14.4 Assurance and verification of sustainability disclosures
4 min read•july 30, 2024
is crucial for verifying the accuracy of a company's environmental and social impact claims. It involves independent assessment of sustainability reports, enhancing credibility and stakeholder trust. This process helps businesses improve their reporting and identify areas for growth in their sustainability practices.
Both internal and play vital roles in ensuring reliable sustainability disclosures. While internal processes focus on evaluating controls and data collection, external assurance provides an objective assessment. Following established standards, these practices boost the integrity of sustainability reporting and support continuous improvement.
Sustainability Assurance: Concept and Purpose
Definition and Objectives
Sustainability assurance is the process of providing an independent assessment of the reliability, accuracy, and completeness of an organization's sustainability disclosures, such as environmental, social, and governance (ESG) reports
The purpose of sustainability assurance is to enhance the credibility and reliability of sustainability disclosures, thereby increasing stakeholder confidence in the reported information
Assurance engagements help organizations identify areas for improvement in their sustainability reporting processes, data collection, and internal controls, leading to higher-quality disclosures over time
Levels of Assurance and Assurance Providers
Assurance engagements can be performed at various levels, such as or , depending on the scope and depth of the assessment
Limited assurance provides a moderate level of confidence in the reported information
Reasonable assurance provides a high level of confidence and involves more extensive testing and evidence gathering
Assurance providers, such as accounting firms (PwC, Deloitte) or specialized sustainability consultancies (ERM, Sustainalytics), follow established standards and guidelines to ensure a consistent and rigorous approach to the assurance process
Internal vs External Assurance Processes
Internal Assurance
is conducted by an organization's own employees or internal audit function
Internal assurance processes focus on evaluating the effectiveness of internal controls, data collection processes, and reporting systems related to sustainability disclosures
Internal assurance can be a continuous process, allowing for timely identification and remediation of issues
Examples of internal assurance activities include:
Reviewing data collection and aggregation processes
Testing the accuracy and completeness of sustainability performance indicators
Evaluating the effectiveness of sustainability-related internal controls
External Assurance
External assurance is performed by an independent third party, such as an accounting firm or specialized sustainability consultancy
External assurance provides an independent and objective assessment of the sustainability disclosures, enhancing the credibility and reliability of the reported information for external stakeholders
External assurance engagements typically follow established standards and guidelines, such as ISAE 3000 or AA1000AS, to ensure a consistent and rigorous approach across different organizations
Examples of external assurance procedures include:
Reviewing the organization's sustainability reporting processes and internal controls
Verifying the accuracy and completeness of reported sustainability data through testing and evidence gathering
Assessing the alignment of sustainability disclosures with recognized reporting frameworks (GRI, SASB)
Standards and Guidelines for Sustainability Assurance
International Standards
The (ISAE) 3000, developed by the International Auditing and Assurance Standards Board (IAASB), provides guidance for assurance engagements other than audits or reviews of historical financial information, including sustainability assurance
The (AA1000AS) is a widely recognized standard that provides a framework for conducting sustainability assurance engagements, focusing on the principles of inclusivity, , responsiveness, and impact
Reporting Frameworks and Guidelines
The (GRI) provides guidance on the content and quality of sustainability reports, and its guidelines are often used as a basis for assurance engagements
The International Integrated Reporting Council (IIRC) has developed the International Integrated Reporting Framework, which can be used as a basis for assurance engagements on integrated reports that combine financial and non-financial information
Industry-specific standards, such as the (SASB) standards, provide guidance on material sustainability topics and can be used as a reference for assurance engagements in specific sectors (healthcare, technology, consumer goods)
Value of Third-Party Assurance for Credibility
Enhanced Credibility and Stakeholder Confidence
Third-party assurance provides an independent and objective assessment of sustainability disclosures, reducing the risk of bias or misrepresentation
External assurance enhances the credibility and reliability of sustainability disclosures, increasing stakeholder confidence in the reported information and the organization's commitment to sustainability
Assurance engagements demonstrate an organization's commitment to and continuous improvement in its sustainability performance and reporting practices
Identification of Areas for Improvement
Assurance engagements help identify areas for improvement in data collection, reporting processes, and internal controls, leading to higher-quality sustainability disclosures over time
Third-party assurance can help organizations meet the growing demands of investors, customers, and other stakeholders for reliable and transparent sustainability information
The value of third-party assurance extends beyond the specific sustainability disclosures, as it can also improve an organization's overall sustainability management and decision-making processes
For example, assurance findings can inform the development of more robust sustainability strategies and targets
Assurance can also help organizations identify and address potential sustainability risks and opportunities
Key Terms to Review (22)
Accountability: Accountability refers to the obligation of individuals or organizations to report on their actions, accept responsibility for those actions, and disclose the outcomes. In the context of sustainable business practices, it involves recognizing the impact of decisions on stakeholders and the environment, ensuring transparency, and fostering trust through responsible behavior.
