– External assurance can enhance trust in ESG disclosures and sustainability reporting.
– ESG assurance must learn from the trust deficit in external audit and chart a different path.
– Robust global standards are needed to make ESG and sustainability reports comparable.
– ESG assurance should focus on maintaining independence, offering valuable insights, demanding accountability from management, and submitting to regulatory oversight.
Trust is crucial in the economy, which is why financial statements undergo external audits. Similarly, sustainability and ESG reporting are now undergoing external assurance to build trust. However, the question arises – How can ESG assurance foster trust in a landscape where external audit is struggling with a trust deficit?
While engaging nontraditional assurance providers is a positive step, it may not be enough. ESG assurance must avoid replicating the same mistakes and criticisms faced by external auditing. ESG issues are diverse, and there is flexibility in disclosure and assurance. Companies may choose to report on specific sustainability issues and locations, leading to concerns of greenwashing.
To illustrate sustainability reporting in practice, the example of Coca-Cola İçecek (CCI) is mentioned. CCI seeks external assurance on its water and energy usage, among other issues. However, unlike external audit, sustainability assurance does not have definitive and mandatory reporting criteria.
The development of robust global standards for ESG and sustainability reports has been slow, with the need for a complementary set of Generally Accepted Accounting Principles for Sustainability (GAAPS) and Generally Accepted Assurance Standards for Sustainability (GAASS) highlighted since 2004. The recent creation of the International Sustainability Standards Board (ISSB) aims to address this need.
To ensure ESG assurance sets the right course and avoids a trust deficit, four tasks are highlighted: maintaining independence, offering valuable insights beyond boilerplate opinions, demanding accountability from management, and submitting to regulatory oversight. ESG assurance should replicate the knowledge and experience of external audit while avoiding its pitfalls.
In conclusion, external assurance plays a crucial role in enhancing trust in ESG disclosures and fostering sustainability reporting. By learning from the challenges faced by external auditing, ESG assurance can chart a different path and build sustainable trust. Robust global standards, independence, valuable insights, accountability, and regulatory oversight are key elements in achieving this trust.
