Do Your ESG Audits Fall Short? New Report Says Likely
Big accounting organizations are weighing in on the ESG factor, which is reshaping industries from finance to fashion.
A report released Monday by the International Federation of Accountants, or IFAC; the American Institute of CPAs, or AICPA, and Chartered Institute of Management Accountants, or CIMA, found that while ESG reporting is on the rise — it’s still subject to variation.
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The report surveys 1,400 global companies, focusing explicitly on 2020 data, and is an update to the inaugural study from the year before. A follow-up study analyzing 2021 data is expected to be released later on.
Some 58 percent of global companies obtained ESG assurance (or a third-party aid) in 2020, up from 51 percent the previous year, yet these assurances were mostly “limited in scope” because of selective disclosure, per the report. Another finding was that 61 percent of ESG assurance services were performed by professional accounting or auditing firms. The report contends that without the help of professionals, ESG data is subject to greater variability and less oversight.
In plain speak, greenwashing is still palpable as fashion’s attempts at transparency programs reveal.
That being said, the majority (or 92 percent) of global companies provided some ESG data to investors, either through integrated, annual or standalone reports. Greenhouse gas emissions dominated reporting categories but many companies are still selectively disclosing.
“It’s encouraging to see continued high levels of reporting on sustainability information and an overall increase in assurance globally,” International Federation of Accountants’ chief executive officer Kevin Dancey said in a statement. “But our research tells us that 80 percent of companies are using multiple frameworks or standards, which results in data that is not consistent, comparable or decision-useful for investors, stakeholders or society at large.
Disclosure is getting more straightforward, however, with some help. Frameworks like the Sustainability Accounting Standards Board, or SASB, standards, as the report showed, have grown in use and mention by companies as regulatory agencies look to tighten disclosure proposals. Already, many fashion players, among them Adidas, Allbirds, Gap Inc., Kering, Levi Strauss & Co., Nike Inc., PVH Corp., VF Corp. and more, report on SASB.
IFAC’s Dancey underlined that sustainability reporting and assurance will only reach its full potential when it’s based on a “harmonized global system” such as the International Sustainability Standards Board’s comprehensive baseline of disclosure.
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