Sustainability Assurance – Standards | Types | Role in ESG Reporting

Sustainability Assurance is an independent evaluation process that verifies the accuracy, reliability, and completeness of a company's sustainability reports, policies, and practices. It ensures that environmental, social, and governance (ESG) information disclosed by an organization is credible and aligns with recognized standards, helping build stakeholder trust, improve transparency, and demonstrate a commitment to sustainable and responsible business practices.

Table of Contents

1. What is Sustainability Assurance?
2. Advantages of Sustainable Assurance
3. Types of Assurance
4. Sustainability Information Assurance Standard
5. The Accountability AA1000 Assurance Standard
6. Role of Audit Committee

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1. What is Sustainability Assurance?

Sustainability assurance is a process that provides independent verification of a company’s sustainability performance and reporting. It aims to ensure that sustainability information provided by a company is accurate, reliable, and relevant. Sustainability assurance typically involves an external auditor or assurance provider reviewing a company’s sustainability reports, polices, and practices, and issuing a report that gives stakeholders assurance that the information is accurate and reliable. This can help companies build trust with stakeholders, enhance their reputation, and demonstrate their commitment to sustainability.

2. Advantages of Sustainable Assurance

Sustainability certification and assurance can provide businesses with a competitive advantage by demonstrating their commitment to sustainable practices and providing assurance to stakeholders that their products and services are produced in an environmentally and socially responsible manner.

Overall, sustainability certification and assurance can benefit businesses in various ways, including improving their financial performance, reducing risks, enhancing their reputation, and contributing to the achievement of global sustainability goals.

Sustainable assurance, also known as sustainability reporting or corporate social responsibility reporting, is the practice of publicly reporting an organisation’s social, environmental, and economic performance. Here are some advantages of sustainable assurance –

1. Improved stakeholder relations – It enables companies to be more transparent about their operations, helping to improve their relationships with stakeholders, including investors, employees, customers, and the wider community. By being more open about their practices, companies can build trust and engage with stakeholders more effectively.
2. Enhanced brand reputation – It can help companies enhance their brand reputation. By demonstrating their commitment to sustainability, companies can differentiate themselves from their competitors, attract customers who value sustainability, and strengthen brand loyalty.
3. Better risk management – It can help companies identify and manage risks associated with their operations. By reporting on environmental, social, and governance (ESG) issues, companies can better understand the potential impacts of their activities and take steps to mitigate these risks.
4. Improved decision-making – Sustainable assurance provides companies with valuable data on their ESG performance. By analysing this data, companies can identify areas where they need to improve, set targets for improvement, and track their progress over time. This can help companies make better-informed decisions and improve their overall performance.
5. Access to capital – Sustainable assurance can help companies attract investment from investors who prioritise sustainability. By demonstrating their commitment to ESG issues, companies can appeal to a growing number of investors who are looking to invest in socially responsible companies.
6. Compliance with regulations – In many countries, companies are required by law to report on their ESG performance. Sustainable assurance can help companies ensure they comply with these regulations and avoid potential legal issues.
7. Improved internal management – It can help companies improve their internal management practices. By tracking their performance on ESG issues, companies can identify areas where they need to improve and take steps to make their operations more sustainable. This can lead to cost savings, increased efficiency, and improved employee morale.
8. Trust and Loyalty – The advantages of Sustainability Assurance for a company’s reputation are significant. Customers can rely on the fact that the products or services they purchase are sustainable and beneficial for them, and employees will take pride in working for a company with integrity. Additionally, other stakeholders can be confident that business partners, suppliers, and funders are also contributing to the betterment of society. This, in turn, can lead to increased trust, loyalty, and positive brand recognition, ultimately leading to a competitive advantage in the marketplace.
9. Innovation – By focusing on sustainability, companies can identify new products, services, and business models that are both environmentally friendly and financially viable. This can lead to increased innovation and competitiveness in the marketplace.

3. Types of Assurance

Assurance on sustainability information can either be provided via a limited assurance engagement or a reasonable assurance engagement.

3.1 Limited Assurance

Limited assurance means that the service provider provides a moderate level of assurance on the sustainability information provided by a company. The provider focuses on understanding the process used by the company to compile the information and performs certain procedures to ensure that the information is not materially misstated. This may include observing data at a more aggregated level and using professional judgement to determine the work to perform and evidence obtained.

Based on the procedures performed and evidence obtained, the service provider expresses a conclusion, stating whether any material issues have come to their attention that lead them to believe that the sustainability information is not presented fairly according to the applicable criteria. The criteria used to evaluate the information are typically the reporting framework, standard or regulation used by the company to prepare their disclosures.

Limited assurance engagements are often used when a company is not required to provide a high level of assurance on their sustainability information or when the cost of obtaining reasonable assurance is not justified. However, it is important to note that limited assurance does not provide the same level of confidence to stakeholders as reasonable assurance, and there may be limitations to the procedures that can be performed due to time or resource constraints.

3.2 Reasonable Assurance

Reasonable assurance is a type of assurance engagement that is conducted by an assurance service provider. In this engagement, the assurance provider obtains sufficient and appropriate evidence to reduce the risk of material misstatement to an acceptable level. Professional judgment based on the assurance provider’s knowledge, expertise, and experience is crucial in ensuring that enough work has been performed to reach a conclusion.

The work effort involved in a reasonable assurance engagement is more extensive than that in a limited assurance engagement. It includes –

1. Identifying and assessing any risks of material misstatement.
2. Testing the operating effectiveness of the company’s internal controls that the assurance provider intends to rely on.
3. Conducting substantive procedures.

After obtaining sufficient evidence, the assurance provider expresses a conclusion in a positive form as to whether the subject matter information is free of material misstatement according to the applicable reporting criteria, such as the reporting framework, standard, or regulation.

