According to Bloomberg, sustainability investment has increased by 34% globally over 2017 and 20181. This rapid increase has demonstrated investors’ growing interest in companies’ sustainability performance, pushing them to disclose sustainability-related information through reports, claims and data to satisfy investors and engage stakeholders.
While the demands on stakeholder communication increases, how does corporate accountability keep up in this domain? With the presence of false information over media landscapes, and even in non-financial reporting arena, how do companies uphold credibility and reliability of their disclosures? How do companies ensure full and complete disclosure with high-quality data and integrity? This is where external assurance steps in.
Trends of Assurance
External assurance has become a prevailing trend in enhancing the quality of sustainability disclosures. The scope of assurance extends from sustainability reports, Environmental, Social and Governance (ESG) reports, corporate social responsibility reports, corporate governance reports and sustainability progress reports to disclosed sustainability performance data. Every year, the World Business Council for Sustainable Development (WBCSD) reviews the reports published by companies from various supersectors, regions and sizes. In 2019, a total of 159 companies were included in WBCSD’s review cycle. 82% of those reviewed reports have obtained external assurance, showcasing a 4% increase compared to the previous review cycle2.
Sustainability reporting standards and frameworks set out by many Stock Exchanges across the world and standards organizations have shown support in accelerating the growth of sustainability reporting and assurance. As stated in the Stock Exchange of Hong Kong’s consultation conclusion on a review of the ESG Reporting Guide and Related Listing Rules, 86% of the respondents supported the initiative of encouraging listed companies to obtain external assurance for their ESG reports3. Take the UN’s PRI as an example, an international reporting frameworks that GRESB aligns with, “11% of signatories reported that they conducted third-party assurance or internal audit of their 2016 and/or 2017 Transparency Report, or would do so for their 2017 responses”4. Global Reporting Initiative (GRI), with a series of reporting standards adopted by 75% of the world’s 250 largest companies in 20195, has published The External Assurance of Sustainability Reporting for reporting entities to better understand the concept, issues and outcomes of sustainability assurance.
In addition to providing confidence in disclosures, conducting assurance also levels up companies’ performance in various sustainability-related schemes and programs. For GRESB assessment, having the sustainability report and environmental data checked, verified or assured could contribute to scoring improvement. Likewise, to make the Carbon Disclosure Project (CDP) A-List, it is a mandatory requirement to either verify or assure the disclosed Scope 1 and Scope 2 greenhouse gas emissions6.
Applications of Assurance
Breaking down the assurance process, it is essential to first understand the factors that determine the quality of sustainability assurance:
Factor 1- Types of Assurance
While verification and assurance are both dedicated to ensuring the quality and accuracy of sustainability reports and data, they are two distinguished processes. Verification is merely used for checking non-financial data and does not require an accredited professional. Assurance, on the contrary, checks non-financial information in accordance with rigorous standards and is performed by an accredited professional6. In consideration of the constrain, preference and feasibility that the reporting entities may have or encounter, they could choose to obtain either verification or assurance to increase the level of confidence in the quality of their disclosures. Furthermore, assurance could be performed on two levels.
Factor 2 – Levels of Assurance
The two levels of external assurance are limited level and reasonable level. PRI describes a limited level of assurance engagement as a less detailed process that could be applicable for data-based ESG information to be disclosed on an annual basis, whereas a reasonable level of assurance engagement allows a more in-depth validation process that is comparable to a financial statement audit5. Depending on the level of assurance required or targeted, reporting entities also have the flexibility of obtaining a combination of both levels of assurance for different disclosures and/or different parts of the same report.
In WBCSD’s 2019 review, 18% of the companies that obtained external assurance had conducted a combined level of assurance2. For instance, Stora Enso’s 2018 sustainability report has been assured on a limited level; while the direct and indirect CO2e emissions disclosed in the report have obtained a reasonable level of assurance7.
Taking a Step Further
To ensure the validity and quality of verification or assurance practices, CDP has developed a list of verification and assurance standards and criteria for accepted standards, of which GRESB also follows.
The AccountAbility AA1000 Assurance Standard (AA1000AS), recognized by CDP and promoted by GRI, is developed for external assurance of the implementation of the AccountAbility Principles Standard (AA1000APS 2008 with 2018 Addendum), which guides reporting entities’ approach to sustainability.
As a practitioner of sustainability reporting and AA1000 assurance, Allied Sustainability and Environmental Consultants Group Limited has witnessed the upward demand for sustainability assurance as the demand for sustainability disclosures increases. While sustainability reporting becomes the entrance to corporate sustainability, are you ready to attain the VIP ticket – the assurance statement?
Environmental management and sustainability reporting have become crucial for companies, investors, and governments around the world as countries strive to achieve the Paris Agreement target of net-zero emissions by 2050.
Governments are developing national strategies to address this issue, which include emissions trading schemes, voluntary initiatives, carbon or energy taxes, as well as regulations and standards on energy efficiency and emissions. In turn, companies must discern their position on GHG emissions as they work toward carbon neutrality in order to comply with these new restrictions.
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o limit global warming to 1.5°C, the world needs to be carbon neutral by 2050. Real estate investors are racing to capture the business opportunities and mitigate risks in the transition towards a zero-carbon economy. To date, 128 asset managers, representing approximately $43 trillion in assets under management (AUM), are committed to the Net Zero Asset Managers initiative and supporting the goal of net-zero greenhouse gas emissions by 2050 or sooner.
Space utilization – Market trends and transformation
Everyone agrees that an image is worth 1,000 words. In his book ‘Information Visualization’, Colin Ware states: “The eye and the visual cortex of the brain form a massive parallel processor that provides the highest-bandwidth channel into human cognitive centers.” With the human visual system processing more information than all other senses combined, visuals can be deciphered by the brain much quicker than written information.