Realising efficient sustainability assurance

We advise clients to define a clear assurance policy to confirm the objectives of each engagement.

Given the incremental shift in assurance provision, we recommend organisations adopt a public assurance policy which explains why certain metrics are being selected for assurance review, what audience is being targeted, and the rationale for the level of assurance sought. This will continue to build confidence in the disclosures made and avoid potential perceptions that assurance provision is selective in a manner that favours the disclosing firm and not the intended readers of the reports.

Firms are well advised within the assurance policy to confirm their assurance needs, in terms of whether limited or reasonable assurance is required, and how these requirements are changing over time based on different stakeholder needs.

Our previous reviews have highlighted that few organisations describe the governance of disclosures. There are very few explanations of how the published reports were produced and what scrutiny they underwent prior to disclosure.

This is an important factor in giving credibility to reports, and often, external assurance is limited to a small number of data points within an appendix, with little explanation of how the remainder of the report was prepared. In digging a little deeper, several firms do in fact, have oversight from their audit committee or disclosure committee, but how this process works is generally opaque.

Audit committees and their advisers should carefully weigh up the benefits of appointing external financial auditors to also take on sustainability assurance remits. The firm’s assurance policy can help shape this debate in measuring the benefits of working with a single external firm against the challenges associated with potential conflicts of interest or independence being priced on a top-down basis, as a percentage of the financial audit fee, rather than on the basis of the work required.

Before considering external independent assurance over disclosures, organisations are well advised to leverage their own internal capabilities. Control functions such as risk management, compliance, and internal audit are well placed to provide challenges to sustainability reports, but also the underlying processes by which they have been produced. Legal teams are often in a strong position to carefully evaluate the disclosure risks associated with ‘greenwashing’.

When firms are commissioning independent assurance for the first time, this can be a risky process for both sides. The firm is unsure of what is expected, and assurance providers have no measure of the underlying data capture and reporting processes. Under such circumstances, we have found it helpful for clients to commission a ‘Readiness Assessment’ that tests the preparedness of the organisation for a full limited assurance engagement. This has enabled us to report back to the client whether it is safe to proceed to complete the assurance with an appropriate level of confidence in the outcome, or whether the firm is not yet ready, in which case the exercise is curtailed and an internal report issued with an improvement plan recommended to ensure that organisation can take remedial actions and prepare for a future reporting cycle.