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Published 18 hours ago
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ESG and sustainability data are increasingly used by investors, regulators, customers, employees, and other stakeholders to assess the sustainability and value of a company. This expanded use has prompted audit and assurance practices, as they help de-risk sustainability data by enhancing data credibility and reducing the risks of errors, omissions, and misstatements.
International Federation of Accountants (IFAC) research showed 69% of companies globally obtained assurance on some of their sustainability disclosures in 2022 and were expanding the scope of their assurance engagements year over year. Moreover, according to 2024 Nasdaq ESG Solutions research, 97% of companies report that audit and assurance of ESG and sustainability data is a challenge [1].
Because inaugural assurance engagements can be overwhelming, Nasdaq ESG Solutions outlines best practices to help sustainability leaders secure the right resources and engage the right people in pursuit of investor-grade sustainability and ESG data. We additionally highlight key examples of assurance expectations in regulatory and voluntary reporting.
Terminology Sustainability Leaders Should Know
Before digging into how audit and assurance are currently leveraged for sustainability data, it is helpful to take a step back to define key terms. Audit and verification are the processes of examining and verifying the accuracy, completeness, and reliability of data and information and assurance is the deliverable or outcome of the audit. There are different levels of assurance, and companies often begin with a lighter touch and work their way up to more in-depth verification.
The literal outcome of this work is a written statement, which is often attached to the sustainability report. The statement will cite the values and protocols to which the data has been verified. In addition, the company will receive a report indicating errors and other learnings from the audit. This is an important tool for companies to continue improving their ESG and sustainability data management.
Where Assurance Fits into Sustainability Reporting
There are many examples of assurance requirements or recommendations in both regulatory and voluntary reporting. A few are outlined below and others can be found across many frameworks and standards supported in Nasdaq Metrio™, Nasdaq’s sustainability reporting and data management solution.
Regulatory requirements around the globe prescribe levels of assurance for climate and other ESG data. While these regulations do not apply to every company, examples include:
Voluntary ESG and sustainability reporting frameworks also address assurance. For example, the Task Force on Climate-related Financial Disclosures (TCFD) states that “disclosures should be subject to internal governance processes that are the same or substantially similar to those used for financial reporting.” Some entities that score or rank companies’ sustainability disclosures reward or allocate points for assurance practices, such as:
Building the Right Team
Audit and assurance of ESG and sustainability data involve internal and external parties. If ESG and sustainability responsibilities sit within the finance function, the company may already have created these cross-team connections given familiarity with existing financial auditing practices. For ESG and sustainability leaders assembling their teams for the first time, consider including the following:
Audit Trail and Traceability
In addition to proactively assembling a cross-functional team, the following practices may help companies prepare for assurance:
How Sustainability Leaders Can Get Started with Audit & Assurance
Whether your company will be required to meet regulatory requirements for assurance of sustainability and ESG data, now is the time to plan for audit-readiness to ensure investor-grade data for all stakeholders. Sustainability leaders have long been responsible for delivering and communicating ESG and sustainability strategy and are now layering in assurance of their data to meet evolving stakeholder and regulatory expectations.
Nasdaq Metrio is designed to help increase efficiency and effectiveness by facilitating audit-readiness for ESG and sustainability data. Nasdaq’s platform enables cross-team collaboration, data centralization and documentation, workflow automation, and clear audit trails, while keeping the needs of sustainability strategy and KPI achievement in focus.
To learn more or inquire about how Nasdaq Metrio can help future-proof your sustainability data and reporting, get in touch with our team here.
[1] Nasdaq ESG Solutions (2024). 2024 ESG & Sustainability Software Strategy Report. [Publication in preparation].
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