Sustainability reporting and assurance: Why it should be on your radar
The importance of sustainability reporting continues to gain momentum with urgent demands from various stakeholders and substantial developments toward a global set of sustainability standards.
Read on to gain an understanding of:
- why sustainability reporting and assurance are important
- what are sustainability reporting and sustainability assurance
- what guidance exists for practitioners undertaking a sustainability assurance engagement
- what are current developments around sustainability reporting and assurance, and how CPA Canada is involved
- how the movement towards global sustainability standards impacts the audit profession and why it is relevant
The why and the what
Why should you have this top of mind?
The demand for independent assurance of sustainability information is anticipated to grow as entities look to enhance the integrity of their sustainability reporting. As such, it is key that practitioners understand the current landscape and continue to monitor ongoing developments.
What is sustainability reporting?
Sustainability or environmental, social and governance (ESG) reporting refers to a variety of approaches that entities can take to communicate their ESG priorities, policies, programs and performance.
Some examples of ESG factors include:
- environmental: climate change, water use
- social: Indigenous relations, human capital management, diversity and inclusion, and health and safety
- governance: board quality, independence, and accountability; board oversight of executive performance and compensation; and the board's oversight of entity strategy, risk management, performance, and disclosure
What is sustainability assurance?
Sustainability assurance refers to the third-party verification of an entity’s sustainability information. Currently in Canada, assurance over sustainability information is primarily voluntary; however, third-party assurance engagements are becoming increasingly common to support the credibility of data and improve stakeholder confidence.
In Canada, assurance over sustainability information would most commonly be performed as an attestation engagement, in accordance with Canadian Standard on Assurance Engagements (CSAE) 3000, Attestation Engagements Other than Audits or Reviews of Historical Financial Information.
Entities obtaining assurance on their sustainability information can choose between two levels:
- Reasonable assurance: This is a high, but not absolute, level of assurance. The practitioner's report includes a positive conclusion regarding, for example, whether the subject matter information is prepared, in all material respects, in accordance with the applicable criteria.
- Limited assurance: This is lower than in a reasonable assurance engagement, but a level of assurance that still enhances the intended users' confidence about the subject matter being reported. The practitioner's report includes a negative form of assurance, for example, about whether any matters have come to the practitioner's attention that cause them to believe the subject matter information is not prepared, in all material respects, in accordance with the applicable criteria.
Our Sustainability assurance alert: Third-party assurance over sustainability information provides further information on sustainability reporting and assurance, including what engagement options exist.
Guidance and developments
What guidance exists to help practitioners who are undertaking, or plan to undertake, a sustainability assurance engagement?
In August 2021, the Canadian Auditing and Assurance Standards Board (AASB) issued non-authoritative guidance to support Canadian practitioners’ use of the International Auditing and Assurance Standards Board (IAASB)’s Non-Authoritative Guidance on Applying ISAE 3000 (Revised) to Extended External Reporting (EER) Assurance Engagements in Canada, applying Canadian Standard on Assurance Engagements (CSAE) 3000.
EER includes information about the financial and non-financial consequences of an entity’s activities, including sustainability information.
What are current developments and how is CPA Canada involved?
The IFRS Foundation sustainability project
In response to urgent demand from various stakeholders, the IFRS Foundation has confirmed their intent to play a role in the development of a global set of sustainability reporting standards. In March 2021, the foundation expressed their intent to establish an International Sustainability Standards Board (ISSB) with the following strategic direction:
- focus on information that is material to investors, lenders, and other creditors
- initially focus effort on climate-related matters, while working toward meeting the information needs of investors on other sustainability matters
- build on the well-established work of the Task Force on Climate-Related Financial Disclosure (TCFD), as well as work by the alliance of leading standard-setters in sustainability reporting
- work with standard setters from key jurisdictions, to provide a globally consistent and comparable sustainability reporting baseline
A consultation was issued in April 2021, with proposed amendments to the IFRS Foundation’s Constitution to accommodate the potential formation of the new board, which would operate under the foundation’s governance structure. The formal announcement of the new board is planned for November 2021 at the United Nation’s Climate Change Conference (COP26).
CPA Canada supports the IFRS Foundation expanding its remit to sustainability standard setting. We believe that a single set of high-quality sustainability reporting standards has the potential to bring significant benefits to organizations, investors, the global economy, and society at large. What differentiates the proposed ISSB from other sustainability reporting initiatives is the widespread global support it has received at this early stage, most notably from securities regulators and governments, many of which are looking at the need for ESG disclosure rules.
We have also convened a sustainability reporting advisory committee with leading experts in this field to help provide critical input as we monitor and respond to sustainability standards setting and regulatory developments.
Canadian offer to host International Sustainability Standards Board
In July 2021, the Government of Canada formally submitted an offer letter to the IFRS Foundation to host the ISSB in Canada, supported by a coalition of over 55 Canadian public and private institutions, including CPA Canada. The bid was a significant undertaking and demonstrates the strength of the support in Canada for better sustainability reporting.
“The IFRS Foundation Trustees’ plan to create an International Sustainability Standards Board (ISSB) will ensure that the rules that govern sustainability reporting will span borders and deliver high-quality information across all sectors. This has the potential to change the fundamentals of our economy and ensure the road map to recovery leads us to a better world where sustainability is front of mind for everyone. And in a global context, Canada and the CPA profession are both in a position to be looked to as leaders on sustainability and standards setting,” Says Charles Antoine St-Jean, president and CEO CPA Canada.
How does this movement towards global sustainability standards impact the audit profession and why is it relevant?
Investors and other stakeholders have expressed concerns surrounding their confidence in sustainability information. Similar to assurance over financial information, independent assurance over sustainability information can help mitigate these concerns.
In June 2021, the International Federation of Accountants (IFAC), American Institute of CPAs (AICPA) and the Chartered Institute of Management Accountants (CIMA) released The State of Play in Sustainability Assurance. This report highlights sustainability reporting and sustainability assurance trends of large public entities across the globe. It found that of the entities sampled globally, a majority (91 per cent) reported some level of sustainability information; however, only 51 per cent of those entities obtained some level of assurance over it.
The assurance profession has a unique opportunity to leverage their current expertise to help their clients navigate this landscape while enhancing the credibility of information for investors and other stakeholders.
Want to learn more?
Register for our upcoming introductory webinar on sustainability reporting and assurance, A CPA's role in assurance over sustainability information, airing this October.
We have also developed a sustainability assurance resources hub to support practitioners.
Keep the conversation going
Have you had a chance to check out our Sustainability assurance alert: Third-party assurance over sustainability information and our additional sustainability resources? We are interested in hearing your feedback on the guidance we publish and what you are seeing in practice. Post a comment below or email us directly.
Conversations about Audit Quality is designed to create an exchange of ideas on global audit quality developments and issues, and their impact in Canada.
The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.