The CSRD ushers in a robust framework to enhance the transparency and reliability of ESG disclosures.
According to Greenomy, initially, companies will engage in limited assurance to ensure reports are free from significant misstatements, aligning with the evolving EU standards. By 2028, a transition to reasonable assurance may provide an elevated level of confidence, thereby shaping stakeholder interactions with corporate sustainability efforts.
Starting in the financial year 2024, companies within the CSRD’s scope must prepare sustainability statements based on the European Sustainability Reporting Standards (ESRS). These statements will undergo limited assurance. The European Commission plans to adopt the International Standard on Sustainability Assurance 5000 (ISSA 5000) by December 15, 2026, which will standardise the limited assurance engagements until EU-wide standards are finalised.
Limited assurance offers a moderate level of confidence with a focus on analytical reviews and inquiries, providing a negative conclusion that no material misstatements have been found. In contrast, reasonable assurance provides a high level of confidence with extensive procedures, offering a positive conclusion that financial statements are presented fairly, reflecting a more thorough examination.
Limited assurance in CSRD involves less comprehensive procedures focusing on understanding the processes used for compiling reports and detecting potential misstatements. This assurance type is cost-effective, typically costing 20-30% of a full financial assurance, according to the EFRAG’s cost-benefit analysis.
Reasonable assurance aims to give stakeholders a high degree of confidence that the reviewed information is free from material errors. This involves detailed tests and evaluations of internal controls, offering a broader and more detailed examination than limited assurance.
The CSRD mandates that sustainability information undergo independent assurance to verify its accuracy and comprehensiveness. This process is essential for ensuring that the disclosed information reflects the company’s actual ESG impact without bias.
The assurance process involves understanding the company’s disclosure processes, evaluating risks of misstatement, performing substantive tests, and reviewing the sustainability report for compliance with CSRD and ESRS standards, culminating in an auditor’s assurance report.
The CSRD allows Member States some flexibility in how assurance is provided. They can permit auditors other than those auditing financial statements to offer limited assurance, or allow independent assurance providers to do so, provided they meet specific professional standards.
Member States must ensure that independent assurance providers or statutory auditors meet rigorous standards to maintain the integrity of sustainability reports. Providers accredited before 2024 are exempt from new requirements until 2026, though they must continue their education on sustainability reporting.
The CSRD significantly changes corporate reporting by requiring assurance on sustainability information, enhancing the overall credibility and reliability of reports across the EU. This directive ensures that both statutory auditors and independent providers verify corporate disclosures, promoting a transparent and sustainable business environment.
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