Last week, the Center for Audit Quality (CAQ) issued its 2022 update on the state of play on ESG reporting and assurance for the S&P 500. Previously, CAQ reviewed the most recent SEC Form 10-Ks for S&P 500 companies as of June 2022 to understand their SEC filing disclosures regarding climate-related information, greenhouse gas emissions, and net-zero and carbon neutral commitments. This current report looked at 2020 ESG reports and Carbon Disclosure Project (CDP) Climate Change Questionnaires for S&P 500 companies to understand what they disclosed about reporting standards and frameworks used, greenhouse gas (GHG) emissions, assurance or verification of ESG information, and net zero and carbon neutral commitments.
This analysis is an effort to illuminate:
– The ESG reporting landscape
– The standards and frameworks used to report this information,
– The types of ESG information subject to assurance
– The level of assurance obtained over this information, and
– The assurance standards used by public company auditors and other providers
Our analysis identifies a few noteworthy trends. First, most S&P 500 companies publish annual sustainability or ESG reports. These companies continue to reference commonly used standards and frameworks for their reporting, with the Sustainability Accounting Standards Board (SASB) Standard utilized most often, followed by the Global Reporting Initiative (GRI) Standards and the Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations.
There was an increase in the number of companies receiving assurance over this information with over sixty percent of S&P 500 companies that issued an ESG report disclosing the data received some form of assurance or verification from a third party. As demand for assurance from regulators and others continues to grow, we expect this number to continue to increase.
Their top findings:
Most S&P 500 companies referenced at least one framework or standard. More than 230 companies indicated using three or more standards and frameworks to help construct their report.
… 282 companies disclosed receiving some form of assurance or verification over ESG metrics… 43 obtained assurance from public company auditors and 245 obtained assurance from other assurance/verification providers. In some instances, companies used both a public company auditor and other assurance or verification providers.
Public company auditors primarily used the American Institute of Certified Public Accountants (AICPA) Attestation Standards (including AT-C section 105 Concepts Common to All Attestation Engagements, AT-C 205 Examination Engagements and AT-C section 210 Review Engagements). However, a few assurance reports referenced the International Standard on Assurance Engagements 3000 (Revised) Assurance Engagements other than Audits or Reviews of Historical Financial Information (ISAE 3000) in addition to or in place of the AICPA attestation standards.
… The most common assurance standard referenced by other providers was International Organization for Standardization 14064-3 Greenhouse gases — Part 3: Specification with guidance for the verification and validation of greenhouse gas statements (ISO 14064-3). These other providers also referenced AccountAbility’s AA1000 Series of Standards as well as their own assurance methodology which they commonly stated was based on ISAE 3000. None of the other providers referenced AICPA attestation standards.
What This Means
This can be taken as good news or bad news, depending on your perspective:
- The good news:
- There continues to be no “one” way to develop an ESG report, so companies have flexibility in approaches and content.
- Similarly, there is no clear consensus on how to approach third party assurance of ESG reporting, so companies have more say in audit boundaries and criteria used by auditors.
- The bad news:
- There continues to be no “one” way to develop an ESG report, so companies will be second-guessed until such time as a clear regulatory or definitive consensus standard develops.
- Since there is no clear consensus on how to approach third party assurance of ESG reporting, companies may still struggle with the value of third party assurance conducted by CPA firms, and the audit procedures/criteria used by non-CPA auditors.