Sustainability Report Assurance might seem a little dry, but know that it the most important step in the process. Assurance is the third party process of ensuring that a company’s sustainability report meets certain standards. Therefore ensuring that what they say is true.
But let’s start at the beginning. A sustainability report is an assessment of a company’s environmental, social and economic impacts on its stakeholders. It looks at how the company operates, its strategy for future sustainability and its achievements in this area. The goal of sustainability reporting is to make it easier for investors, customers, employees and other key stakeholders to understand how well a company is managing their impact on society and the environment.
Therefore it is good to know that Sustainability Reports are regulated by international organizations. This means that the reports must follow prescribed guidelines to be considered credible. However because there can be a lack of trust in the information provided in a sustainability report, it is essential for companies to use independent Assurance services to give their reports credibility.
Independent Sustainability Report Assurance services ensure that a company’s report follows certain standards and can provide assurance about its credibility. This builds more confidence between stakeholders and companies using the information within the report.
- What are the benefits of using Assurance services?
- What is external assurance in sustainability reporting?
- What are the different types of Assurance services?
- What is meant by sustainability reporting?
- Why do sustainability reports matter?
- Why is there a demand for independent assurance on sustainability reporting?
- What are the five elements of assurance engagement?
What are the benefits of using Assurance services?
Using Assurance services provides many advantages to companies and their stakeholders by helping build trust in sustainability reports, making them more credible. Stakeholders will be able to rely on the information given in a report and they can access reports more easily.
Assurance services also confirm that the company is reporting in line with international standards, which may be required by law or internal policy; this allows companies to avoid using costly resources to create their own guidelines for reporting.
Finally Assurance services can help reduce legal risk associated with sustainability reporting by demonstrating that a company’s report met set guidelines. This will help to satisfy stakeholders and protect the company from litigation.
In addition, using an Assurance service is not only useful in generating trust but it can also be a requirement for companies in certain circumstances, such as by a government or stock exchange rules, or when looking to attract investment.
What is external assurance in sustainability reporting?
There are different ways to achieve Sustainability Assurance. A company may choose to publish its sustainability data independently, with the help of a third party service provider or under the governance of trade association or multi-stakeholder initiative.
The three options are:
1) A company can publish its report independently, using their own data and analysis. This option is the most expensive as it still requires a lot of resources to manage best practice reporting across all functions of the business and produce a credible report. However, this option allows companies to control what information is provided in their report, how it is presented and what the findings are.
2) The company can use third party providers to help create or manage their report for them. This option requires much less effort than the first but the data used must be available publicly; there may also be limitations on what information can be included depending on how the provider’s service works.
3) A company can submit its report to a third party organization that assesses the content and produces its own assessment against a standard set of guidelines. By doing this a company does not have to do any work directly but will still rely on the standard being relevant, credible and effective in building trust with stakeholders. This option is the least expensive since the organization might provide this service for free or at a very low cost.
Who is responsible for sustainability reporting?
Companies use Sustainability Report Assurance services to help ensure that their report meets certain standards and the credibility of any data presented is verifiable. However, it is ultimately up to companies themselves, not third party service providers, to publish a credible report. There remain many companies who do not report at all or whose reports are not credible.
What are the different types of Assurance services?
Different Sustainability Report Assurance service providers offer different types of service, depending on their business model and purpose. Examples of these include:
1) Third-party or peer review to assess a report against certain standards; this can be carried out by either an individual or a team. This option may be free or offered at low cost, depending on the service provider’s business model.
2) Confirmation of data sources to help validate information in a report; this is carried out by an individual who assesses whether the company has used credible and up-to-date data for their report.
This is done by examining the sources and ensuring that they are reputable and current. This is also a free or low-cost service, depending on the organization’s business model.
3) Certification of specific claims in a report; this can be carried out either by an individual or group who check certain figures such as greenhouse gas emissions data against standards set by international bodies.
A charge may be made for this service, which can vary depending on the claim being checked and how many times it is repeated in the report. For example, checking greenhouse gas emissions data would only need to be done once but checking figures for land use multiple times. This type of check cannot provide full assurance of a company’s report and is not recommended by many third-party reporting organizations.
Why is assurance important in sustainability reporting?
Sustainability assurance of ESG reporting is important because independent assurance can help build trust with stakeholders and investors. Having 3rd party verification of a company’s reports can be seen as a positive sign of the credibility and transparency of their reporting.
What are the 3 types of audits?
Companies can use any combination of methods 1-3 to achieve Sustainability Report Assurance for their report, depending on how much work they want to do themselves and how much cost they are willing to incur.
1) If a company decides to produce their own report they will need to make sure that it meets some kind of recognized standard and can also choose which third-party organization they would like to submit it to for quality assurance.
2) Companies can use a provider’s service that conducts a review against a set of standards. This tends to be a free or low-cost service, though providers might charge if they have to repeat any of the standards in the report several times.
3) A third-party provider may also conduct a data check with sources from credible organizations such as United Nations agencies and it is important that companies only use the most up-to-date sources. This can also be carried out for a small fee, depending on the type of check being conducted.
What is meant by sustainability reporting?
