Why assurance in ESG reporting is rapidly gaining importance

The Corporate Sustainability Reporting Directive (CSRD) requires large companies to report on their sustainability efforts. As a result, stakeholders are much more attuned to the robustness of this - often - non-financial information. Assurance on this sustainability information, conducted by an auditor, should give external parties additional confidence on the accuracy and completeness of the data, results, and disclosures that companies publish in their sustainability reports. Tanguy Legein, Audit Partner at KPMG in Belgium, explains what he and his colleagues focus on when auditing such reports.

Starting from the reporting year 2024, companies are required to report on the impact, risks, and opportunities concerning environmental, social, and governance aspects. This obligation will first apply to large "public interest organizations" such as listed companies, credit institutions, and insurance companies. Subsequently, other large enterprises and listed SMEs will follow suit. “Just like with financial reporting, specific rules apply here,” says Legein.

Companies that track data on their sustainability efforts often do so in simple spreadsheets. With the introduction of the CSRD, this is no longer sufficient. “Companies need at least a robust internal control process to verify those data,” Legein says. “Assurance on this sustainability information gives additional comfort to stakeholders in their search for reliable and comparable information, which serves as the basis for their economic decision-making.”

Audit professionals like Legein are therefore vetting companies' CSRD reporting. Initially, 'limited assurance' will be provided on these reports. This is a light version of the 'reasonable assurance' attestation that may eventually be required.

'Limited assurance' involves less in-depth assurance procedures, where the auditor attests to sustainability information with a limited level of certainty. ‘Reasonable assurance’ requires much deeper investigation and is comparable to the level applied for financial information. Assurance as a requirement is not yet established in Belgian legislation.

This attestation may not necessarily need to be carried out by the auditor who also audits the financial figures, although Legein says it is recommended. “There is clearly a link between financial data and sustainability information. Financial issues have an impact on non-financial ones, and vice versa.”

That interconnectedness, referred to as ‘connectivity’ in the guideline, is a concern for auditors. After all, an attestation involves more than reviewing numbers. It involves checking compliance with the European Sustainability Reporting Standards (ESRS), the EU Taxonomy, the dual materiality process, electronic labeling of sustainability information, and understanding the process behind it. Through interviews with managers and by reviewing documents, auditors make critical judgments about these processes and information.

Legein: "Companies that provide assurance for their ESG reporting also reap the benefits.  They attract investors and financing more easily. Assurance can also lead to the generation of competitive advantages and new business opportunities. It is good for the company's credibility and reputation. Which, in turn, can have a positive impact on retaining employees and attracting new talent in the job market.”

Standardized sustainability reporting presents challenges for companies. “Often, they lack the necessary knowledge and resources, and they lack maturity. Moreover, data management is complex because regulations are evolving, and tools are still being developed. So much data is needed to meet ESRS criteria that it is almost impossible to keep track of everything in Excel,” Legein notes.

He emphasizes that companies should automate data collection as much as possible to facilitate audits and reduce the likelihood of errors. In doing so, it is important to be able to audit both the processes and the data.

Legein: "Companies should conduct a gap analysis to compare their current information with the data they need to report on in the future. By engaging auditors early on, they can prepare for the assurance of sustainability information.”

This article was created in collaboration with De Tijd and L'Echo.