Accountability AA1000 Assurance Standard: The Accountability AA1000 Assurance Standard is a framework that provides guidelines for organizations to enhance the credibility and reliability of their sustainability reporting. It focuses on ensuring accountability by promoting transparency, stakeholder engagement, and ethical practices in the management of sustainability disclosures. This standard helps organizations to assess their performance in relation to social, environmental, and economic impacts, ultimately aiming to improve stakeholder trust and decision-making processes.
B Corp Certification: B Corp Certification is a designation for businesses that meet high standards of social and environmental performance, accountability, and transparency. It connects companies to a global community of organizations committed to creating positive impact, while balancing profit and purpose. This certification not only enhances a company's reputation but also aligns with developing compelling value propositions for consumers, while providing assurance of sustainability practices in corporate disclosures.
Carbon Footprint: A carbon footprint is the total amount of greenhouse gases, specifically carbon dioxide, that are emitted directly or indirectly by an individual, organization, event, or product throughout its lifecycle. Understanding and measuring carbon footprints is essential for assessing environmental impact and promoting sustainability across economic, social, and environmental dimensions.
External assurance: External assurance refers to an independent evaluation process that verifies the accuracy and reliability of sustainability disclosures made by organizations. This process involves third-party auditors or experts who assess the reported information against established criteria or standards, enhancing credibility and stakeholder trust. External assurance plays a crucial role in ensuring transparency and accountability in sustainability reporting.
Global Reporting Initiative: The Global Reporting Initiative (GRI) is a leading framework for sustainability reporting that provides organizations with standardized guidelines to measure and communicate their environmental, social, and economic impacts. This initiative encourages transparency and accountability, helping businesses integrate sustainability into their operations and align with global sustainability goals.
Internal assurance: Internal assurance refers to the processes and measures organizations implement to verify the accuracy, reliability, and completeness of their sustainability disclosures. It ensures that the information reported is credible and aligned with established standards, helping organizations identify areas for improvement in their sustainability practices. This concept plays a crucial role in building stakeholder trust and enhancing transparency in sustainability reporting.
International Organization for Standardization: The International Organization for Standardization (ISO) is an independent, non-governmental international organization that develops and publishes standards to ensure the quality, safety, and efficiency of products, services, and systems. ISO standards play a critical role in facilitating global trade and fostering sustainability by providing a framework for organizations to demonstrate their commitment to environmental responsibility and operational excellence.
International Standard on Assurance Engagements: International Standard on Assurance Engagements (ISAE) refers to a set of guidelines developed to provide a framework for assurance engagements, ensuring the credibility and reliability of sustainability disclosures. These standards help in promoting transparency and accountability in reporting, especially concerning environmental, social, and governance (ESG) aspects. By adhering to these standards, organizations can enhance the trust of stakeholders in their sustainability claims and improve the overall quality of their reporting processes.
ISO 14001: ISO 14001 is an international standard that specifies requirements for an effective environmental management system (EMS), helping organizations improve their environmental performance through more efficient use of resources and reduction of waste. It encourages a systematic approach to environmental management, enabling companies to integrate sustainable practices into their operations while meeting legal and regulatory obligations.
