ESG Wave Vs Traditional Audit Framework

The demand for ESG certification services rises as push from stakeholders, regulators, and customers to publish sustainability information increases. The regulatory landscape in this area is evolving quickly. In the last few years, a growing number of disclosure obligations have been created related to climate change, and recognition of the benefits of alignment with the Task Force on Climate-Related Financial Disclosures (TCFD) requirements has increased.

According to Dr. Jeremy Osborn, worldwide head of ESG at AICPA, “there is an interesting debate about how the financial audit and business advisory worlds cohabit inside audit firms when it comes to delivering ESG services.”

Osborn uses his experience working in the sustainability services unit at EY UK to demonstrate how ESG assurance often cuts across both organizational poles. According to him, this could be a terrific chance for the two groups to work together more closely.

“I think those with the accountancy background whose primary role it might have been to provide financial audit or provide sustainability report assurance are also very well placed to provide advice to their clients around things such as adaptation to climate change”

The groundwork of audit firms in reacting to the ESG boom still depends heavily on how the regulatory picture develops, according to Osborn.

Similarly, Rakesh Shaunak, managing partner and group chairman at MHA Macintyre Hudson, argues that firms will be “forced” to rethink their most basic practices due to the weight of opportunity that the growing ESG demand poses.

This is reflected in the IFAC, AICPA and CIMA study. The number of global companies obtaining independent assurance on their ESG information increased from 51% to 58% in 2020, with almost a third of those surveyed (61%) stating that such engagements were being performed by audit firms.

The most important and urgent aspect of this surrounds the work of the International Sustainability Standards Board (ISSB), he says.

Formed during COP26 in November 2021, the ISSB has consolidated the Climate Disclosure Standards Board and the Value Reporting Foundation to form a new global standards setter for sustainability reporting.

Marry Tressel – ESG Lead, Moore Global said “It’s a bit of a challenge for firms to get their arms around in the beginning, but we’ll see that it’s an opportunity to break down silos, because you need to go across the entire organization to gather the information required.”

But while the universal adoption of the ISSB’s standards would be ideal, the reality is that audit firms must be prepared for all eventualities, says Tressel.

“For now, it’s about being agile,” she says. “Firms have got to be prepared for whatever happens in their own jurisdictions. And then as soon as those regulations are finalized, they have got to get a team together that is studied up and prepared on it.”

Tressel also warns firms that many smaller businesses will be affected by the new requirements due to Scope 3 emissions disclosures. Scope 3, which is included in the ISSB’s exposure drafts, covers all indirect emissions that occur in a company’s supply and value chain. This includes all purchased goods, services, and distribution.

In the midst of this paradigm shift, Hydrus.ai is the first standalone platform in the ESG space that has all the required reporting and analytics tools already figured out for its customers. The dynamics of this platform are designed in such a user-friendly manner that it solves and mainstreams the end-to-end data collection process, analysis, and reports work in near real-time. The Customization feature of Hydrus.ai gives its users the flexibility to create, monitor, slice, and dice the data as per their comfort. The tool supports the entire bandwidth of the ESG domain and scales up as per the needs of the market.

Reference:

https://www.agcs.allianz.com/news-and-insights/expert-risk-articles/ESG-impact-on-audit.html

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