In response to growing interest in sustainability reporting within broader calls for corporate social responsibility reports, the AICPA has issued new guidance for auditors, “Attestation Engagements on Sustainability Information.” The guide expands upon and supersedes an earlier guide on greenhouse gas information.
Sustainability is sometimes used as a short-hand term for a larger population of social responsibility disclosures, variously described as corporate social responsibility (CSR); environmental, social and governance (ESG); socially responsible investing (SRI); and strategically sustainable investing (SSI).
Within a largely voluntary but increasingly regulatory-driven landscape, certain metrics and related indices of sustainability have been developed, making sustainability reporting another measure of competitive achievement and driving desirability among certain investors, customers, employees, and others.
“ESG investing strategies — investing plans that align with a healthy environment, social responsibility, and good governance — are some of the fastest-growing strategies in asset management,” says the Stanford Social Innovation Review, which reports a 33 percent rise in institutional assets invested in ESG strategies, to $8.72 trillion, in the space of two years. The report adds that ESG investing does not only appeal to larger investors, but to the retail / consumer investment market as well.
As such, general concerns about non-financial metrics, and sustainability metrics specifically, drive the desire for third-party attestation from auditors or other experts to provide a level of assurance on the reliability of the reported results.
Growth in demand for sustainability reports
“The demand for meaningfully-assured sustainability information is on the rise, coming from investors and other key decision makers who value this information,” Susan Coffey, AICPA executive vice president, public practice, said in a prepared statement.
Research supports this view.
According to Thomas Singer, principal researcher for The Conference Board, “Disclosure of corporate sustainability information is now increasingly expected from leading businesses, and in some cases it is now a requirement.”
Citing the European Directive on Non-Financial Disclosure, which takes effect this year, he says, “The directive requires public companies operating in Europe with more than 500 employees to report on a variety of non-financial metrics, including environmental impacts, social and employee-related policies, anti-corruption and bribery issues, and diversity on boards of directors.” U.S.-based companies take note: Multinational companies operating in Europe must also comply with the directive.
In another example, the Taiwan Stock Exchange has required certain listed companies to issue a stand-alone CSR report since 2015.
Sustainability and CSR are often used interchangeably, says Singer. “Sustainability is often defined as the ‘triple bottom-line’ — economic viability, social responsibility, and environmental responsibility.” John Elkington, said to have coined the term “triple bottom-line,” equated the economic-social-environmental equation with the “3 Ps” — profit, people, and planet.
The need for assurance
The growth in CSR reports has driven the need for assurance, says Singer. He shared a few examples of such reports, including the firm that provided assurance:
- UPS (Deloitte & Touche); see page 90
- Intel (Ernst & Young); see page 86
- 3M (Bureau Veritas); see page 206
“Our research finds that assurance of sustainability data is growing, though this remains an emerging practice,” says Singer. He notes that about 12 percent of S&P 500 companies are currently issuing sustainability reports that include third-party verification and assurance, compared to about 8 percent in 2013.
The CPA Journal, published by the New York State Society of CPAs, included extensive coverage of sustainability reporting, integrated reporting, and ESG in a recent issue, including columns by leading experts in corporate governance and the accounting profession:
- The accounting profession and sustainability, by Barry Melancon, president and CEO of the American Institute of CPAs and chairman of the International Integrated Reporting Council.
- Commonsense principles of corporate governance, by Mervyn King, former chair of the International Integrated Reporting Council and Global Reporting Initiative and former chair of the King Committee of Corporate Governance.
- Panel discussion on integrated reporting, featuring remarks by Kristen Sullivan, partner at Deloitte and Touche LLP; Aaron Briggs, executive counsel for corporate securities and finance at General Electric; Marcy Twete, division manager of corporate responsibility for the Americas and executive director of the USA Foundation at ArcelorMittal; and John White, partner at Cravath, Swaine & Moore LLP and former director of the SEC’s Division of Corporate Finance,
“While still an evolving practice, non-financial disclosure may ultimately be expected to undergo verifications and assurance approaching the level currently applicable to financial reporting,” says Singer. “Developments in this area, such as the launch of the AICPA’s sustainability attestation guide, will help improve data quality and help companies reduce risks associated with data inaccuracies.”
NEW: The AICPA is holding a webcast on September 14 from 1-2:30 pm ET, entitled Attestation Engagements on Sustainability Info: Applying the New Guide.