Life Cycle Assessment: Life Cycle Assessment (LCA) is a systematic process for evaluating the environmental impacts associated with all stages of a product's life, from raw material extraction through production, use, and disposal. This comprehensive approach helps businesses understand the full range of environmental effects related to their products and processes, enabling more informed decision-making and sustainability practices.
Limited assurance: Limited assurance is a type of evaluation where an auditor provides a moderate level of confidence that the information being assessed is free from significant misstatements. This process is less rigorous than reasonable assurance but more extensive than no assurance, focusing on specific areas of sustainability disclosures to verify their accuracy and completeness.
Materiality: Materiality refers to the importance or significance of information in influencing the decisions of stakeholders, especially in the context of sustainability and corporate social responsibility (CSR). It highlights which issues are relevant for reporting and decision-making processes, ensuring that organizations communicate the most critical aspects of their environmental, social, and governance impacts to stakeholders.
Reasonable assurance: Reasonable assurance refers to the level of certainty that stakeholders can have regarding the accuracy and reliability of sustainability disclosures made by organizations. It signifies a moderate, but not absolute, level of confidence in the information provided, ensuring that it is free from material misstatement and adheres to established reporting standards. This concept is crucial for enhancing the credibility of sustainability reports and fostering trust among investors, regulators, and the public.
Stakeholder inclusiveness: Stakeholder inclusiveness is the practice of engaging and considering the interests of all relevant parties who may be affected by or have an influence on an organization's decisions and activities. This concept emphasizes the importance of incorporating diverse perspectives, ensuring that voices from various stakeholders, such as employees, customers, suppliers, and the community, are heard in the decision-making process. By promoting inclusiveness, organizations can improve transparency and accountability while fostering better relationships with stakeholders.
Sustainability Accounting Standards Board: The Sustainability Accounting Standards Board (SASB) is an independent nonprofit organization that develops and disseminates sustainability accounting standards that help public corporations disclose material, decision-useful information to investors. SASB focuses on enhancing the transparency of environmental, social, and governance (ESG) factors in financial reporting, which connects economic performance with social and environmental impact.
Sustainability assurance: Sustainability assurance is a process through which an independent third party evaluates and verifies the accuracy and reliability of an organization's sustainability disclosures. This process enhances credibility by ensuring that the information presented about sustainability practices and performance is transparent and trustworthy. By engaging in sustainability assurance, organizations can build stakeholder confidence and demonstrate their commitment to responsible environmental, social, and governance practices.
Sustainability audit: A sustainability audit is a systematic evaluation of an organization's practices and policies to assess their environmental, social, and economic impacts. This process helps organizations understand their current performance, identify areas for improvement, and ensure compliance with sustainability standards. By providing a clear picture of sustainability efforts, audits play a crucial role in building trust and transparency for stakeholders regarding sustainability disclosures.
Sustainability Consortium: A sustainability consortium is a collaborative group of organizations, businesses, and stakeholders that work together to promote sustainable practices and improve environmental performance across industries. These consortia aim to create standardized frameworks, share best practices, and provide guidance on sustainability metrics, which is crucial for enhancing the credibility of sustainability disclosures and reports.
Third-party verification: Third-party verification refers to the process by which an independent organization evaluates and confirms the accuracy and reliability of a company's sustainability disclosures. This verification enhances transparency and credibility, ensuring that stakeholders can trust the reported information about a company's environmental, social, and governance (ESG) practices. Such assessments play a crucial role in aligning with global reporting standards and frameworks, as they provide a standardized approach to measuring and validating sustainability efforts.
Transparency: Transparency refers to the openness and clarity with which organizations communicate their practices, decisions, and performance to stakeholders. This concept fosters trust, as stakeholders can easily access relevant information about the organization’s actions and impacts, thereby encouraging accountability and informed decision-making.
Water Usage: Water usage refers to the amount of water consumed in various processes, including agricultural practices, industrial manufacturing, and everyday activities. It is a critical factor in evaluating sustainability as it directly impacts the availability of freshwater resources, ecosystem health, and overall environmental quality.