Resources to help auditors keep up with developments around climate, ESG and sustainability reporting, and assurance.
During 2022 and 2023, significant progress has been made on frameworks and standards for disclosures relating to environmental, social and governance (ESG) factors, climate and sustainability, with international, regional, and country-specific developments emerging.
This fast-changing landscape is a complicated place. To navigate it, auditors may need to enlarge their professional lexicon, assimilate new abbreviations and acronyms, and stay on top of how financial reporting, non-financial reporting, audit and assurance are affected.
Given the volume of activity, the overview that follows is relatively brief. It does, however, offer pointers to sources of background, context and more detailed information on some of the most significant developments, outputs, and organisations involved.
International Sustainability Standards Board (ISSB)
In June 2023 the ISSB issued its first standards:
Some organisations that have been significant in the development of international frameworks and standards have, over the past few years, become integrated with each other and then subsumed into the IFRS Foundation, for example the International Integrated Reporting Council and Sustainability Accounting Standards Board. Both organisations provide information about how their work is progressing and the future of their standards. It remains to be seen how widely the IFRS sustainability disclosure standards will be adopted.
It remains to be seen how widely the IFRS sustainability disclosure standards will be adopted
ICAEW’s Corporate Reporting Faculty provides an introduction to IFRS Sustainability Disclosure Standards.
The Corporate Reporting Faculty also provides regular updates on related developments on the faculty’s By All Accounts hub.
Recent articles offer:
- an overview and analysis of the new standards IFRS S1 and S2; and
- a consideration of which sustainability disclosure standards are most likely to be adopted, those from the ISSB or those from the European Financial Reporting Advisory Group (EFRAG).
European Financial Reporting Advisory Group (EFRAG)
EFRAG is closely connected with the European Commission and drafted the European Sustainability Reporting Standards (ESRS).
EFRAG has provided useful background on the past and future of the ESRSs. This also touches on matters such as development of ESRS for SMEs, interoperability between ESRS and other major standard setting initiatives, and gives pointers to other related information.
The European Commission (EC)
In July 2023 the EC adopted the first set of 12 finalised ESRS (drafted by EFRAG). The ESRS outline how a company within the scope of the European Union (EU) Corporate Sustainability Reporting Directive (CSRD), which was adopted in November 2022, will report on its ESG impacts and on how social and environmental issues create financial risks and opportunities for the company.
An extensive EC Q&As webpage (also available for download) offers answers to questions on many aspects of the ESRS, and details on the CSRD, its implementation and relevant EC regulations and Directives including timelines.
The scope of the CSRD is wide-ranging and although it is a European Directive, some of the CSRD requirements apply to non-EU companies meeting certain threshold requirements.
The ESRS and CSRD reporting requirements will be phased in over time for different companies, with the first phase commencing for the 2024 financial year, and sustainability reports published in 2025.
The EC has provided an overview about what the EU is doing around sustainability reporting and why.
ICAEW Insights offers background information and updates on the CSRD and ESRS, which may easily be accessed/filtered by searching using the relevant terms.
The ESRS and CSRD reporting requirements will be phased in over time
Global Reporting Initiative (GRI)
The GRI was founded in 1997. In 2000, when it published its GRI guidelines, it provided the first global framework for reporting on sustainability impacts. The GRI standards evolved into a modular system of universal and topic-specific interconnected standards. The KPMG Survey of Sustainability Reporting (October 2022) found them increasingly widely adopted among the world’s largest companies.
The GRI continues to develop its standards and recently updated its biodiversity standard, with a revised GRI 304 expected before the end of 2023.
When the ISSB and EFRAG were developing their sustainability disclosure standards, both organisations collaborated with the GRI.
ICAEW Insights offers background information and updates on the GRI, its standards and interaction with other sustainability disclosure frameworks, which can be accessed/filtered by searching using the relevant terms.
Financial Stability Board (FSB)
The FSB also plays a role in developments around climate-related disclosures. This international body – that monitors and makes recommendations about the global financial system – developed the Task Force on Climate-related Financial Disclosures (TCFD) and its recommendations (released in 2017).
Adoption of TCFD and TCFD-aligned disclosure frameworks differ between countries. The UK became the first G20 country to adopt the TCFD recommendations, with mandatory effective dates rolling out for certain ‘in scope’ organisations from 2021 onwards.
ICAEW’s Corporate Reporting Faculty offers TCFD-related resources that may be helpful to those interested in TCFD adoption in the UK (more on this below) and, more widely, particularly for those in other countries where the introduction of TCFD-aligned disclosures is imminent or on the horizon.
Developments at a national level
There are differences in national approaches to the mandatory adoption of disclosure frameworks and standards that are specific to climate, ESG and sustainability, and expectations around their application by ‘in scope’ companies can range widely even within a single jurisdiction. This can be seen in the approach taken by the UK government and its regulators.
Financial Conduct Authority (FCA)
The FCA regulates financial services firms and financial markets in the UK. It introduced a rule requiring companies with a UK premium listing to make disclosures under the TCFD framework, from 1 January 2021, and the scope has since been extended. Such companies are required to include a statement in their annual report stating whether they have made disclosures consistent with the TCFD framework on a 'comply or explain' basis.
In 2022, a corporate reporting review (CRR) of this first year of mandatory TCFD disclosures by premium-listed companies was published in a CRR Thematic review of TCFD and climate in the financial statements by the FCA and fellow-regulator the Financial Reporting Council (see below).
Visit the FCA website and search ‘TCFD’ to learn more about the latest (and historical) developments.
Financial Reporting Council (FRC)
The FRC regulates auditors, accountants and actuaries, and sets the UK's Corporate Governance and Stewardship Codes.
TCFD-aligned disclosures became mandatory for accounting periods starting on or after 6 April 2022 for around 1,300 of the largest UK-registered companies and financial institutions.
A guidance document that was created by the UK government Department for Business, Energy and Industrial Strategy (BEIS), to assist affected organisations, also offers useful context, including information on the legislation that introduced this requirement.
The FRC has a webpage detailing FRC work on ESG and climate-related reporting. This includes a 2023 CRR Thematic review of climate-related metrics and targets sharing FRC observations and expectations of TCFD-aligned disclosures from 20 UK premium and standard listed companies.
As many auditors and other accountants will know, the current UK reporting requirements on climate change are not limited to these TCFD requirements for listed companies.
ICAEW’s Corporate Reporting Faculty offers resources focusing on TCFD and related UK reporting regulations, and on other aspects of the UK requirements around reporting on climate change now and in the future.
Addressing the need for assurance
Along with the crescendo of activity around frameworks and standards for disclosures and reporting on various aspects of climate, ESG and sustainability, there also comes an enhanced need for their assurance. To address this, a new standard has been proposed by a standard-setting body that all auditors will be familiar with.
International Auditing and Assurance Standards Board (IAASB)
In August 2023 the IAASB issued its proposed International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements and launched a public consultation.
ISSA 5000 is a comprehensive, principles-based, overarching standard suitable for both limited and reasonable assurance engagements on sustainability information reported across any sustainability topic.
The IAASB drafted the standard to work with sustainability information prepared under any suitable reporting framework. These frameworks include the many reporting frameworks already in place and those under development, including but not limited to those issued by the GRI, International Organization for Standardization, ISSB, EC and others.
The IAASB is providing a range of resources to introduce the standard and support its adoption and application.
IAASB news will offer updates on the consultation, outreach events and other related initiatives.
The Audit & Assurance Faculty has support resources in the pipeline to assist its members.
ICAEW Insights will also be offering related news and updates.