Both the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA) have been noted by the IOSCO for their endeavours regarding assurance of sustainability-related corporate reporting, as stakeholders are constantly looking for such assurance, whether on a voluntary basis or to meet regulatory requirements. The work from the two organisations is a key answer to the demand from the accompanying market for stringent standards applicable to all providers of sustainability assurance. These can later be applied to form independent, high-quality engagements and consistent practices.
Notably, IOSCO praises the Boards’ vision to focus on high-quality, global assurance and ethics (including independence) standards that are profession-agnostic and can support limited, and ultimately, reasonable assurance of sustainability-related information. As a result, it will act to support the consistency, comparability and reliability of sustainability-related information provided to the market, thus bringing about greater trust in the relevance and accuracy of the information provided.
The current landscape of sustainability-related assurance
As part of IOSCO’s overall goal for enhancing issuers’ sustainability-related corporate reporting, the organisation has set up a committed work-stream to better enhance the development of a sustainability-related assurance framework, working in parallel to the work towards global baseline sustainability-related reporting standards by the International Sustainability Standards Board (ISSB).
In February 2022, over 140 stakeholders from various industries and areas of the world took part in a discussion committee held by IOSCO. The aim was to depict how greater standardisation in reporting is paramount to a stringent assurance framework. Assurance and ethics standard-setters were asked to build on the foundation of existing standards. They also expressed strong support for IOSCO to play a role in facilitating that work.
Since the roundtable, IOSCO has collaborated with different stakeholder groups and heard the following key messages:
— Among investors, there is increasing demand for assurance to enhance the reliability of corporate sustainability reporting;
— Investors typically see reasonable assurance as the long-term target, even though limited assurance may be the most realistic objective in the short term, especially in respect of metrics such as greenhouse gas emissions;
— Issuers expressed a need for assurance standards that are effective in the current landscape of sustainability reporting and are able to follow evolving standards and practices;
— To guarantee high-quality assurance engagements, investors and issuers see consistent and comparable assurance standards for sustainability-related information as key.
Important standard setting considerations as the landscape for sustainability-related assurance develops
As the IAASB and the IESBA commence to develop first-class international assurance, and ethics (including independence) standards for assurance over sustainability-related reporting, IOSCO encourages the Boards’ consideration to three priority areas:
1.The importance of profession-agnostic standards, timely progress and collaboration
As demand grows, and changes in investor-focused sustainability-related information expedite, it is vital to understand market developments in this area and move forward quickly while adhering to due process.
— IOSCO appreciates the IAASB’s and IESBA’s plans to upgrade sustainability-related standards, strengthening the requirements and principles of existing standards
— IOSCO urges the IAASB and the IESBA to collaboratively engage with each other, and providers of other frameworks that are currently used in some assurance engagements on sustainability-related information.
— Connectivity in assurance services between sustainability-related information and financial reporting should be supported by these standards, regardless of whether these services are provided by the same assurance provider.
— Thus, IOSCO welcomes talks between the IAASB and the IESBA and the ISSB. IOSCO encourages continued close ties as the standard-setters advance their respective work programmes.
2. Focus on promoting transparency
Investors require confidence that third-party assurance engagements have been conducted to an extremely high standard – whether carried out by an audit firm or a non-audit provider, in order to boost the dependability of the reporting. Moreover, it is currently not always obvious to readers of sustainability-related information which areas have been subject to assurance, which standards have been applied, or the level of assurance given. Notably, IOSCO encourages the IAASB:
— To promote transparency over which elements are subject to assurance, the standards applied, the conclusions reached and whether limited or reasonable assurance has been provided, clear requirements are required;
— To deliberate on how its standards can support such transparency, irrespective of the type of provider and whether the standards are applied on a mandatory or a voluntary basis.
3. Addressing challenging issues
Sustainability-related reporting often involves a more detailed narrative component, more progressive information, and greater reliance on information pertaining to the issuer’s value chain in comparison to financial reporting. It may also be disclosed in different formats and across different documents. IOSCO encourages the IAASB:
-To consider these issues as it develops its standards, building on existing provisions in ISAE 3000 (Revised), ISAE 3410 and EER Guidance.
— To reflect on feedback carefully from investors regarding prioritisation of assurance for certain targeted disclosure items.
— To think about incorporating direction on implementing robust methodologies and rigorous risk assessment processes.
IOSCO encourages the IAASB and the IESBA Boards:
— To foster partnerships with others in the ecosystem to appropriately support capacity-building by providing support and guidance.
As stakeholders adapt to new sustainability-related reporting standards and to enhanced expectations among increasingly sophisticated users of sustainability-related information, IOSCO will continue to assist its members and other stakeholders in the journey to improve the consistency, comparability, and reliability of corporate sustainability-related reporting.
In turn, as international standard-setting processes progress, IOSCO encourages assurance providers, issuers, investors, and other service providers to engage with the IAASB and the IESBA as they progress their standard-setting work.
A second global roundtable is to be held in the coming months. The aim is to further study the messages from its fact-finding activities and to gather feedback on the priority areas above, as well as how assurance over digital reporting should be expected – thus, guiding IOSCO in considering how it can best support global enhancements in the field. IOSCO plans to issue a public report in early 2023 summarising insights and charting a path for ongoing engagement as the reporting landscape develops, working closely with the IAASB and the IESBA.