A sustainability report is an assessment of a company’s environmental, social, and economic impacts on its stakeholders. It looks at how the company operates, its strategy for future sustainability, and its achievements in this area. Having independent assurance of reports against international standards is key to building trust with stakeholders and the investment community.
What is the problem of sustainability report assurance?
One of the problems with sustainability report assurance is how the cost of sustainability report assurance programs is calculated. The financial cost can be more than just the one-time valuation that is paid to the assurance provider. Besides the cost of services for assistance with developing sustainability reports, there are also the indirect costs that come from preparing for an audit or assessment.
Do sustainability reports have to be audited?
Sustainability reports don’t have to be audited if the company is doing them annually. If not, then it is recommended that all sustainability reports be independently audited.
What is the idea of sustainability?
Sustainability is a movement that addresses the needs of future generations and the Earth on which we live. It calls for changes to slow climate change and protect against its worst impacts. Sustainability also means producing and consuming at a rate that allows both human society and ecosystems to survive and thrive: not just for one or the other, but for both. Also see the Triple Bottom Line, how companies can contribute to sustainability.
Why do sustainability reports matter?
The main reason why sustainability reports matter is because they help stakeholders know how a company thinks about their responsibility to society as well as future generations. They also show how there’s been an impact on the natural environment as well as if there are any conflicts between business goals and social goals. One example would be Shell Technology Ventures’ report that showed how it is important for innovation when making large investments in the oil industry, but that in doing so they were causing carbon dioxide to be released into the atmosphere.
What is internal audit assurance?
An internal audit or outsourced internal audit, may also be referred to as a management review and it is a systematic examination of the company’s operations, its financial and other resources and systems, and its compliance with specific policies. The company may know that there are gaps in their processes and they will use an internal auditor to find where the problems are. After this is done, they will need to fill these gaps or update their standards. Internal audits can be conducted by the company itself or by a third-party auditor who is contracted by the company. It can also be done by an employee of the company.
Why is there a demand for independent assurance on sustainability reporting?
The importance of having independent assurance that reports against international standards is key to building trust with stakeholders and the investment community. This allows us to verify whether or not we can rely on the information provided by the company and also any assurances given by the company themselves.
What is the difference between assurance and internal audit?
Assurance is separate from internal audits which are conducted by internal staff of an organization. Internal audits are more of a risk assessment of the internal operations of the organization. Assurance refers to a third party who makes sure that a company is meeting standards set out by stakeholders or just standard audit practices.
What is objective assurance?
Objective assurance is a process whereby the company provides sufficient evidence to the party providing assurance so that they can provide an objective, unbiased assessment. The evidence should be sufficient so that the party providing assurance does not have to take any other steps in order to assess or verify the information provided.
The company can provide objective assurance by showing the following characteristics:
1) Comprehensiveness – Provide all necessary information related to sustainability impact.
2) Confirmation – Provide confirmation of what is communicated through independent, objective standards. If an item has been confirmed, it should be noted as such on the report.
3) Timeliness – The report should be completed in a timely fashion and be up-to-date.
What are the types of assurance?
There are three types of assurance:
- internal (e.g., Sustainability Reporting Standards, Integrated Reporting)
- external (e.g., audit via an independent third-party sustainability consulting firm)
- third-party assurance (e.g., assurance based).
What are the two levels of assurance?
- Reasonable assurance: This is when the verifier is confident that the challenge they have carried out was sufficiently thorough for them to be able to form a conclusion with some certainty.
- Limited assurance is when the verifier can form a conclusion, but there is limited certainty due to the information available.
What are the five elements of assurance engagement?
The five elements of assurance engagement:
- Independent assurance of a sustainability report against international standards
- External validation of a company’s reported impacts through an independent process
- A clear understanding of how a company generates, uses, and discloses data on its sustainability performance
- Evidence that the information reported is credible and reliable
- A robust system for communicating sustainability performance, both internally and externally
In conclusion corporate sustainability reporting
In conclusion, we have talked about the need for independent assurance of sustainability reports. We also discussed the various types of assurance (e.g., internal, external, and third-party) and what each entails. We learned about the different levels of assurance, the five elements that comprise an engagement, and what is required in order to provide reliable evidence that a report meets international standards. If you would like more information on this topic, then do not hesitate to reach out to us.
Caveats, disclaimers & the global reporting initiative
At ESG | The Report, we believe that we can help make the world a more sustainable place through the power of education. We have covered many topics in this article and want to be clear that any reference to, or mention of ESG, sustainability, carbon, audit or investing in the context of this article is purely for informational purposes and not to be misconstrued as investment or any other legal advice or an endorsement of any particular company or service. We highly recommend that investors use a financial advisor, certified financial planner, or investment professional before entering the markets. Thank you for reading, and we hope that you found this article useful in your quest to understand ESG and sustainable business practices. We look forward to building a sustainable world with you.
Research & Curation
Dean Emerick is a curator on sustainability issues with ESG The Report, an online resource for SMEs and Investment professionals focusing on ESG principles. Their primary goal is to help middle-market companies automate Impact Reporting with ESG Software. Leveraging the power of AI, machine learning, and AWS to transition to a sustainable business model. Serving clients in the United States, Canada, UK, Europe, and the global community. If you want to get started, don’t forget to Get the Checklist! ✅