The convergence of assurance practices in sustainability reporting
How the CSRD marks a shift towards unified standards, shared methodologies, and collaborative approaches
In today's global landscape, the importance of sustainability has risen dramatically, influencing businesses, consumers, and regulators alike. This heightened focus on environmental and social responsibility has been reinforced by regulations such as the European Union's Corporate Sustainability Reporting Directive (CSRD), which expands and refines the standards for sustainability reporting across companies.
Amidst these developments, a crucial aspect gaining particular importance is the assurance of sustainability information and the role of the assurance provider. This practice enhances the reliability and trustworthiness of sustainability disclosures. The CSRD delegates to member states the decision to define the specific roles and responsibilities of assurance providers within the compliance landscape.
Nowadays, assurance is no longer an exercise of voluntary choice by the reporting organization, but rather a mandatory requirement
Under the new European regulatory framework and many other similar regulations that have been adopted or will soon be adopted in numerous countries around the world.
Until now, the theme of assurance of sustainability information has only been partially covered by recognized standards and practices, leaving a certain degree of freedom in approach and practice selection for various assurance providers.
In this context, a significant development is the effort to achieve convergence among various professions and practices traditionally involved in assurance, particularly between financial auditors and organizations within the conformity assessment sphere. A prominent trend is the move towards "profession agnostic" practices and mutual recognition, which acknowledges the inherent challenges in reliably and objectively assessing sustainability performance.
Consequently, it becomes essential to leverage a diverse array of techniques to address the broad spectrum of issues and topics encompassed under the umbrella of sustainability today. This shift intends to bring clarity and consistency to sustainability assurance processes, ensuring stakeholders can rely on more unified standards and methodologies.
The CSRD emphasizes enhancing audit quality and diversifying the audit market to ensure reliable assurance processes
The directive aims for a broader choice of independent assurance service providers for sustainability reporting assurance beyond statutory auditors, aiming to offer businesses more options for independent assurance services. Member States are urged to accredit independent assurance service providers, also taking in consideration the Regulation (EC) No 765/2008, which outlines accreditation requirements and market surveillance. The accreditation system is considered pivotal as it validates the credibility of assurance mechanisms.
Among the entities contributing to this assurance landscape are Conformity Assessment Bodies (CABs). These organizations have traditionally played a pivotal role in evaluating and providing conformity assessments on technical aspects such as GHG emissions, social performance, occupational health and safety, governance models, human rights management, and performance evaluation within the value chain.
Conformity Assessment Bodies accomplish this through specific standards and certifications as well as through verifications of sustainability reports. Their assessments not only build trust among stakeholders but also facilitate the shift towards a more sustainable future and therefore their role is expected to continue to be pivotal as new regulations are implemented.
Technical expertise is a cornerstone of CAB operations, enabling detailed assessments through on-site inspections and technical testing
This thorough approach provides granularity and accuracy, crucial for delivering reliable sustainability disclosures. Moreover, CABs offer sector-specific insights tailored to diverse industries, leveraging their specialized knowledge to enhance the relevance and applicability of their assessments.
Accreditation Bodies oversee CABs, ensuring they operate according to recognized international standards such as ISO/IEC 17020 and ISO 17029. These accreditations underscore the reliability and consistency of CABs' assessments, which include compliance with essential standards in the domain of sustainability. These standards encompass ethical aspects and, in many respects, align with practices in the accounting profession, ensuring rigorous evaluation across various criteria and methodologies.
"In the evolving landscape, the concept of convergence plays a crucial role in shaping how assurance providers navigate new challenges and embrace opportunities for mutual recognition of practices. This convergence is driven by the emergence of new standards and frameworks that set higher expectations for reporting accuracy and assurance reliability," said Emanuele Riva, IAF's Chair. "Central to this evolution are the demands placed on assurance providers to extend their scrutiny beyond the reporting organization to encompass interests, relationships, or circumstances involving value chain entities. The assessment of the sustainability disclosures of companies with extensive value chains, where the most material sustainability risks often lie at the level of suppliers, requires approaches that go beyond traditional boundaries to evaluate interconnected environmental, social, and governance impacts along the value chain. For this reason, it is necessary to leverage the verification, validation, control, and assurance activities carried out by other assurance providers at the supplier level, including legal experts, conformity assessment bodies, and accounting firms that are increasingly engaging in the sustainability domain."
