It could scarcely be more important to receive assurance around the sustainability reporting produced by companies, governments and public sector organisations.
This year, a PwC Voice of the Consumer survey found that 46% of over 20,000 people in 31 countries say they are buying more sustainable products to reduce their own impact on the environment. Meanwhile, three-quarters of respondents to the firm’s 2023 Global Investor Survey cited sustainability risk as a factor in their investment decisions.
Both consumers and corporates are increasingly basing their purchasing decisions on the brand reputation of a supplier. In turn, brand reputation rests on whether a supplier is a good corporate citizen and sound environmental steward.
The end game is a framework that is ‘trustworthy, relevant and comparable’
Underneath that seemingly simple, clean-cut premise, however, lies a world of complexity and an abundance of ESG (environmental, social and governance) reporting frameworks and initiatives, covering the reporting of greenhouse gas emissions, biodiversity targets, employment practices, supply chain management, and natural resource usage.
From the Global Reporting Initiative (GRI) standards to the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) to the OECD’s policy framework, sustainability data is much needed and its integrity much sought after.
Public expectation
Into this complexity comes a new ethical framework. With a mandate to build the public’s faith in reporting and assurance, the International Ethics Standards Board for Accountants (IESBA) is developing an international ethics standard for sustainability assurance (IESSA).
The board has an ambitious timetable that includes finalising the ethics standard by the end of 2024. In September, IESBA cleared the first hurdle, with approval of the exposure draft along with proposed changes at board-level.
The end game, as set out in IESBA’s exposure draft, is a sustainability assurance framework that is ‘trustworthy, relevant and comparable’. In its 2024-27 strategy and work plan, the board noted the growing demand for sustainability assurance information and emphasised the public expectation that all preparers, whether or not they are professional accountants, will be crucial in tackling issues such as greenwashing and in assuring the integrity of sustainability information.
In its work plan, IESBA argued that the same ethics standards should apply to all preparers and assurance providers.
‘Globally consistent, profession-agnostic and framework-neutral standards are key’
Positive feedback
Responses to the IESSA exposure draft earlier this year were broadly positive. ACCA’s response, for instance, included approval of IESBA’s goal of constructing and gaining traction for an ethical standard that is independent of any one professional group or existing framework for sustainability assurance.
‘Globally consistent, profession-agnostic and framework-neutral professional standards for sustainability assurance are key to ensure the appropriate and trusted disclosure of sustainability information,’ said Sarah Lane, head of ethics and assurance, and Mike Suffield, director for policy and insights, in their introduction to ACCA’s response.
ACCA, which gathered feedback to the exposure draft via three roundtables and also took soundings from its Global Forum for Ethics, commended IESBA for its overall direction. ‘No doubt its hard work alongside other global standard-setters in the field of sustainability reporting and assurance will bring timely and robust standards for sustainability assurance at a time when they are really needed.’
Standard-setting landscape
The ethics standard is evolving alongside the ISSA 5000 sustainability assurance standard being developed by the International Auditing and Assurance Standards Board (IAASB). It is important that the two standards for sustainability assurance – IESSA (the ethics piece) and ISSA 5000 (the assurance piece) – closely align. The IAASB approved ISSA 5000 on 20 September 2024 and will now finalise the text of the standard for certification by the Public Interest Oversight Board. In January 2025, it will publish a range of guidance and application materials.
The ACCA response also noted that other international bodies such as the International Organization of Securities Commissions (Iosco) are seeking the same level of independence and objectivity around sustainability assurance as for any other financial reporting engagement.
‘Independent assurance is vital in ensuring trust and transparency in companies non-financial reporting’
Work ahead
There is undoubtedly further work ahead, however, if the standard is to be comprehensive and truly profession-agnostic.
Sustainability assurance is a highly specialised and rapidly evolving field. To arrive at a standard that is capable of being applied across jurisdictions and referred to by professionals from different disciplines will require a wide, but nevertheless clearly defined lexicon.
As the ACCA response noted: ‘IESSA needs to be capable of being understood and applied by all practitioners of sustainability assurance engagements, including those who are not professional accountants.’
Meanwhile, the International Federation of Accountants (IFAC) has suggested that the assurance standard’s complexity will need to be addressed, in part by clarifying technical language and providing implementation guidance.
IFAC has also urged IESBA to remove barriers that would prevent audit firms providing sustainability assurance to the same clients and to address some of the practical issues relating to value chain considerations.
Comments and input from stakeholders are key to developing cohesive standards and assurance frameworks.
This month, the UK’s Financial Reporting Council (FRC) published its findings from a sustainability market study in which executive director of regulatory standards, Mark Babington, said: ‘For many investors, sustainability related reporting is becoming an increasingly prevalent factor in their decisions to allocate capital and invest in UK companies. Independent assurance of this reporting is vital in ensuring trust and transparency in companies non-financial reporting.’
The next few months will be crucial in arriving at an accessible and meaningful result and ensuring sustainability assurance standards are understandable for all professions, including non-accountants.
More information
Read our article on ACCA’s latest research on ethics The new era of ethical challenges for professional accountants.
Listen to ACCA’s vodcasts on ethical leadership.
