3 ways new ESG management and auditing standards could affect all Australian listed companies

The world of Environmental, Social and Governance (ESG) reporting continues to undergo rapid and significant transformation. In recent weeks, three influential standard and assurance setting bodies – the International Organisation for Standardisation (ISO), the International Auditing and Assurance Standards Board (IAASB), and the Australian Auditing and Assurance Standards Board (AASB) – have published documents that set a higher benchmark for the quality of corporate sustainability reporting.

ISO has published the ESG Implementation Principles (IWA 48), to provide a framework for integrating ESG into corporate culture, strategy, and reporting that facilitates good, comparable investor-focused reporting.

The IAASB has published International Standard on Sustainability Assurance 5000, to provide a flexible and accessible assurance standard for investor-focused ESG reporting that can be used by both accountants and non-accountant assurance practitioners.

Meanwhile, the AASB has released a draft assurance standard, ASSA 5010, focused on sustainability reports prepared under Australian law.

What this means for Australian companies that produce ESG reports

1. Companies that seek assurances on their sustainability reports will need to evidence how they determined the sustainability matters to focus on in their reports (i.e. ‘material’ information)

Companies that are not yet familiar with standardised, investor-focused ESG reporting will need a significant uplift in their risk assessment processes and governance frameworks to meet implementation and assurance (auditing) standards. This uplift includes a materiality assessment, which is an ESG impact, risk and opportunity assessment.

Under both ISSA 500 and draft ASSA 5010, the materiality assessment process itself is subject to auditing.

2. More considered use of the terms ‘ESG’ and ‘sustainability’ in communications

ESG communications is becoming more and more standardised, at the request of investors. Companies that continue to provide information under the banner of ‘ESG’ or ‘sustainability’, without being mindful of the expectations regarding the quality of such information, risk their reputation and credibility among the investors that review their information. This is regardless of whether a company is mandated by legislation to provide ESG reports, or whether the company is undertaking ‘value chain reporting’ - i.e providing ESG information at the request of another company in its value chain.

3. Similar scrutiny applied to ESG statements as financial statements

The development of financial reporting assurance standards provides valuable lessons for the ESG reporting landscape. The adoption of global standards, such as International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP), ensured consistency and comparability in financial reporting. Furthermore, regulatory oversight from bodies like the Securities and Exchange Commission (SEC) and Australian Securities and Investments Commission (ASIC) enforced compliance.

Similarly, the introduction of ISSA 5000 and the incoming ASSA 5010 is poised to transform ESG reporting in a similar way, by also standardising ESG reporting formats, promoting consistency and comparability across organisations

So, what’s next?

To navigate this new landscape:

• Set your board up for effective decision-making about your ESG priorities by enrolling for an ESG Competent Boards masterclass
• Complete a materiality assessment (or review and refine previous ESG materiality work.) IR Department can help you work out how to do this in a way that is designed for your company
• Familiarise yourself with ISSA 5000 and ASSA 5010.

Read more about our ESG services here, or contact us for a no obligation discussion about how we can help.