IFAC has released its yearly The State of Play in Sustainability Assurance, which reveals "there is still a lot of work to do from where we are today to where we need to be to meet the demands of stakeholders", according to CEO Kevin Dancey.
On the face of it, the finding of the study, which surveyed 1400 companies of the largest companies across twenty-two jurisdictions, is positive: 91% of companies reviewed report some level of sustainability information and 51% of those companies provide some level of assurance on their sustainability reporting.
But the devil is in the details, the survey gives equal credit for reporting a single greenhouse gas number as it does for reporting a full portfolio of sustainable information. David Madon, director of public policy & regulation, acknowledged the limitation and argued that it might be "as good as the data gets" for now.
Beyond that there is the issue of jurisdictional discrepancies, if 99% of companies in the US report some level of sustainability information, that's not the same information as the 100% of companies reporting in France or South Africa.
"It's not like we have a comprehensive, consistent, harmonized baseline of reporting information that everybody is reporting against and that everybody is providing assurance against," Dancey said. "That's where we want to go, and that is where we need to go to with the ISSB."
The lack of a global baseline for sustainability reporting was highlighted by the fact that 80% of companies reviewed are using multiple standards or frameworks to do the reporting, Madon added.
"That is why the ISSB initiative is so important," he reiterated. "The study also found a doubling or more in the use of SASB and TCFD standards and frameworks - that's critical, because that's such a core of what the ISSB is going to use going forward."
The most surprising result of the study for Madon was the fact that there was a 6% year-on-year decrease in the reliance on corporate sustainability reports in favour of integrated reports and annual reports. Both Dancey and him welcomed this development and hope the trend will continue.
What to report
The most used standards amongst companies that disclose ESG data were the GRI standards, which can be explained by the fact that it is the oldest and therefore most established sustainability standards. But also because reporting on impact, which is the focus of the GRI, is a "more comfortable starting point" for a lot of companies, Madon opined.
Asked whether this didn't serve as an argument for the ISSB to embrace double materiality, Dancey said the ISSB's building block approach made sense.
"Value creation is the things that investors are really interested in, that's building block one, and in building block two you have the inside out impacts," he said. "It is really important to keep in mind that those are not silos, they are not mutually exclusive, the key thing to keep in mind with those two pillars is their interoperability."
The ISSB started to talk about a baseline of information for investors, that phraseology is now a comprehensive baseline for investors, Dancey notes. "Some investors themselves are saying 'we're not interested in just a very narrow concept [of materiality] in building block one' and are asking for a broader take than just purely financial impact."
"The line isn't necessarily very hard and clear between building block one and two," he said.
However, Dancey believes that asking the ISSB to fully embrace the double materiality concept "is just totally naïve and will fail".
He considers that it will fail because much of the building block two considerations are driven by public policy. "There is no way that the public policy demands for information in Europe, the US, China, Asia, are going to be exactly the same in jurisdictions around the world. There always will be jurisdictional add-ons."
Who to assure what
The study found accountancy firms in pole position in the sustainability assurance market, with 63% of assurance reports signed by such firms.
This makes sense, Dancey and Madon said, because accountancy firms have the "skill sets, competencies, independence and the regulatory oversight to do this work". But also because the end game is to close the gap between sustainability and financial reporting and "it would make sense to have the same provider giving an opinion on both".
Madon highlighted that although companies efforts on reporting cover the whole suite of E,S and G information, when it comes to the assurance side of things it is still very much focused on greenhouse gas numbers.
As accounting standard setters ramp up the design of sustainability standards, should the audit standard-setters follow suite?
"There is a bit of chicken and egg situation here," Dancey tempers. "To develop proper assurance standards, you need reporting framework to assure against."
The International Auditing and Assurance Standards Board (IAASB) has workstreams dedicated to sustainable assurance and for now is really focused on ensuring that the "ISSB standards are indeed assurable".
Although we could see some dedicated new set of sustainable assurance standards emerge in the future, Dancey highlighted that they are still nuances in terms of the level of assurance that would be provided. He took Europe as an example where the CSRD has a phase in approach from limited assurance to reasonable assurance over time.
Slow moving ship
Overall, Dancey said the latest report confirmed many of the findings from last year's report and considering the numerous developments that took place in the last year, he expressed curiosity as to what next year's study might find.
"The bottom line is that there's a lot going on, but it's not good enough yet," he concluded.