Companies worldwide are recognising the importance of accurate sustainability reporting, ensuring their data holds weight and is dependable.
ESG pioneer Position Green recently unpacked the essentials surrounding the introduction of the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standard (ESRS).
The Importance of Assurance in Reporting
At the heart of sustainability reporting is assurance, it said. An assurance engagement is where a neutral third-party reviews information provided by a firm (e.g., GHG Accounting) against set criteria like GHG Protocols. The essence of this is to build trust in the disclosed data. This becomes imperative in giving the public clear insight into the non-financial effects a company has on society and vice versa.
The overarching goals of the CSRD include mitigating economic risks, funnelling capital towards organisations addressing societal and environmental issues, and enabling entities and unions to hold firms accountable for their societal and environmental footprints.
Key CSRD Assurance Areas
The CSRD has earmarked five vital areas for limited assurance:
- Ensuring sustainability reports align with the CSRD.
- Ensuring these reports comply with the ESRS.
- Overseeing the process by which certain information is identified (i.e., the double materiality assessment).
- Meeting the requirements to mark up sustainability reporting as dictated by Article 29d (ESEF).
- Adhering to the reporting standards of Article 8 of Regulation (EU) 2020/852 (The EU Taxonomy).
Differing Levels of Assurance
When discussing assurance, there are two distinct types: limited and reasonable assurance. The main differentiation lies in the degree of trust provided to the sustainability report’s readers. While reasonable assurance demands a comprehensive analysis of a firm’s sustainability records, limited assurance is less exhaustive. Given the extensive evidence required for reasonable assurance, the European Commission is currently mandating limited assurance, with the possibility of adopting the reasonable assurance requirement later.
Standards for Assurance Providers
Assurance providers are held to standards which outline how they should perform their engagement. While a bespoke standard for sustainability info, ISSA 5000, is in development, member states expect assurance providers to currently align with ISAE 3000.
Navigating the CSRD Readiness Process
The CSRD readiness process breaks down into five stages:
- Double materiality assessment
- Gap analysis and planning
- Efficient data management
- Setting up organisational structures and capabilities
- Adapting reports to be in line with the CSRD
All these stages have assurance intricately woven into them. Companies subject to the CSRD must ensure they comply.
Understanding the Assurance Process
Breaking down the assurance process, it spans five steps:
- Acceptance and Continuance: Determining the engagement scope and understanding possible reporting gaps.
- Entity Understanding: Assurance providers must grasp the company’s nature, its operations, and where risks of discrepancies lie.
- Assurance Procedures: Based on prior knowledge, the provider outlines necessary steps to gather required evidence.
- Evaluation: Post-assurance steps, the team analyses findings and understands their effect on the report.
- Final Assurance Report: The provider then communicates their conclusions in a comprehensive assurance report.
Potential Risks of Non-compliance
Companies risk their reputation if there’s insufficient proof for the assurance provider or when discrepancies are found. Non-compliance with report publishing standards can result in fees or even company dissolution. The key lies in preparation and expertise.
Assurance Costs Vary
Determining assurance service costs is multifaceted, influenced by company size, sector, and other factors. Costs can be substantial, making thorough prep crucial for cost-effective reporting.
Position Green’s all-encompassing ESRS Solution guides you through the ESRS and CSRD maze, ensuring clarity in data collection, reporting compliance, and actionable sustainability insights.
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