More companies across the globe are doing sustainability reporting and receiving assurance services, including in countries outside the G20, according to a new report.
The
Assurance rates have increased from 37% to 48%, but engagements cover an ever narrower set of topics. Broad assurance covering a wide range of topics including greenhouse gas metrics and other environmental, social and governance topics has declined from 74% in 2019 to 64% of engagements in 2021. Governance topics have led this decline, dropping from 76% in 2019 to 66% in 2021.
The report covers three jurisdictions from Latin America, six in Africa and Middle East, and four in the Asia-Pacific region, as well as six smaller-sized economies within the European Economic Area and Switzerland.
Most assurance engagements in those countries were done by auditing firms, some 62% of assurance engagements in 2021. The vast majority (81%) of these assurance engagements applied the International Auditing and Assurance Standards Board's International Standard on Assurance Engagement 3000. The IAASB has proposed an updated standard,
The report expands IFAC and AICPA & CIMA's measurements of global practice in sustainability disclosure and assurance to jurisdictions beyond the G20, which were the focus of
ESG disclosure rates grew from 84% in 2019 to 89% in 2021, according to the new report, and assurance rates grew from 37% in 2019 to 48% in 2021. Reporting by companies in the new jurisdictions lagged those in G20 jurisdictions by 6%. Assurance rates fell even further behind, trailing by 16%. However, the new jurisdictions were more likely to obtain assurance from audit firms and more likely to receive limited forms of assurance in 2021.
"When viewed in full, the State of Play series of reports now provide data on the current market practices of nearly 2,000 of the largest stock exchange-listed companies across 42 jurisdictions over the period 2019 through 2021," said IFAC CEO Kevin Dancey in a statement Wednesday. This broader lens on disclosure and assurance makes it even more clear that we are still in the early stages of the journey to provide investors and other stakeholders with consistent, comparable, decision-useful and assured sustainability information that is as reliable as financial information."
Sustainability disclosure in the G20 as well as beyond the G20 still leverages a wide array of different standards and frameworks. But the study found more connections between sustainability and financial information, with only 19% of companies relying on standalone sustainability reports, compared to 50% for the G20. The consolidation of various ESG standard-setters into the International Sustainability Standards Board last year and the release in June of the ISSB's climate disclosure and sustainability standards promises to reduce the current "alphabet soup" of standards.
On Tuesday, IFAC hosted a webinar in conjunction with Climate Week, coinciding with the annual meeting of the United Nations General Assembly in New York.
"Accountants work on both sides of the fence, both within companies and within the firms providing advisory and independent assurance," said IFAC director Stathis Gould. "We all know that to be trusted, sustainability disclosure really needs to be subjected to high-quality, independent external assurance, and this is the path that regulators are increasingly going down to drive confidence in sustainability-related disclosure. Being audit ready is going to be a huge challenge for many companies as they collect relevant data and implement the right appropriate processes and systems."
PricewaterhouseCoopers has been providing such assurance services in Canada, the U.S. and other parts of the world.
"There's been a lot of focus right now on companies and how they can enhance their governance and related processes to produce that relevant ESG data," said Mike Harris, ESG services leader at PwC and chair of the Sustainability Assurance Committee at the International Auditing and Assurance Standards Board, during the webinar. "No doubt, many companies have a lot of work to do in this area, especially ones that haven't really focused on it. But it's really important to note that there's lots of companies that are already getting external assurance and coaching. There's lots of skills out there already, and it comes from that kind of experience. Yes, there are new reporting standards, but for companies that have already been adhering to existing standards, although they're going to be quite different, there's some muscle memory. For those companies that have been doing it and aren't starting from scratch, it's going to be a lot easier and they can draw upon that, or companies can draw upon people with that experience elsewhere if they haven't started it themselves."
He noted that PwC conducted a recent investor survey and found that 89% of the investors reported that they feel ESG reports contain greenwashing. "It's probably not a surprise to a lot of people here, so the need for assurance and investor-grade reporting is pretty key to address that," said Harris. "Among the same investors, 70% found it important that those ESG metrics being reported are assured. There's no doubt this isn't just something that's going to come from regulators. We know the SEC has talked about this. But it comes down to the investors putting their money into these companies and what they're looking for."
