As sustainability reporting becomes increasingly critical for companies globally, ensuring the accuracy and reliability of these reports through assurance services is paramount. However, while the necessity for sustainability reporting is widely acknowledged, the methodologies and standards for reporting vary significantly.

Challenges in Sustainability Report Assurance

Fragmented Reporting Standards:

Using multiple sustainability reporting standards creates inconsistencies, such as the Global Reporting Initiative (GRI) offers comprehensive standards for global sustainability reporting, emphasizing transparency across economic, environmental, and social impacts. The Sustainability Accounting Standards Board (SASB) focuses on financially material information for investors with industry-specific metrics. The Task Force on Climate-related Financial Disclosures (TCFD) guides companies in reporting climate-related risks and opportunities, highlighting their financial implications. This fragmentation hinders stakeholders’ ability to compare and interpret data consistently​.

Comparing Sustainability Standards Across Countries

Scope and Materiality Issues:

Companies often influence the scope of assurance engagements, potentially limiting thoroughness. Assurance providers tend to focus on data accuracy rather than relevance, which can restrict the depth of the assurance provided. Defining materiality thresholds for sustainability information is complex and affects the assurance outcomes​​.

Limited vs. Reasonable Assurance:

Companies can choose between limited and reasonable assurance services. Limited assurance involves fewer procedures and provides a lower confidence level, while reasonable assurance offers more comprehensive scrutiny but is more costly and time-consuming​.

Regulatory Environment:

The regulatory landscape for sustainability reporting and assurance varies globally, posing challenges for multinational companies to comply with diverse regulations. Assurance providers must stay updated with the latest standards and practices across jurisdictions​​.

Stakeholder Expectations:

Growing stakeholder demands for transparency and accountability in sustainability reporting require assurance providers to balance these expectations with feasible procedures. Engaging stakeholders to understand their concerns and expectations is crucial for improving the quality of sustainability assurance​.

Coping Mechanisms for Assurance Providers

Standardization Measures and Way Forward

International Sustainability Standards Board (ISSB)

The ISSB, established to develop a global baseline of sustainability disclosure standards, aims to unify the fragmented landscape of sustainability reporting standards. This initiative is expected to enhance comparability and consistency in sustainability reporting​ ​.

Regional and National Initiatives

Countries and regions are also developing their sustainability reporting requirements. For instance, the European Union’s Corporate Sustainability Reporting Directive (CSRD) mandates comprehensive sustainability reporting for large companies within the EU​.

KNAV’s Comments

Adapting to change is never easy, and sustainability reporting is no exception. As the acceptance of this change is growing, uniformity and standardization will follow. In the interim, assurance providers must leverage their expertise to adopt best practices, prioritizing relevance over precision, importance over formality, and substance over mere compliance.