We’re witnessing a watershed moment for environmental, social, and governance reporting (ESG).
Global events like climate emergencies and social unrest have resulted in growing investor interest in company-prepared ESG information. The building blocks of reliable, comparable and relevant ESG information begin with a foundation of quality reporting by company management. Public company auditors are uniquely qualified to enhance the reliability of company-prepared ESG information.
Investors have shown increased interest in ESG information.
Sustainable funds in the United States are continuing at a record pace, reaching $51 billion in 2020 – more than double the total for 2019 and nearly 10 times more than in 2018, according to Morningstar. Additionally, the COVID-19 crisis is shining a bright spotlight on the value of employee health and wellbeing. As asset flows increase, investors increasingly ask for and rely on ESG information outside of the historical audited financial statements.
While the reporting of ESG information presents a new challenge, public company auditors are steeped in bringing accountability, standards-based analysis and objectivity to the review of company-reported information – and these skills are transferable to oversight over ESG reporting.
Public company audit firms work with organized teams of professionals with access to knowledge and expertise both in and outside of traditional financial reporting. Auditors are used to engaging and working with specialists with extensive experience evaluating areas such as greenhouse gas emissions, water use and consumption, and renewable energies, just to name a few. Together, the audit team ensures that, no matter the subject matter, they apply the same rigorous mindset used to evaluate financial statements.
Auditors are known to adapt quickly to the changing world around them and are used to applying skills like objectivity, skepticism, and standards-based analysis across countless different industries. In our public interest role, US public company auditors play a role in the flow of reliable information for decision-making. Like the audits of financial statements and internal control over financial reporting, third-party assurance from a public company audit firm enhances the reliability of ESG information presented by companies.
Moreover, auditors are already bringing their skills to ESG information. An analysis of S&P 100 companies showed that leading companies like Starbucks, Coca Cola, Nike, and Google are now getting public company auditors to independently evaluate their ESG reports to enhance the reliability of the information. In fact, auditors already provide independent assurance for more than ten percent of S&P 100 companies’ ESG reports. This trend is poised to grow as investors and other stakeholders increasingly look to public companies to disclose their ESG metrics.
The CAQ is working to help meet the needs in this space. Explore our resources.
As investor, policymaker, and regulator interest in ESG reporting has grown, the CAQ has developed resources to help all those who play a role in financial reporting navigate the ESG reporting landscape. Auditors, investors, public company management and board members, media and regulators can all benefit from the CAQ’s diverse resources, including The Role of the Auditors in Company: Prepared ESG information, real-world testimony, and our CAQ/AICPA resource ESG Reporting and Attestation Roadmap for Audit Practitioners.
Learn what ESG reporting is, how investors are using the information, and how public company auditors are well positioned to enhance the reliability of ESG information given their public interest role.
Learn about the range of assurance services that can be provided to enhance confidence in ESG information, and explore key questions that boards should consider when planning to obtain assurance on ESG information.
This roadmap can aid practitioners in discussing where and how to report ESG information (e.g., in an SEC submission), whether to engage an independent accounting firm to perform an attestation engagement on the ESG information, and where to include the attestation report or reference such report.