Obtaining assurance on sustainability reporting

18 June 2024

This article by Sarah Baxendale FCA covers the key current and proposed audit and assurance requirements around reporting on sustainability.

Further guidance on this topic can be found in Navigate Sustainability.

Why do we need assurance on sustainability data?

Data used for sustainability reporting along with all financial information published by companies needs to be high quality and reliable in order to be trusted and valid. ‘Greenwashing’ and ‘greenhushing’ are key risks that professionally qualified financial auditors can help to mitigate.

This is clearly a fast-moving area and firms continue to build up resource as the demand for sustainability assurance increases. Discussions at recent conferences such as the Audit and Assurance Faculty conference at ICAEW have emphasised the importance of ensuring users can trust sustainability, climate and ESG reporting. Smaller companies are increasingly being asked for information on sustainability given their place in value chains.

Guidelines and standards on sustainability reporting assurance

At the moment, the new International Standard on Sustainability Assurance (ISSA) 5000 General Requirements for Sustainability Assurance Engagements (ISSA 5000) which is due to cover any sustainability assurance engagement, is still at the draft stage. Once issued internationally, the UK Government will propose a UK version. Further details of the draft standard are considered below.

More specifically, although not currently required by UK legislation, assurance over the reporting of streamlined energy and carbon reporting (SECR) information is being encouraged as discussed below.

International Standard on Sustainability Assurance (ISSA) 5000

The exposure draft of ISSA 5000 was issued by the International Auditing and Assurance Standards Board (IAASB) in August 2023 and the comment period closed on 1 December 2023. ISSA 5000 is expected to serve as a comprehensive, standalone standard suitable for any sustainability assurance engagement.

The final international standard is due for approval in September 2024 and is expected to be issued before the end of 2024, although the effective date is not yet set. The IAASB is expected to issue first time implementation guidance at the same time as issuing the standard. The Financial Reporting Council (FRC) are expected to expose a UK version of the standard for adoption in the UK in due course.

The standard will apply to sustainability information reported across any sustainability topic and prepared under multiple frameworks, including the recently-released Sustainability Disclosure Standards IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.

The proposed standard is profession-agnostic and intended to be used by both professional accountant and non-accountant assurance practitioners, as long as they comply with relevant ethical requirements and apply a system of quality management that are at least as rigorous as the IESBA International Code of Ethics and the IAASB’s suite of quality management standards.

ISSA 5000 is designed to be a principles-based standard, focused on principles or outcomes rather than procedures or steps. This allows the assurance practitioner to apply their professional judgement in planning and performing the assurance engagement.

The IAASB envisages that a suite of standards for assurance on sustainability reporting that provide more specificity than an overarching standard will likely need to be developed over time. The IAASB will explore the further development of a suite of assurance standards on sustainability reporting as part of its future standard-setting activities.

Assurance on streamlined energy and carbon reporting

There is no requirement in UK legislation to obtain assurance over the reporting of streamlined energy and carbon reporting (SECR) information (guidance on SECR in Navigate Sustainability is here). However, the Government’s Environmental Reporting Guidelines state that voluntary independent assurance on the accuracy, completeness and consistency of energy use, greenhouse gas (GHG) emissions data and energy efficiency action is encouraged as being beneficial to both internal decision making and for external stakeholders. Information is also provided within FRC Staff Guidance: Auditor responsibilities under ISA (UK) 720 in respect of climate-related reporting by companies required by the Financial Conduct Authority (2022).

Elsewhere we also have the International Standard on Assurance Engagements (ISAE) 3410, Assurance Engagements on Greenhouse Gas Statements. It is a topic-specific assurance standard, under the umbrella of ISAE 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information, which provides requirements and guidance specific to engagements on GHG Statements. The objective of an engagement under ISAE 3410 is to obtain either limited or reasonable assurance that the GHG statement is free from material misstatement, whether due to fraud or error. GHG statements are assured to enhance the reliability of the emissions information being reported on. As the demand for companies to disclose their emissions information increases, public confidence in assured GHG Statements becomes more significant. As the IAASB finalise the scope and content of proposed ISSA 5000, it is expected that the current requirements of ISAE 3410 will be picked up in ISSA 5000, such that ISAE 3410 will no longer be needed.

Document downloaded on 12-07-2024 from Croner-i Navigate, the UK’s leading online research service for tax, audit and accounting professionals. Find out more at www.croneri.co.uk or call 0800 231 5199.

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