Assurance of ESG

While independent audits of financials have been standard for most companies for many years, sustainability and ESG information has never been subject to independent oversight or reviews. 

Financial audits do not tell investors, members of the public and customers how a company truly operates. Information about a company’s operations is usually only publicised via an annual report, which, while often reviewed internally and externally by lawyers, doesn’t always contain the level of detail people want to see about the ‘softer’ side of the business. The information within an annual report usually has not been independently assessed. And most annual reports are more like glossy marketing brochures rather than containing important details on ESG that investors, customers and other stakeholders are now looking for. 

For many years, our view has been that companies should release a separate compliance report or a report covering the topics often included within the ESG spectrum – not as a marketing document, but as a guide to how the company is tracking against its goals, objectives and key metrics. This information is an excellent guide for investors, customers, partners, suppliers and members of the public. These days, it is important not only that the company makes money, but that it makes money the right way. People want to see more transparency and less corporate spin. 

Companies have toyed with shorter reports and special web pages dedicated to such matters, but most have shied away from full transparency and disclosure for several reasons. They may not have a great story to tell, or may fear that highlighting issues could become a PR or legal problem. Or, particularly since ‘greenwashing’ has become a hot topic with regulators, there is a fear of saying something that simply isn’t true or isn’t the whole story and then being sued by a government or shareholders. 

The time has come for greater transparency, and things are changing – at least in Europe. 

The Corporate Sustainability Reporting Directive (CSRD) is a new EU directive requiring large and listed companies to report on their sustainability performance. The CSRD was adopted in 2022 and will come into force in 2023. 

The directive will force companies to report on specific ESG issues, and it includes assurance requirements that are designed to ensure that the sustainability information reported by companies is accurate and reliable. There is a strong focus on driving transparency, but also a focus on the quality of released information. 

The CSRD ESG reporting requirements have not yet been ultimately agreed upon by member states, but they will broadly cover two types of assurance requirements: 

Limited assurance 

Companies will be required to obtain limited assurance on their sustainability information. This means that an independent assurance provider will review the information and provide a report that expresses limited assurance on whether the information is free from material misstatement. 

Reasonable assurance 

From 2026, companies will be required to obtain reasonable assurance on their sustainability information. This means that an independent assurance provider will review the information and provide a report that expresses reasonable assurance on whether the information is free from material misstatement. 

The assurance requirements in the CSRD are designed to improve the quality of sustainability information reported by companies. This will help investors, policymakers and other stakeholders make better decisions about companies and their investments. In our view, this is a good way to shine a light on practices and add a great amount of transparency alongside financial reports. Together, these key pieces of data will provide a much broader picture of the health of a company and start to answer whether that company is making money the right way. 

Adding an ESG reporting obligation and, more importantly, adding a level of assurance to the ESG reporting will lead to: 

• increased confidence in the accuracy and reliability of sustainability information – assurance gives stakeholders comfort that the sustainability information reported by companies is accurate and reliable, helping improve the quality of decision-making by investors, policymakers and other stakeholders 
• improved transparency and accountability – assurance can help improve transparency and accountability by companies, helping to build trust with stakeholders and encourage companies to take sustainability more seriously 
• reduced risk of fraud and corruption – assurance can help reduce the risk of fraud and corruption by companies, helping to protect the interests of investors, employees and other stakeholders. 

The assurance requirements in the CSRD are a significant step forward in the development of ESG reporting in Europe. These requirements will help improve the quality, transparency and accountability of sustainability information reported by companies. This will benefit investors, policymakers and other stakeholders, and help promote sustainable development in Europe. 

Under the CSRD in Europe, assurance can be provided by a number of different entities, including: 

• statutory auditors – these are auditors (typically qualified accountants who have met certain professional requirements) who are appointed by the company’s shareholders to audit the company's financial statements 
• independent auditors – these are auditors who are not appointed by the company's shareholders, but who are still qualified to provide assurance on sustainability information (they may be employed by a public accounting firm or they may be self-employed) 
• independent assurance services providers (IASPs) – these entities are accountants or people with other relevant qualifications (e.g. environmental or social scientists) who are not auditors but are qualified to provide assurance on sustainability information. 

The CSRD does not specify which type of entity must provide assurance on sustainability information – this is a matter that the individual member states will determine. However, the directive does set out specific requirements that must be met by any entity that provides assurance, regardless of its type. These requirements include: 

• independence – the entity providing assurance must be independent of the company whose sustainability information is being assured
• competence – the entity providing assurance must have the necessary competence to provide assurance on sustainability information
• due professional care – the entity providing assurance must exercise due professional care in providing assurance on sustainability information. 

The CSRD is a significant piece of legislation that will majorly impact corporate sustainability reporting in Europe. The directive requires companies to provide more comprehensive and transparent information about their sustainability performance, and it requires this information to be externally assured. This will help ensure that investors and other stakeholders have access to accurate and reliable information about companies’ sustainability performance. 

Speeki is a leader in auditing and certification, with Speeki Europe being an accredited certification body that certifies companies on ISO standards and guidelines. Discuss your needs around assurance of ESG data with us and see how we can help you improve transparency of key data across your company.