With the International Sustainability Standards Board and the EU’s Corporate Sustainability Reporting Directive (CSRD) requirements encouraging assurance of sustainability disclosures (initially on a 'limited assurance' basis but moving towards 'reasonable assurance') it is clear that sustainability reporting needs to align to financial reporting in terms of governance, processes and controls.
We explore why organisations should prioritise assurance for their sustainability statements now, setting a foundation for long-term success.
Sustainability reporting has transitioned over the past decade from a niche practice to mainstream requirements; even Coldplay are doing it. Governments and international bodies are increasingly setting reporting standards, and investors and consumers are increasingly demanding transparency about sustainable practices. Early reporting frameworks such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-Related Financial Disclosures (TCFD) set the standards for reporting that are still highly influential today. However, reporting alone is no longer sufficient; the independent verification of the accuracy and reliability of these statements has become a key expectation to ensure claims are credible and reflect genuine progress.
Organisations know how to produce financial accounts; most processes are mature and run relatively smoothly year after year. Sustainability reporting is a different matter, with few organisations boasting more than two-three years’ worth of sustainability reporting experience that can be drawn on. Limited assurance creates an additional layer of challenge, and there are three key reasons why it is important to consider assurance early:
The UK is currently a voluntary assurance market, and as a result, organisations that voluntarily seek assurance position themselves as industry leaders. This proactive approach demonstrates a forward-thinking mindset that can be used to advertise to environmental-conscious consumers, attract and retain talented employees, and attract ethical investment. In some cases, banks will offer better loan terms for sustainability or ESG performance indicators being met. Further, there are commercial advantages to seeking assurance before regulations require it, with organisations like the Carbon Disclosure Project (CDP) now requiring assurance to achieve 'gold standard' disclosures. The Financial Reporting Council (FRC) is currently consulting on developing greater certainty around regulatory requirements and clarifying expectations for sustainability assurance.
While the benefits of assurance are significant, they are only realised if the organisation passes. Sustainability reporting presents several unique challenges that need to be addressed to ensure a positive assurance outcome.
Reporting procedures and controls need to be robust
Increasingly, emerging standards are pushing for sustainability reporting to align to financial reporting in terms of processes and procedures, controls and governance. Getting this right requires a blend of soft and hard controls which need to be tested and iterated as the process evolves. This also creates a need for a sign-off mechanism, potentially through formalised disclosure committee structures to satisfy auditors.
Complex data collection and use of proxy data
Sustainability reporting involves collecting data across the entire organisation, which is recorded in different systems, geographies, and may require interpretation of unstructured data formats. In addition, proxies are often required to backfill data gaps and convert available data (such as spend by category) into that required reporting (such as emissions). Ensuring the consistency and accuracy of this data is a challenge for any organisation but starting the assurance process can help to identify weaknesses.
Evolving standards make pinning down a structure challenging
The increasing and largely scattered range of standards for sustainability reporting can complicate assurance efforts and requires understanding of industry-specific approaches and metrics. Staying updated with emerging global frameworks is critical.
The assurance requirement needs to be ‘sold’ internally
Assurance requires financial investment and organisational commitment. Even with strong support from the organisation, there is a risk that talented employees who took jobs in sustainability functions to make a difference are unmotivated by the formality of the processes required for preparing for assurance. Organisations need to clearly understand and communicate the value of assurance practices not only to project sponsors but to the individuals who may be passionate about sustainability but less so about documenting data processes! Strengthening the skill base and shifting to involve finance in the reporting process is key.
Addressing the challenges of sustainability assurance requires a structured and strategic approach which includes investing in technology, building internal expertise, and collaborating with experience assurance providers. But the benefits outweigh the costs: beyond compliance, assurance offers strategic benefits that enhance organisational resilience and competitiveness. It transforms sustainability reporting from a reactive obligation into a proactive opportunity to create value. By embedding assurance in the sustainability into the sustainability strategy, organisations demonstrate accountability and a genuine commitment to making a positive impact on society and the environment.
For more information, please contact Alex Hindson, Lloyd Richards or your usual Crowe contact.
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