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While most companies make some kind of disclosure about their sustainability efforts, fewer get assurance from audit firms about their numbers. Many of the largest greenhouse gas emitters do not disclose their true impact on the climate.
The International Financial Reporting Standards Foundation, which oversees the International Sustainability Standards Board, hosted a symposium in New York on Thursday to discuss climate-related disclosures, sustainability reporting and standards, and assurance. The symposium was held amidst the release of his two reports offering conflicting views on the progress of these efforts.
“The question is: What momentum do we want to generate?” said ISSB Chairman Emmanuel Faber. “This is a question of action, because anyone who acts to promote and build the globally equivalent and coherent framework that we are proposing is actually supporting a tipping point of fragmentation. This is a call to action within this audience and beyond this venue.” We will not succeed alone. We work in the public interest of capital markets. We believe that with better information, capital markets can make better decisions. It’s also good for companies. It is also beneficial for capital providers. Thinking at a macro level, the language we are developing could mean that global finance can meet regional needs for more resilient economies. If the language becomes popular. The choice whether it becomes popular or not is in our hands. ”
He announced that ISSB will publish a widely anticipated paper.
He noted that more than 15 jurisdictions are currently consulting or preparing to consult on the S1 and S2 standards for sustainability and climate-related disclosures developed by the ISSB.of
“These jurisdictions probably account for about half of the world’s greenhouse gas emissions,” Faber said.
contrasting reports
Sustainability reports are widespread, but assurance that these reports are scrutinized has lagged.another
The report found that nearly all companies surveyed (98%) reported some information on sustainability. This is up from 91% in 2019, when IFAC, AICPA, and CIMA first began research in this area. Approximately 1,400 companies were reviewed in this report. Of these, 100 companies were examined in each of the six largest economies, and 50 companies were examined in the remaining 16 jurisdictions.
However, the use of standalone sustainability reports has declined by 27 percentage points over the past three years. Only 30% of companies surveyed used a standalone sustainability report in 2022, an increase in the number of companies that include this information in their annual and integrated reports. It reflects that.
Meanwhile, 69% of companies have assurance on at least some of their sustainability disclosures, an increase of 5 percentage points from last year and 18 percentage points from 2019. Although the scope of the warranty field has expanded, it remains generally limited.
In 2022, accounting firms (as opposed to consultants and other service providers) handled 58% of sustainability-related assurance engagements, an improvement of one percentage point from the previous year. In some markets, such as the US, it is well below 50%.
“When companies use an accounting firm for sustainability assurance, they are more likely to choose the same firm they use to audit their financial statements,” says AICPA and CIMA Chief Executive Officer of Public Accounting CEO Sue Coffey said in a statement. “The level of credibility and reliability for sustainability disclosures should be the same as for financial information, so we expect more companies to recognize that accounting firms are best suited for this important task. We believe this is likely to be the driving force behind the increase from 23% for U.S. accounting firms with this practice. ”
Impact on greenhouse gas emissions
However, separately,
“Our focus isn’t really on sustainability reporting,” said Robert Shewerk, executive director of Carbon Tracker’s North American office. “Where additional scrutiny is required is in the actual corporate financial reports. Our concern is that standard setters are not considering climate risk as part of the audit assessment like any other risk. “We haven’t seen evidence that it’s happening. That doesn’t mean it’s not happening, but we’re I haven’t seen any evidence of that.”
Of the 140 companies surveyed, 60% were unable to provide meaningful information about whether and how climate risk and energy transition impact their balance sheets and audits today. . The report found that auditors continued to lag behind companies in providing transparency, with 80% providing little or no evidence to consider in their audits. Of the 32 U.S. companies evaluated by Carbon Tracker, none of their audit reports demonstrated consideration of climate issues, even when assets or liabilities exposed to climate-related risks were identified as a material audit matter. . Approximately 20% of audit reports showed signs that climate issues were assessed at least to some extent in the audit. Of these, four auditors improved their year-over-year scores as evidence of consideration, but only one, Deloitte, met both audit reporting standards in her audit report on BP.
The Securities and Exchange Commission is reportedly close to finalizing the long-awaited policy.
“Part of the consultation is around financial statements, both reiterating the obligations that already exist, as well as more information related to disclosure of assumptions as well as the potential impact of climate-related matters on those assumptions. “It provides a prescriptive set of requirements,” Shoewark said. “We don’t know in what form it will persist in the final rule, but as long as some of it persists, we fully expect U.S. companies to adopt it. And our report That would also be helpful because it shows that even on very basic things, U.S. companies underreport compared to their sector peers in Europe, for example. You can see that this is done. ”
Setting global standards
The IFRS Foundation Sustainability Symposium focused on the evolution of standards around the world, including the European Sustainability Reporting Standards.
ISSB member Richard Barker said: “We have worked very closely with the EU on the development of standards, particularly to ensure that as much as possible there is climate context where the sets of standards overlap.” Ta. “We have succeeded in ensuring that the European standards use the same definition of investor materiality that is incorporated into our standards. It is IFRS that is covered by IFRS. ESRS has significant additional disclosure requirements, so it is much larger.”
ISSB wants to disseminate these standards around the world. “We wanted to make sure that authors around the world felt comfortable adopting our standards,” said ISSB Vice Chairman Jingdong Hua. “This means that whether you are listed in New York or São Paulo, Tokyo or Jakarta, Lagos or Johannesburg, Shanghai or Singapore, Frankfurt or Dubai, we can ensure that we provide capacity-building support and enable It means we want to provide an environment where we can establish a single, global baseline for sustainability.”
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