Proposed path to assurance over sustainability reporting

Momentum is developing for sustainability reporting around the world, and it is likely that many jurisdictions will require a level of assurance on this sustainability information – initially limited assurance, subsequently stepping up to reasonable (audit) assurance. Australia is one such example, proposing a three-year implementation approach, including reasonable assurance as the ultimate goal.

Auditing standards for sustainability reporting

In light of this, the International Auditing and Assurance Standards Board (IAASB) published proposed International Standard on Sustainability Assurance, ISSA 5000 General Requirements for Sustainability Assurance Engagements to assist practitioners undertaking assurance engagements on entities’ sustainability reports. ISSA 5000 will apply to any sustainability topic, to limited and reasonable assurance engagements, and apply across multiple frameworks, including IFRS Sustainability Disclosure Standards IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.

The assurance engagement for a sustainability report proposed in ISSA 5000 is structured similarly to an audit or review of financial statements, with requirements for acceptance and continuance, quality management, terms of engagement, planning, obtaining evidence, documentation, consideration of misstatements, communication with those charged with governance, consideration of other information, the assurance report, etc. However, procedures are pared back for limited assurance engagements. The IAASB is seeking feedback on these proposals by 1 December 2023 with the aim of issuing a final standard before the end of 2024.

Assurance on Australian sustainability reports

Climate disclosures form part of an entity’s sustainability reporting. While noting that assurance is important to enhance credibility of climate disclosures, the Government’s Treasury Consultation Paper acknowledges that assurance experts need time to get ready – time to upskill their climate reporting knowledge so that they can deliver climate-related assurance services, time to build staff capacity, and time to develop processes for performing these engagements. The Government is therefore proposing a phasing and scaling of assurance engagements, as shown in the table below.

table detailing the roll out of the Australian Government's proposed phasing and scaling of assurance engagements(click to enlarge table)

Some entities providing climate disclosures already obtain voluntary assurance ahead of the expected timeframes noted above. Dates for the reasonable assurance of Scope 3 emissions are delayed due to the complexity of calculating them across the entity’s value chain, but reasonable assurance is proposed one year earlier for Scope 3 calculation methodologies.

Who can provide assurance services in Australia?

Consistent with legally enforceable requirements in Part 2M.4 and section 307C of the Corporations Act 2001 and auditing standards, assurance providers for climate disclosures must be independent from the entity being audited.

The Treasury Consultation Paper proposes that financial auditors will lead climate disclosure assurance engagements with the support of technical climate and sustainability experts if needed. This is because financial auditors have the professional qualifications and knowledge of assurance processes, but they may not have the expertise to provide assurance on climate-specific elements. Auditors registered as Greenhouse and Energy Auditors under the NGER Scheme that appear on the Clean Energy Regulator (CER) register must demonstrate knowledge of the NGER legislation and be experienced in auditing. The Treasury Consultation Paper therefore proposes that financial auditors can access the CER register to find technical experts to assist them with climate audits. 

Need voluntary assurance on your climate disclosures? 

Although not yet mandatory in Australia, many entities are already being forced to calculate their carbon footprint and produce an assurance report from an independent auditor because other entities in their value chain demand it. If you require assurance over your carbon footprint, our national sustainability team can help.

Contact us today.