Reasonable assurance is the highest level of assurance that can be obtained in an audit of financial statements. However, it is still not absolute since assurance will always come with inherent limitations due to the nature of the evidence obtained via testing, potential fraud or error risks, information subjectivity, and other factors.

4. Sustainability Information Assurance Standard

4.1 International Sustainability Assurance Standards

The Sustainability Information Assurance Standard outlines the requirements and guidelines for conducting assurance engagements on sustainability information. This standard is designed to ensure that practitioners follow a consistent and comprehensive approach to provide assurance on sustainability information.

One of the key standards used for sustainability information assurance is the International Standard on Assurance Engagements (ISAE) 3000 Revised. This standard provides a framework for the assurance process, including planning, performing, and reporting on the assurance engagement. The ISAE 3000 Revised emphasises the importance of professional scepticism, the need for evidence to support the assurance conclusion, and the requirement for the practitioner to exercise professional judgment.

The use of the ISAE 3000 Revised is particularly important in the context of sustainability information, where the information may be more subjective and prone to measurement error. The standard helps to ensure that the assurance engagement is conducted in a rigorous and consistent manner, reducing the risk of material misstatements and enhancing the credibility of the sustainability information being reported.

There is no legal requirement to use ISAE 3000 at the European level, some Member States such as France, Italy, and Spain have used this standard as a basis for their national developments. Other countries like the Netherlands have also made voluntary sustainability assurance a common practice.

Additionally, there are other professional standards, such as ISAE 3410, that may be used to deal with specific parts of sustainability information, for example, assurance engagements related to greenhouse gas statements. It’s important to note that the choice of which standard to use will depend on various factors, including the nature and scope of the engagement, the reporting framework or regulation used, and the needs of the stakeholders involved.

ISAE 3000 provides guidance on the content and format of the assurance report for sustainability information. The report should contain several key elements that help users understand the scope, nature, and results of the assurance engagement.

• One of the main elements of the report is a description of the level of assurance obtained, which can be either limited or reasonable.
• The report should also clearly state the scope and subject matter of the assurance engagement, which will depend on the specific reporting framework or standard used by the company to prepare their disclosures.
• The report should also include a discussion of any significant inherent limitations associated with measuring the underlying subject matter against the applicable criteria. This is particularly relevant in the context of sustainability reporting, where there may be inherent limitations in the data or assumptions used to calculate certain metrics or indicators.
• The report should also clearly outline the respective responsibilities of the company and the assurance service provider, and name the applicable assurance standards and confirm adherence to further professional requirements and standards as applicable. This includes –

1. 1. Compliance statements with ISAE.
   2. The International Standard on Quality Control (ISQC)/International Standard on Quality Management (ISQM) system requirement (ISQC/ISQM).
   3. The International Ethics Standards Board for Accountants (IESBA) Code of Independence and other ethical requirements (or other professional code, but valued as demanding).

• The report should provide details on the work effort that has been performed as the basis for the conclusion, including the sites concerned, processes and data tested, and any other relevant information.
• The report should contain the assurance service provider’s conclusion, which can be either unmodified or modified, depending on the results of the engagement.

5. The Accountability AA1000 Assurance Standard

The AA1000 Assurance Standard (AA1000AS) was developed by Accountability to provide guidance for external assurance providers in assessing an organisation’s implementation of the AA1000APS Principles Standard (AA1000APS 2008), which is used by some organisations to guide their sustainability disclosure practices. The AA1000AS emphasises the importance of considering stakeholder concerns in the assurance process and provides guidance on how to do so effectively.

The AA1000AS is used by different types of assurance providers, including accounting firms, sustainability consulting firms, and specialised assurance providers. The standard provides guidance on the assurance process, including planning, scoping, testing, and reporting, and emphasises the importance of professional scepticism and the need for assurance providers to maintain independence and objectivity.

Like ISAE 3000, the AA1000AS is a voluntary standard and is not legally required. However, it is often used by organisations that seek to provide stakeholders with additional confidence in their sustainability reporting and demonstrate a commitment to transparency and accountability.

Sustainability Assurance Standards Issued by Institute of Chartered Accountants of India (ICAI) –

1. Standard on Sustainability Assurance Engagements (SSAE) 3000 – Assurance Engagements on Sustainability Information
2. Standard on Assurance Engagements (SAE) 3410 – Assurance Engagements on Greenhouse Gas Statements
3. Sustainability Reporting Maturity Model (SRMM) – Version 1.0
4. Sustainability Reporting Maturity Model (SRMM) – Version 2.0

6. Role of Audit Committee

The audit committee plays an important role and responsibility in supporting and overseeing the company’s ESG efforts.

1. Reviewing and overseeing the company’s ESG risks and opportunities – The committee should assess the company’s exposure to ESG risks and opportunities and ensure that management has implemented effective systems and processes to manage them. This could include reviewing the company’s ESG policies, risk management strategies, and stakeholder engagement activities.
2. Monitoring ESG performance and reporting – The committee should monitor the company’s ESG performance and ensure that it is accurately reported to stakeholders. This could include reviewing ESG data, metrics, and targets, as well as ensuring that the company’s ESG reporting aligns with relevant frameworks and standards.
3. Providing guidance on ESG strategy and initiatives – The committee should provide guidance and support to management on ESG strategy and initiatives. This could include reviewing and providing feedback on ESG-related investments, acquisitions, and divestitures, as well as providing input on the company’s overall ESG approach.
4. Ensuring ESG compliance – The committee should ensure that the company is compliant with relevant ESG regulations and standards, as well as any internal policies and procedures related to ESG.

Overall, the audit committee plays a critical role in ensuring that the company’s ESG efforts are aligned with the company’s overall strategy and values, and that they are effectively managed and reported to stakeholders.