S&P 500 ESG Reporting

A letter from the Center for Audit Quality’s CEO Julie Bell Lindsay:

Increasingly, in the U.S. and around the globe, investors, motivated to manage their investment risk are looking to understand how companies manage climate and other ESG-related risks and opportunities. As such, investors are seeking actionable information on public companies’ ESG matters.

Since 2021, the Center for Audit Quality (CAQ) has sought to gain a better understanding of public companies and their reporting of climate-related and other ESG information. We are pleased to provide you with our updated analysis of the S&P 500, a look at publicly available ESG data for companies listed on the S&P 500 for periods ending in 2020.

While most publicly traded companies publish some ESG-related information, the utility of the information to investors is limited because it lacks consistency and comparability. This analysis is an effort to illuminate:

• The ESG reporting landscape
• The standards and frameworks used to report this information,
• The types of ESG information subject to assurance
• The level of assurance obtained over this information, and
• The assurance standards used by public company auditors and other providers

Our analysis identifies a few noteworthy trends. First, most S&P 500 companies publish annual sustainability or ESG reports. These companies continue to reference commonly used standards and frameworks for their reporting, with the Sustainability Accounting Standards Board (SASB) Standard utilized most often, followed by the Global Reporting Initiative (GRI) Standards and the Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations.

There was an increase in the number of companies receiving assurance over this information with over sixty percent of S&P 500 companies that issued an ESG report disclosing the data received some form of assurance or verification from a third party. As demand for assurance from regulators and others continues to grow, we expect this number to continue to increase.

The analysis also found that 15% of the assurance providers engaged were accounting firms, a slight uptick from previous data. We expect the type of assurance provider companies engage could evolve as more companies disclose ESG information and decide to seek assurance over that information.

We hope you find this analysis beneficial. Read on for more of our findings.

Thank you,

Julie Bell Lindsay

Chief Executive Officer, CAQ

ESG Reporting Standards and Frameworks

The CAQ examined how many companies referenced four commonly used ESG reporting standards and frameworks – Sustainability Accounting Standards Board (SASB) Standards, Global Reporting Initiative (GRI) Standards, Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations and the Integrated Reporting Framework.

S&P 500 companies used these frameworks and standards to varying degrees. Some companies fully adopted a framework or standard, some partially adopted, and others used the framework or standard as a reference when determining what information to include in their ESG report.

Most S&P 500 companies referenced at least one framework or standard. More than 230 companies indicated using three or more standards and frameworks to help construct their report. Some companies did not reference any standard or framework.

Assurance or Verification

The CAQ observed that 282 companies disclosed receiving some form of assurance or verification over ESG metrics.

Of the companies that obtained assurance, 43 obtained assurance from public company auditors and 245 obtained assurance from other assurance/verification providers. In some instances, companies used both a public company auditor and other assurance or verification providers.

A similar analysis conducted by the CAQ of the most recent publicly available ESG reports as of June 18th, 2021 (which consisted largely of 2019 and 2020 ESG reports), showed that 264 companies obtained assurance. Of those companies, 31 obtained assurance from a public company auditor and 235 obtained assurance from other assurance or verification providers. Overall, we observed an upward trend in the number of companies that obtained assurance.

Assurance by Public Company Auditors

Scope of Assurance: The specific disclosures that S&P 500 companies sought assurance over, from public company auditors, varied. Some companies obtained assurance over select metrics related to greenhouse gas (GHG) emissions and others assured a wider range of ESG metrics. We used the following categories to describe the scope of assurance:

• GHG refers to metrics solely related to GHG emissions
• GHG+ refers to GHG metrics plus 1-3 additional ESG metrics
• Multiple/other refers to a broader range of ESG topics or non-GHG related metrics

Assurance Standards: Public company auditors primarily used the American Institute of Certified Public Accountants (AICPA) Attestation Standards (including AT-C section 105 Concepts Common to All Attestation Engagements, AT-C 205 Examination Engagements and AT-C section 210 Review Engagements). However, a few assurance reports referenced the International Standard on Assurance Engagements 3000 (Revised) Assurance Engagements other than Audits or Reviews of Historical Financial Information (ISAE 3000) in addition to or in place of the AICPA attestation standards. A few companies noted in their ESG reports that third party assurance from a public company auditor was obtained, however, the assurance report was not publicly available and the assurance standards applied were not mentioned.

Level of Assurance: the CAQ observed that of the companies that obtained assurance from public company auditors, most obtained limited levels of assurance over ESG information. Some companies obtained reasonable assurance over ESG information and the CAQ observed a small increase in the number of companies that obtained reasonable assurance compared to our prior analysis, which was as of June 18th, 2021 and consisted largely of 2019 and 2020 data.

Other Providers

Scope of Assurance: Similar to public company auditors, other assurance/verification providers assured or verified mostly GHG emissions metrics, and in some cases provided assurance over other ESG metrics.

Assurance Standards: The most common assurance standard referenced by other providers was International Organization for Standardization 14064-3 Greenhouse gases — Part 3: Specification with guidance for the verification and validation of greenhouse gas statements (ISO 14064-3). These other providers also referenced AccountAbility’s AA1000 Series of Standards as well as their own assurance methodology which they commonly stated was based on ISAE 3000. None of the other providers referenced AICPA attestation standards.

Assurance Terminology: The CAQ observed that the other providers who were not public company auditors also used terminology such as reasonable and limited assurance in their reports. Additionally, other providers used the terms moderate and high assurance.

Extent of GHG Emissions Scope 3 Reporting: The CAQ observed that 313 of the S&P 500 companies responded to the CDP Climate Change questionnaire and provided scope 3 emissions information for at least one of the fifteen Scope 3 categories indicated in the GHG Protocol.

• 160 of those companies provided scope 3 emissions for all relevant categories (full scope 3).
• 153 companies reported some scope 3 categories and have identified other relevant categories that have yet to be calculated (partial scope 3).

Extent of Reporting and Assurance of GHG Scope 3 Emissions Categories: The table below reflects the extent to which companies reported and assured the fifteen different Scope 3 emissions categories indicated in the GHG Protocol.

The CAQ observed a small increase in the number of companies that obtained assurance over their reported GHG emissions in 2020 compared with our prior analysis which was as of June 18th, 2021.

Other ESG Topics subject to Assurance or Verification

The CAQ observed that companies obtained assurance over a variety of other ESG topics including water, energy, waste, employee health and safety, human capital disclosures and others.

Disclosed Net-Zero or Carbon Neutral Commitment

The CAQ looked at whether companies disclosed carbon neutral or net-zero commitments and observed:

• 211 companies disclosed a net-zero and/or carbon neutral commitment
• 253 companies did not disclose a carbon neutral or net-zero commitment
• 36 companies did not have a standalone ESG report in 2020

In the CAQs analysis of 2021 S&P 500 10-K filings we observed that 120 companies disclosed net-zero or carbon neutral commitments.