By ESG Analyst Sydney Foran
Sustainability assurance has reached its strongest position yet with the International Auditing and Assurance Standards Board’s (IAASB) recent adoption of the International Standard on Sustainability Assurance (ISSA) 5000. The approval of ISSA 5000 is a major stepping stone in the sustainability reporting realm, providing assurance practitioners further guidance on how to accurately assess organizations’ sustainability information.
What is Sustainability in the Context of Reporting
Sustainability reporting is the process of disclosing information about an organization’s environmental, social, and governance (ESG) impacts and performance. It serves to communicate their sustainability goals, climate-related risks, and opportunities to stakeholders: investors, customers, employees, and regulators. Sustainability reports often include data on greenhouse gas (GHG) emissions, resource usage, labor practices, diversity and inclusion, and governance frameworks. These reports provide transparency and enable organizations to benchmark their progress against peers and globally set targets, as well as their own progress over time. This encourages organizations to identify their strengths and the areas for them to work toward sustainable improvement.
Sustainability reporting serves as a strategic asset for organizations. By assessing and disclosing their ESG performance, companies can build trust with stakeholders, attract socially responsible investors, and enhance their reputation within their respective market. Moreover, the process of preparing these reports urges organizations to identify risks, such as climate-related financial impacts, to implement preventative actions. It also serves to uncover new opportunities that have not yet been pursued, furthering innovation and efficiency.
Responding to the Demand for Reliable Sustainability Information
The need to report on ESG matters only continues to increase as priorities of stakeholders and investors continue to shift towards sustainability and transparency. However, it is common for organizations to be unsure what to report or how to collect the appropriate data. Intentionally or not, this often results in misleading or inaccurate information. Additionally, given the intensifying environmental changes and importance of reducing emissions to meet global reduction targets, the reliability of information is crucial. Inaccurate reporting hinders efforts to drive meaningful progress, making it essential for organizations to ensure sustainability information is credible.
Recognizing the potential of inaccurate sustainability statements, the IAASB acted to respond by developing sustainability assurance standards. These include the International Standard on Assurance Engagements (ISAE) 3000 and the Assurance Engagements on Greenhouse Gas Statements (ISAE) 3410. This aimed to provide assurance practitioners with the guidance and tools needed to effectively evaluate sustainability statements, ensuring their accuracy and completeness. Though these standards were a good start, there was a demand for more clarity regarding sustainability matters and further guidance to avoid confusion in reporting. The IASSB has recently released updated standards in response to these demands.
ISSA 5000 to the Rescue
By building on their existing standards, the IASSB worked to develop a global standard for verifying sustainability information – the ISSA 5000. It will work to provide a comprehensive framework for assurance reporting engagements on sustainability information using a flexible model. Unlike other standards, the ISSA 5000 is not linked to a certain reporting framework, such as the GRI or ISSB. It seeks to align with what’s currently in use, regardless of framework in use, providing a reliable method to validate ESG information.
Additionally, the principle-based method of the ISSA 5000 makes it adaptable across different industries and operational structures. Instead of prescribing a strict set of procedures, the standard offers assurance practitioners flexible guidelines aimed at achieving high-quality outcomes, enabling them to use professional judgment to determine the evidence needed to validate ESG claims. The ISSA 5000 is profession-agnostic – meaning it is not necessary to be a professional accountant to verify information. Those deemed qualified to provide assurance on sustainability information within the organization can do so. This provides the standards with more flexibility and seeks to put its users at ease.
The standard ensures inclusion of critical components such as GHG emissions – scopes 1 through 3 – and governance implications including impact of policy on performance. By clarifying the scope and applicability of the standards, assurance practitioners can accurately review sustainability statements and verify necessary information.
The Path Forward – What does this mean for businesses?
The approval of ISSA marks a significant milestone for sustainability assurance. That said, it also indicates the need for a shift in the role of accountants and assurance practitioners. It will become even more critical to ensure the integrity of sustainability reporting. When new opportunities emerge, more responsibility is inevitable. As companies increasingly seek assurance practitioners to validate their sustainability claims, practitioners must deepen their understanding of the standard’s intricacies and build the expertise necessary to address the challenges of sustainability assurance.
Additionally, organizations seeking assurance will need to strengthen their sustainability reporting processes, aligning their disclosures with robust data management and transparency to meet the high expectations set by ISSA 5000. The IAASB will activate the standard for periods or dates on or after December 15th, 2026, giving businesses enough time to ensure they report on the correct information which will be crucial as assurance on these matters will be of higher quality.
Organizations must also align their reporting practices with established frameworks, even though ISSA 5000 is framework-flexible, to facilitate seamless assurance engagements. Cross-departmental collaboration will be critical, requiring finance, sustainability, and operational teams to work together to produce reliable and transparent disclosures. Furthermore, organizations should invest in training key personnel on sustainability topics and the nuances of assurance requirements while engaging with assurance practitioners early in the reporting process to identify and address potential gaps.
References
- Charluet, C. (2024, October 21). ISSA 5000 for CSRD: Everything you need to know (2024). Coolset.com. https://www.coolset.com/academy/issa-5000-csrd-guide
- Hartman, M. (2024, October 24). IAASB Approves Landmark ISSA 5000 Standard: A New Era for Sustainability Assurance. IFAC. https://www.ifac.org/knowledge-gateway/discussion/iaasb-approves-landmark-issa-5000-standard-new-era-sustainability-assurance
- IAASB. (2011, April 28). ISAE 3000 (Revised), Assurance Engagements Other Than Audits or Reviews of Historical Financial Information. https://www.iaasb.org/publications/isae-3000-revised-assurance-engagements-other-audits-or-reviews-historical-financial-information
- IAASB. (2012, August 22). At a Glance: International Standard on Assurance Engagements (ISAE) 3410, Assurance Engagements on Greenhouse Gas Statements | IAASB. https://www.iaasb.org/publications/glance-international-standard-assurance-engagements-isae-3410-assurance-engagements-greenhouse-gas
- IAASB. (2024a). Basis for Conclusions Prepared by the Staff of the IAASB. https://ifacweb.blob.core.windows.net/publicfiles/2024-11/IAASB-ISSA-5000-Sustainability-Assurance-Basis-for-Conclusions.pdf
- IAASB. (2024b). Final Pronouncement . https://ifacweb.blob.core.windows.net/publicfiles/2024-11/IAASB-International-Standard-on-Sustainability-Assurance-ISSA-5000.pdf
- PwC. (2022). ESG Reporting and Preparation of a Sustainability Report. PwC. https://www.pwc.com/sk/en/environmental-social-and-corporate-governance-esg/esg-reporting.html
- PwC. (2024, November 12). IAASB finalizes International Standard on Sustainability Assurance 5000. Pwc. https://viewpoint.pwc.com/dt/us/en/pwc/news-and-alerts/news/News/issa5000.html