A new analysis has found that the majority of public companies report climate and other environmental, social and governance (ESG) information, underlining the growing importance of sustainability reporting in the US. Increasingly, these companies are also enhancing the reliability of this information by using a third-party assurance provider.
In its analysis, the Center for Audit Quality (CAQ) observed that more than half of the companies comprising the S&P 500 disclosed that they had sought some form of assurance or verification over certain of their ESG metrics disclosed in a stand-alone sustainability or similar report. Of those 282 companies that sought assurance, the CAQ observed an uptick in the number of public companies obtaining assurance from a public company audit firm.
The analysis, based on 2020 data also found that companies overwhelmingly sought assurance on greenhouse gas (GHG) emissions data. Metrics related to water usage, waste and human capital information including employee diversity and inclusion or health and safety were less frequently assured.
The growing demand for assurance
“Assurance by a public company auditor enhances the reliability of ESG information,” said Joseph Bailey, manager, professional practice, CAQ. “And stakeholders feel more confident making decisions when there's trust and reliability in the information reported by an organization.”
The past decade has seen some of the world’s largest money managers recognize the importance of managing their exposure to ESG-related risks and opportunities. For instance, Larry Fink, chief executive of the world’s biggest asset manager, BlackRock, has said that “climate risk is investment risk.”
Regulators are also busy updating regulations to bring about more transparency that will enable banks, asset managers and other financial institutions to raise money to fund the projects that will help mitigate climate change. They also seek to prevent abuse of so-called sustainable markets through false declarations of corporate environmental responsibility – otherwise known as greenwashing.
In the US, the SEC is considering a proposal that would require public companies to include climate-related disclosures in periodic reports and registration statements. The proposal would also require certain public companies to seek third-party assurance over Scope 1 and 2 Greenhouse Gas emissions disclosures.
How can companies increase the reliability of their data?
Satisfying these demands requires companies to provide data and other evidence that communicates how they are managing their ESG-related risks and opportunities.
Obtaining any level of assurance by a public company auditor involves the evaluation of processes, systems and data, as appropriate and an assessment of the findings in order to support an opinion or conclusion. Further, public company auditors are required to be independent of the companies they audit, and they also have access to specialists that encompass most areas of ESG information, including climate-related areas such as greenhouse gas emissions.
“Public company auditors are uniquely positioned to play a role in assuring ESG information. They have decades of experience in enhancing the trust and reliability of company-reported information,” said Bailey. “Just like the audits of financial statements, public company auditors can bring the same rigor and expertise to assuring climate-related and other ESG information.”
The CAQ is the voice of the public company auditing profession in the US and is committed to deepening public trust in the capital markets. Bailey said the organization sees the profession’s role in supporting the ESG ecosystem growing as demand from investors, regulators and other stakeholders for reliable ESG-related information continues to grow.