it with the help of a trusted third party can further solidify your company’s position on climate change. 

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Level of sustainability assurance

Assurance sustainability reports are typically classified into two levels: reasonable assurance and limited assurance. 

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Reasonable assurance is a high level of assurance but not absolute. It follows a detailed process to ensure all the information in the report is materially correct. On the other hand, limited assurance authenticates the information but doesn’t confirm that information is free from material modifications. 

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In simpler words, reasonable assurance investigates where and how the information was obtained. It also demands a more detailed understanding of the processes and controls. Furthermore, such an audit also checks the report's relevancy and whether it’s material to the various stakeholders. As a result, it ensures that the report is well-balanced, lacks bias, and accounts for all areas of operations. 

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Limited assurance looks at whether the data makes sense, not necessarily where and how it was obtained. So, this level of assurance is not as in-depth as reasonable assurance. It scrutinises data but not at a lower level.

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What is CSRD assurance?

CSRD, EU’s new corporate ESG reporting directive, was enforced in early 2023 and is to be implemented beginning with the 2024 reporting year. This directive sets the ESG reporting requirements for EU (and non-EU) companies. Besides establishing sustainability reporting frameworks, CSRD also calls for independent assurance. 

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As the directive goes into effect, companies that are required to report must also provide limited assurance. However, the nature and extent of CSRD limited assurance may vary. The directive asks the Commission to adopt legislation regarding assurance by October 2026. So, as the first phase of CSRD implementation goes into effect, assurance requirements will be set. 

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The CSRD also proposes gradually moving toward reasonable assurance, requiring all eligible companies to have their reports audited for reasonable assurance. The legislation for this level may be adopted by October 2028. 

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How do you ensure your ESG reports pass the audit?

The assurance services can be costly depending on the size of your company and the scope of your sustainability report. Ideally, you want your report assured smoothly with no discrepancies or underreporting. 

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Here’s how you can strive to make your ESG reporting ready for assurance:

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Accuracy is king

If your carbon accounting is accurate, a licensed external auditor should be able to authenticate your ESG report. If the reported data is redundant or important information is missing to support it, you may be asked to fix the issues, which can be resource-consuming. It’s important to improve data quality, verify its accuracy internally, and only then use it in your ESG reports. Using the right tools to collect relevant data, such as fuel or energy consumption, can eliminate inaccuracies. 

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Up-to-date data

Just as accuracy is important, recency also matters. You can’t produce ESG reports based on estimates or outdated data. Make sure the report is based on recent data, whether it’s internal company data or collected from partners or suppliers. 

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Following the standard to a T

This may sound obvious, but whether using the GHG Protocol Corporate standard or ISO 14064, ensure that your report follows the standard closely. If possible, have multiple eyes on it to catch any missing pieces before the audit. Part of the assurance process is determining whether the report meets the applicable reporting standard. 

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Take your sustainability reporting to the next level

Energy consumption is a crucial part of sustainability reporting and warrants accuracy. To attain third-party assurance, your energy data must be based on real data, not estimates or averages. And you know where you can get instant access to automated energy data collection? comundo. You said it.

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Accurate reporting and external assurance guarantee compliance with regulations and establish trust among stakeholders, including investors, employees, and consumers. Sustainability reporting assurance is a worthy investment. Get after it! 

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FAQs

What is sustainability reporting?

Sustainability reporting, also known as ESG reporting, demonstrates a company's environmental, social, and governance (ESG) impact. Sustainability reporting provides evidence to stakeholders and/or regulators that the company is taking sincere action on different sustainability-related fronts. It may also be used to ensure compliance with ESG regulations set by the governments. 

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What is reasonable assurance in sustainability reporting?

Reasonable assurance is considered the highest level of third-party sustainability reporting assurance. It confirms that the reporting is accurate and that any claims are backed by evidence. 

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Such an assurance level is accompanied by documentary proof showing that the reporting has no errors or misstatements. It’s reasonable because complete or absolute assurance isn’t possible, so auditors refrain from using such terms. 

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What value does assurance add to a sustainability report?

Although not required, third-party assurance can make a sustainability report more credible. As the data and methods behind the report are verified, an assurance certification for your report increases trust. Because most sustainability data is self-reported, there may be doubts about its accuracy. Assurance basically puts a stamp of authenticity and accuracy on the data.