Moreover, there is a growing emphasis on achieving "reasonable assurance"
Reasonable assurance requires assurance providers to gather sufficient and appropriate evidence to support their conclusions. This heightened scrutiny necessitates a deep dive into the processes, data integrity, and methodologies used by reporting entities.
In response to these challenges, assurance providers are increasingly relying on the work of other practitioners involved in sustainability assurance engagements. Requirements established in global assurance and ethics (including independence) standards that address using the work of other practitioners facilitate collaboration and the leveraging of specialized expertise to enhance the comprehensiveness and accuracy of assurance activities, while also addressing the need to manage the costs and resources involved in assurance efforts.
This approach is essential for ensuring the economic sustainability of assurance activities, making it feasible to maintain rigorous standards without imposing excessive costs on the reporting organization.
Antonio Astone, Coordinator of the IAF Task Force on Sustainability Reporting Assurance and member of the Sustainability Reference Group at the International Ethics Standards Board for Accountants (IESBA) says: “The assurance of sustainability information is in a phase of significant clarification, standardization, and revision, driven by several factors that are reshaping operational approaches to ensure confidence in sustainability information. These include the increasing weight of regulation, the progressive extension of disclosure across value chains, and the concept of reasonable assurance, all of which are likely to establish sustainability assurance as a distinct professional discipline”.
However, for such collaborative efforts to succeed, it is imperative that all stakeholders—whether financial auditors, conformity assessment bodies, or other assurance experts—operate on the basis of common ethical principles and convergent approaches.
This convergence ensures consistency in how assurance is conducted across different sectors and disciplines, promoting trust and reliability in sustainability reporting.
At the forefront of fostering this convergence is the IESBA, which advocates for a profession-agnostic and framework-neutral approach to sustainability assurance
By revising its International Code of Ethics to establish a global baseline of ethics and independence standards for all sustainability assurance practitioners, the IESBA aims to create a framework where practitioners can uphold rigorous standards of ethical conduct while adapting to the complexities of modern sustainability challenges.
"We are at the cusp of a fundamental transformation in corporate reporting across global markets, with investors and other stakeholders seeking relevant, comparable and trustworthy sustainability disclosures to support their capital allocation and other decisions.
Stakeholders’ trust and confidence in sustainability assurance requires financial auditors and conformity assessment bodies to adhere to the same high standards of ethics and independence when carrying out their sustainability assurance work, either individually or in collaboration with each other.
For this reason, the strategic partnership between the IESBA and the IAF, announced in February 2024, is a crucial advancement in the public interest. This agreement reflects the importance of the IESBA’s forthcoming sustainability-related ethics and independence standards as constituting the global baseline for ethics and independence for all sustainability assurance practitioners. But it also affirms the IAF’s commitment to adopting those standards, stipulating to national accreditation bodies worldwide that those standards are to be used in accrediting and authorizing CABs to carry out sustainability assurance engagements when included in the ISO/IEC 17029 programme," remarked Ms. Gabriela Figueiredo Dias, Chair of the IESBA.
The convergence of assurance practices in sustainability reporting signifies a shift towards unified standards, shared methodologies, and collaborative approaches
The topic of sustainability information assurance is undergoing a phase of significant clarification, standardization, and revision based on several factors that are significantly reshaping operational approaches to ensure confidence in sustainability information. Together, these elements are redefining the profession, likely establishing it as a distinct professional discipline within the landscape of professions.
7/15/2024 9:10:00 AM