8.4 External assurance and verification processes

External assurance is crucial for sustainability reporting. It boosts credibility and helps companies improve their data and processes. Different types of assurance engagements, from limited to reasonable, offer varying levels of confidence in the reported information.

Assurance standards like ISAE 3000 and AA1000AS guide the process. Key criteria for assessing data quality include relevance, completeness, and accuracy. Assurance enhances stakeholder trust, influences decision-making, and can have regulatory implications.

External assurance for sustainability reporting

Purpose and benefits of external assurance

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• Enhance the credibility, reliability, and trustworthiness of sustainability reports for stakeholders
• Identify areas for improvement in data collection, management systems, and reporting practices, leading to higher-quality sustainability disclosures over time
• Assurance engagements can be performed at various levels (limited or reasonable assurance) depending on the scope and depth of work undertaken by the assurance provider
• Increase stakeholder confidence, improve internal processes and controls, and better manage risks related to sustainability performance
• Demonstrate compliance with mandatory sustainability reporting requirements and alignment with voluntary reporting frameworks (Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB))

Types of external assurance engagements

• Third-party assessments of an organization's sustainability reporting processes, data, and disclosures conducted by independent assurance providers (accounting firms, sustainability consultancies)
• Assurance engagements can cover the entire sustainability report or specific sections, indicators, or data sets (greenhouse gas emissions, social performance indicators)
• Assurance providers issue an assurance statement or report outlining the scope of the engagement, their opinion on the reliability of the reported information, and recommendations for improvement
• Different levels of assurance provide varying degrees of confidence in the reported information:
  • Limited assurance: Provides a moderate level of confidence and involves less extensive testing and evidence gathering
  • Reasonable assurance: Provides a high level of confidence and involves more rigorous testing, similar to a financial audit

Assurance standards and frameworks

International Standard on Assurance Engagements (ISAE) 3000

• Globally recognized standard for assurance engagements other than audits or reviews of historical financial information, including sustainability reporting assurance
• Issued by the International Auditing and Assurance Standards Board (IAASB) and provides guidance on the assurance process, including planning, evidence gathering, and reporting
• Focuses on assessing the reliability of sustainability information and the processes used to prepare the report, with an emphasis on the assurance provider's independence and professional judgment
• Widely used by accounting firms and other assurance providers for sustainability reporting assurance engagements

AccountAbility 1000 Assurance Standard (AA1000AS)

• Sustainability assurance standard developed by AccountAbility, a global consulting and standards firm
• Emphasizes the importance of stakeholder engagement and materiality in the assurance process, ensuring that the sustainability report addresses the most relevant issues for stakeholders
• Based on the principles of inclusivity, materiality, responsiveness, and impact, which guide the assurance provider's assessment of the organization's sustainability management and reporting practices
• Provides a framework for assessing an organization's adherence to the AA1000 AccountAbility Principles and the reliability of reported sustainability information

Other assurance standards and frameworks

• ISAE 3410: Assurance Engagements on Greenhouse Gas Statements, providing guidance for assurance engagements specifically related to greenhouse gas emissions reporting
• ISO 14064-3: Greenhouse gases - Part 3: Specification with guidance for the verification and validation of greenhouse gas statements
• National standards developed by professional accounting bodies (American Institute of Certified Public Accountants (AICPA), Australian Auditing and Assurance Standards Board (AUASB))

Assurance criteria for sustainability data

Key criteria for assessing data quality and reliability

• Relevance: Extent to which the reported information reflects the organization's significant sustainability impacts and meets stakeholder needs and expectations
• Completeness: Ensuring that the sustainability report covers all material topics and includes sufficient detail to enable stakeholders to assess the organization's performance
• Consistency: Using the same measurement and calculation methods across reporting periods and disclosing any changes in methodology or data boundaries
• Accuracy: Assessing whether the reported information is correct, precise, and free from material misstatements or errors
• Timeliness: Ensuring that sustainability information is reported on a regular basis and made available to stakeholders in a timely manner for decision-making purposes

Assurance procedures for evaluating data reliability

• Evaluate the reliability of data collection, aggregation, and reporting processes, including the effectiveness of internal controls and management systems
• Test the accuracy of data samples, review documentation and evidence, interview relevant personnel, and assess the organization's adherence to reporting principles and guidelines
• Assess the appropriateness and consistency of data measurement and calculation methodologies, as well as the reliability of data sources and systems
• Review the organization's processes for identifying, prioritizing, and managing material sustainability topics and stakeholder concerns
• Evaluate the presentation and disclosure of sustainability information in the report, ensuring clarity, balance, and comparability

Impact of assurance on stakeholders

Enhancing stakeholder confidence and trust

• Provide an independent, third-party assessment of the credibility and reliability of sustainability reports
• Assurance statements or reports outline the scope of the engagement, the assurance provider's opinion, and recommendations for improvement
• Stakeholders (investors, customers, employees, NGOs) may place greater trust in assured sustainability reports when making decisions related to the organization's environmental, social, and governance (ESG) performance
• Demonstrate an organization's commitment to transparency, accountability, and continuous improvement in sustainability management and reporting

Influencing stakeholder decision-making

• Assured sustainability information can influence stakeholder decisions, such as investment choices, purchasing decisions, employment preferences, and advocacy campaigns
• Investors increasingly consider ESG factors and the reliability of sustainability disclosures in their decision-making processes, and external assurance can improve an organization's access to capital
• Customers may prefer to purchase products or services from companies with assured sustainability reports, as it demonstrates a commitment to responsible business practices
• Employees may be more attracted to work for organizations that demonstrate transparency and accountability through externally assured sustainability reporting
• NGOs and advocacy groups may use assured sustainability information to assess an organization's performance and guide their campaigns or partnerships

Regulatory and policy implications

• Regulators and policymakers may view externally assured sustainability reports more favorably, as they provide a higher level of confidence in the reported information and the organization's commitment to responsible business practices
• External assurance can help organizations demonstrate compliance with mandatory sustainability reporting requirements (European Union Non-Financial Reporting Directive, UK Companies Act) and alignment with voluntary reporting frameworks
• As sustainability reporting becomes increasingly mandated and standardized, external assurance may become a regulatory requirement or expectation for certain industries or jurisdictions
• Assured sustainability information can inform the development of public policies and regulations related to corporate sustainability performance and disclosure