Increased sustainability reporting brings greater transparency but also a risk of inconsistency in quality. This has led to calls for a framework to help guide consistent assurance – both from investors and legislators, as well as from businesses looking to manage the dangers around inaccurate disclosures. The EU’s corporate sustainability reporting regime is starting to mandate limited assurance for certain undertakings, leaving a gap to be filled.
In response, to increase trust and limit fragmentation, the International Auditing and Assurance Standards Board (IAASB) has released a draft “landmark” global sustainability assurance standard in collaboration with influential stakeholders and standard setters. These include the European Commission, the UK’s Financial Stability Board, the Global Reporting Initiative, the International Corporate Governance Network, International Organization of Securities Commissions, the International Sustainability Standards Board, and the US’ Securities and Exchange Commission.
A global assurance baseline?
The International Standard on Sustainability Assurance (ISSA) 5000 is designed for assurance practitioners and can provide businesses with a useful yardstick when engaging them. The ISSA 5000 is:
- principle based – its structure is designed to be as widely applicable as possible, encouraging its use for all types of entities and sectors, and focusses on principles and outcomes rather than process.
- framework neutral – the standard is aimed at assurance for any reporting framework. Although it focusses on limited (and later, reasonable) assurance requirements under the EU’s Corporate Sustainability Reporting Directive ("CSRD"), it can also apply to the ISSB’s sustainability and climate disclosure standards, the GRI’s Sustainability Reporting Standards, and the ISO’s sustainability standards.
- applicable for reasonable and limited assurance - the proposed standard can be used for both types of assurance engagements (i.e., for a full audit or a review of sustainability information).
It will expand and complement existing guidance such as the ISAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information and ISAE 3410 Assurance Engagements on Greenhouse Gas Statements. The draft includes conforming amendments to these standards to address any overlap between them. As a precondition to its use, the ISSA 5000 assumes certain ethical requirements and quality management processes are met, in line with the International Code of Ethics for Professional Accountants.
Interaction with the Corporate Sustainability Reporting Directive
The ISSA 5000 will be of particular relevance to businesses within scope of the CSRD. The European Commission has worked closely with the IAASB in developing the ISSA and although it is too early for the EU to commit to adoption, it is unlikely that the European assurance standards will diverge significantly from this global baseline. Indeed, the EU is not expected to begin work on the European standards before the ISSA 5000 is finalised.
The ISSA 5000 is being introduced against a backdrop of uncertainty around assurance under the CSRD. While the CSRD set out limited assurance requirements for in-scope entities for financial years beginning on or after 1 January 2024, the EU does not have to implement an EU-wide standard until 2026. This means that certain companies will be required to ensure limited assurance of their sustainability disclosure before an EU assurance standard has been published. This has led certain Member States to begin work on their own CSRD-compliant assurance standards. The French audit regulator H3C, for example, has developed a CSRD-specific standard to address the lag in bringing in a European assurance standard.
The ISSA 5000 will assist with addressing this gap. The framework, even in draft, may help those Member States that are still considering how best to respond to the assurance lag in the CSRD. Assuming the EU does not commit to immediate adoption, it will also provide a global baseline to work with in the period between the ISSA 5000 being finalised and publication of the European standards.
The IAASB will now consult on the draft standards until 1 December 2023, aiming to complete its work by the end of 2024. Though it is still some way off, the variety and intensity of stakeholder input means that the ISSA 5000 will likely be a significant step towards consistent global sustainability assurance. As sustainability reporting obligations expand globally, the need for effective assurance will only grow, with the ISSA 5000 providing the first global baseline.
Those interested in providing feedback on the draft proposals can do so on the IAASB’s website.