Sustainability reporting is set to be held to a higher standard
Sustainability reporting is rapidly becoming a must for most companies, with ESG investing going mainstream and investors considering sustainability as part of their decision making. The demand for higher quality sustainability information has led to the introduction of ISSA 5000, a focused standard that seeks to bring the rigor of financial statement auditing to sustainability information. A new report from KPMG, “Are you ready for ISSA 5000,” examines what the new standard will mean and how companies should prepare.
“ISSA 5000 represents the next generation of sustainability assurance,” said Mike Shannon, Global Head of ESG Assurance, KPMG International. “Sustainability has become a determining factor in where investors put their money, what products consumers buy, and where people choose to work. This has raised the expectations for the quality of sustainability information so that it is more credible and comparable. The goal of the International Auditing and Assurance Standards Board (IAASB) with ISSA 5000 is to set a high-quality international standard that strengthens public confidence in the global profession and therefore in the information being reported.”
How will ISSA 5000 change sustainability reporting to meet the demands for greater credibility, quality and comparability? Here are five keyways:
- ISSA 5000 is not a generic standard; it is specifically focused for sustainability assurance engagements. It is flexible for all sustainability topics and frameworks and scales requirements for reasonable and limited assurance engagements, with reasonable assurance being equivalent to a financial statement audit.
- Determining materiality under the standard is more rigorous and targeted. Risk is defined at both the disclosure level for limited assurance and assertion level for reasonable assurance, considering both financial and impact materialities when required by the sustainability framework such as the European Sustainability Reporting Standards (ESRS).
- Internal controls will be more closely scrutinized. Assurance providers will challenge processes, and the completeness of material matters, and information identified to report.
- The standard recognizes that evidence will often need to be obtained from third-party value chain entities and includes specific requirements for how assurance providers determine whether and how to use the work of other assurance providers.
- Forward-looking information, such as targets and plans, now have more specific direction on the procedures to perform. Assurance providers may seek more specific understanding of how the information is prepared, including methods, assumptions and data.
In recent years there has been a proliferation of national climate laws and policies as regulators have gotten more engaged in the reporting of sustainability information. What has been lacking, until now, is a specific sustainability assurance standard to address the unique challenges and opportunities in assuring sustainability information.
Preparing for ISSA 5000
Organizations should assess the potential impact of ISSA 5000, taking into account how local standard setters and regulators intend to adopt the standard.
“Producing sustainability reporting isn’t a siloed function,” said Mary Bonnici, Senior Director, Global Audit Methodology Group, KPMG International. “Whether undertaking it for the first time or making changes to meet ISSA 5000, the impact can extend across the entire organization, including the company’s people, processes, systems, and governance.”
“It is also important for organizations to consult with their assurance provider early in planning for ISSA 5000,” Mary said. “Your assurance provider can review your process and inspect supporting documentation. The objective is to professionally challenge the process used and the appropriateness of material matters, and information identified or excluded. A key focus is on the completeness of the material information.”
For jurisdictions that have adopted IAASB standards, ISSA 5000 will apply for assurance engagements on sustainability information for reporting periods beginning on or after December 15, 2026. Once ISSA 5000 is effective, International Standard on Assurance Engagements (ISAE) 3000 will no longer apply to assurance engagements on sustainability information.
