ICGN report on sustainability assurance provides guidance on investors’ expectations

On 12 July 2024, the International Corporate Governance Network (ICGN) published a report, The Assurance of Sustainability Reporting, which provides guidance to investors on the interpretation of sustainability reporting assurances and sets out investors’ expectations regarding sustainability disclosures and the quality of external assurance.

The ICGN is a global organisation led by investors responsible for assets under management of approximately US$77 trillion. In its latest report, the ICGN is urging companies to apply rigorous standards to the preparation of sustainability disclosures, and encourages investors and companies alike to consider the quality of sustainability assurance.

The ICGN report comes at a time when jurisdictions across the world are adopting various mandatory sustainability reporting requirements, for example through the EU Corporate Sustainability Reporting Directive (CSRD) or the adoption of the global ISSB Standards. The ICGN’s Global Policy Director, Severine Neervoort, described this surge of reporting requirements as a “transition period”, in which “market participants are developing their understanding of sustainability assurance”. 

Although a number of investors have long called for such reporting requirements, concern remains about the risk of greenwashing in sustainability disclosures. Reliable, independent assurance is therefore key to developing trust in corporate sustainability reporting. 

The ICGN report explains the difference between “reasonable assurance” and the less stringent “limited assurance”, and between “unqualified” and “modified” conclusions – emphasising that the former is the most desirable conclusion, as the latter indicates the presence of an error, disagreement or insufficient evidence. The ICGN noted that some experts anticipate a “wave” of qualified opinions in the short term, on the basis that much of the information to be included in sustainability disclosures is “not ready for assurance”. 

The report goes on to highlight that investors expect sustainability reporting to be prepared “with the same rigor and ethical approach as financial statements”, criticising the current disparity between the extent of board-level oversight in sustainability reporting and assurance, as compared to that in the context of financial statements. The ICGN is asking companies to apply strict, objective criteria when selecting sustainability assurance providers, who must be independent of the reporting entity and should possess sufficient expertise in sustainability matters.

In addition, the report notes that investors expect “consistency and connectivity between the disclosures in the financial statements and those in sustainability reports”, echoing recent sentiment from the International Accounting Standards Board (see our previous blog post). 

The report concludes with a number of suggested questions for investors to ask company boards, to discern the quality of sustainability disclosures and assurance. These include questions concerning the materiality assessment process, the board’s interaction with the assurance provider, and steps taken to ensure consistency between the sustainability and financial reporting. 

The ICGN warns that companies that don’t follow this advice are increasingly likely to be held to account by investors.