Building Trust: How Existing Data Validation Streamlines ESG Report Assurance

Environmental, Social, and Governance (ESG) reporting has become a critical differentiator in today's business landscape. These reports, consolidating information from over 20 different areas like energy consumption, employee diversity, and board composition, often adhere to standards like the upcoming Corporate Sustainability Reporting Directive (CSRD)/European Sustainability Reporting Standards (ESRS) or IFRS S1 and S2. However, the sheer volume and complexity of data raises a crucial question: how can stakeholders be confident in the accuracy and completeness of this information?

This is where ESG report assurance comes in. It's a process similar to financial auditing, but focused on the non-financial data in an ESG report. Independent assurance providers assess whether the chosen reporting framework has been followed appropriately and, more importantly, whether the underlying data supporting those disclosures is accurate and reliable.

For companies navigating this process for the first time, assurance can seem daunting, both in terms of time commitment and cost. However, a hidden advantage exists for companies that already have robust data validation processes in place, particularly those utilising established standards like ISO programmes. Let's delve deeper into the world of ESG report assurance and explore how existing data validation can streamline the process and unlock significant benefits.

The Confusion of ESG Data Consolidation

Imagine trying to navigate a labyrinth – a complex network of interconnected paths. This labyrinth represents the challenge of ESG data consolidation. Information from various departments, including HR reports on employee demographics, facilities data on energy use, supply chain records on responsible sourcing practices, all need to be integrated to create a holistic picture. This is the essence of ESG reporting – aggregating data from diverse sources to paint a comprehensive picture of an organisation's sustainability efforts.

While frameworks like CSRD/ESRS provide a roadmap for navigating the labyrinth, challenges remain. Inconsistency in data collection methodologies across departments, potential gaps in data availability, and the risk of human error all contribute to the potential for inaccuracies in the final report.

Assurance: Shining a Light on Transparency

ESG report assurance acts as a vital tool in ESG and sustainability. Independent assurance providers with expertise in sustainability reporting, scrutinise the reported disclosures. They assess whether the chosen reporting framework has been applied correctly and whether the data presented is accurate and fairly represented.

The assurance process typically involves three levels, each offering a different degree of scrutiny:

• Limited Assurance: This provides a basic level of comfort, focusing on high-level inquiry procedures to identify any material misstatements.
• Reasonable Assurance: This is the most common level, offering a more in-depth examination of data and controls to provide a moderate level of confidence in the report's accuracy.
• High Assurance: This level involves the most intensive procedures, offering a very high level of assurance that the disclosures are reliable and free from material misstatements.

The level of assurance chosen depends on various factors, including company size, industry, and stakeholder expectations. However, all levels involve an assessment of the data consolidation process, ensuring completeness in bringing together information from different sources. More importantly, they delve into the underlying data itself, verifying its accuracy and adherence to established methodologies.

Streamlining Assurance: The Power of Existing Data Validation

Companies that have already implemented robust data validation processes hold a significant advantage when it comes to ESG report assurance. ESG report assurance involves validating (to varying degrees) the consolidation of the data AND the quality of the data that is consolidated. That means there is a review of both the consolidation and the underlying data. The process is more than just a ‘check the box’ of whether the consolidation works, it is about making sure the underlying data and the process are valid and accurate. Keeping in mind that 80% of ESG reporting are ‘words’ not ‘data’, means that understanding the content and how programmes are being built is important.

Companies can dramatically decrease the time and cost of ESG report assurance by providing their assurer with evidence that the underlying data has already been validated. Here are some examples that would allow an assurance provider to streamline the ESG report assurance project.

• Using pre-examined data: When data is already validated against a recognised standard like ISO 14001 (environmental management) or ISO 26000 (social accountability), assurance providers can leverage this existing verification. This reduces the need for duplicative procedures, leading to a more streamlined and cost-effective assurance engagement. Imagine a scenario where a company has already undergone an ISO 14064 verification and/or validation, which rigorously checks their greenhouse gas (GHG) emissions data. During the ESG report assurance, the assurance provider can rely on the established procedures from ISO 14064-6, reducing the need for extensive re-verification of the GHG data. This allows for a more focused examination of other aspects of the report, ultimately leading to a faster and less expensive assurance process.
• Enhanced Confidence: Existing validation provides a strong foundation for the assurance process. Similar to building a house on a sturdy foundation, existing data validation allows assurance providers to place greater reliance on validated data. This reduces workload and allows for a more focused examination of areas with less established data verification practices. Ultimately, it leads to a more efficient and effective assessment, building greater confidence in the assurance opinion.
• Improved Credibility: Existing data validation demonstrates a proactive commitment to data accuracy and transparency. This strengthens the overall credibility of the ESG report and fosters trust with stakeholders who rely on its information for decision-making. Imagine an investor considering two companies. One company has a robust ESG report with limited assurance, but the underlying data hasn't been validated. The other company has a similar report with reasonable assurance of the underlying data and certifications on some of the key elements that are included in the consolidated report. 

What does this mean for your ESG assurance project?

It means that companies that already have reliable, credible verification, validation or certified programmes that provide data and inputs into a ESG consolidated report should receive substantial credit in their ESG report assurance cost and timing. The ESG report assurance can focus on the ‘how’ things are done rather than focus on mathematical calculations and ‘accounting’. More time can be spent on substantive analysis and recommendations for improvement rather than on simple calculations.

Five steps to success.

1. Find all those areas where you can leverage pre-existing verification, validation or certification.
2. Build these programmes according to known standards. Examples are governance (ISO 37000), risk (ISO 31000), anti-bribery (ISO 37001), whistleblowing (ISO 37002), compliance (ISO 37301), information security (ISO 27001), health and safety (ISO 45001), social responsibility (ISO 26000), energy management (ISO 50001), GHG (ISO 14064), environmental management (ISO 14001), just to name a few.
3. Have these certifications or verifications completed as part of a regular programme that is completed by an accredited certification body according to the chosen standard (different bodies can be chosen according to different topics. There is no need to use the same company for verification)
4. Share evidence of conformity with your ESG report assurance body.
5. Adjust the audit criteria and audit approach for your ESG assurance project accordingly to leverage the pre-existing work.

The benefits of using the pre-existing standardised approaches to conformity according to standards is a major advantage to companies seeking to gain assurance of their ESG report consolidation. Building your assurance strategy is important to maximise your time and gain the greatest value from your assurance.