By Amy Leisinger, J.D.
The Center for Audit Quality and the Association of International Certified Professional Accountants released a roadmap to provide auditors direction in supporting companies seeking to achieve their environmental, social, and governance (ESG) reporting goals. Recently, stakeholders make more decisions based on ESG practices, and, accordingly, companies increasingly report ESG information using established frameworks. Further, the Biden Administration has made climate risk a focus, and investor demand for this information is likely to continue to grow.
Attestation and ESG. The roadmap is designed to help independent auditors inform clients regarding ESG disclosures, as well as to assist clients in determining whether to seek an attestation report on ESG information. While ESG reporting has historically taken place outside of SEC submissions, there are increasing calls for public companies to incorporate ESG information, including the impact of climate change and diversity.
"ESG is a rapidly evolving area of reporting, and while there is no one-size-fits-all approach, independent auditors have an important role as this reporting continues to take shape," said Senior Director of the CAQ’s Professional Practice Dennis McGowan, CPA.
Reporting. The success of comparable and relevant ESG must begin with a foundation of quality reporting, according to the organizations. Companies report ESG information for many reasons but mainly to provide transparency about commitments to identify and manage ESG risks. In 2019, 90 percent of S&P 500 companies voluntarily published sustainability reports, but frameworks and standards differ from company to company.
"Reporting standards provide specific and detailed requirements to assist companies in determining what specific information (i.e. both qualitative and quantitative) to disclose for each topic," the organizations state.
Sustainability reporting has historically taken place outside of SEC submissions, but there is new interest in disclosure of ESG information in SEC submissions. Registrants have begun to refer to attestation in SEC submissions, the groups note, and the SEC Investor Advisory Committee has encouraged the Commission to develop a framework for ESG reporting in submissions. This may require the adoption of standards by which issuers disclose material ESG risks in a manner consistent with the presentation of other financial disclosures.
The organizations urge practitioners to consider the risk and legal considerations relevant to providing attestation services on ESG information, particularly data that may need to be included in an SEC submission. The assessment of the attestation engagement should be informed by required evidence, management objectives, materiality, and expectations of the intended end-users. Materiality should remain top of mind, the organizations conclude.