ESG reporting is almost universal among the world’s largest companies, and third-party assurance over ESG disclosures is becoming the norm. Those are two conclusions that emerge from The State of Play: Sustainability Disclosure & Assurance--2019-2022 Trends & Analysis, the International Federation of Accountant’s (IFAC) and the Association of International Certified Professional Accountant’s (Association) fourth annual report on global sustainability reporting practices. The IFAC/Association report is based on a review of the disclosures made by 1,400 companies, representing the largest companies by market capitalization in 22 jurisdictions. For the United States and five other countries, the study included the 100 largest companies.
The report finds that, in fiscal year 2022, 98 percent of these large companies reported some ESG information. That compares to 95 percent in 2021 and 91 percent in 2019 (the earliest year studied). In addition, 69 percent of ESG reporting companies obtained third-party assurance over at least some of their ESG information. This reflects an increase from 64 percent that obtained assurance last year and 51 percent in 2019. For the U.S. companies studied, 99 percent reported on sustainability in 2022, and 88 percent obtained some degree of assurance. (For a summary of the prior IFAC/Association report, see IFAC Issues Third Report on ESG Disclosure and Assurance, February-March 2023 Update.)
Other findings of the IFAC/Association report include:
Stand-alone ESG reporting is declining, while ESG information in annual reports is increasing.
In 2022, 30 percent of the 1,400 companies issued a stand-alone sustainability report (down from 50 percent last year and 57 percent in 2019), rather than including ESG disclosure in other documents. Conversely, 40 percent reported ESG data in their 2022 annual report, up from 2 percent in 2021 and just 18 percent in 2019. Twenty-seven percent issued an integrated report, and two percent did not report on ESG.
Ninety-one percent of U.S. companies studied included ESG information in their annual report, while only 3 percent issued only stand-alone reports.
Most companies use more than one ESG reporting standard or framework.
Eighty seven percent of the companies in the study disclose ESG information pursuant to more than one reporting standard or framework. In 2022, 83 percent referenced or used the United Nations’s Sustainable Development Goals (SDGs), 77 referenced or used the standards of the Global Reporting Initiative (GRI), 71 percent referred to or applied the Taskforce on Climate-related Financial Disclosure (TCFD) framework, and 52 percent used or referenced the Sustainability Accounting Standards Board (SASB) standards.
In the United States, the SASB standards were the most popular reporting framework: SASB was referenced or used by 93 percent of the 100 U.S. companies in the study, followed by TCFD at 88 percent. It should be noted that the report uses the phrase “referenced or used” with respect to standards, because companies may not necessarily adhere strictly or completely to any given set of standards or disclosure framework. For example, the report notes that “37 different phrases were used to describe the application of SASB Standards.”
Audit committees play a key role in sustainability governance.
Eighty-three percent of companies disclosed board-level oversight of sustainability strategy, and 68 percent of those companies identified the audit committee as having such oversight responsibility. Sixty-five percent gave sustainability strategy oversight responsibility to more than one board committee.
Fifty-six percent of companies disclosed board-level oversight of sustainability reporting, and 41 percent of those companies identified the audit committee as having such oversight responsibility (although a still greater number – 45 percent – said that the sustainability committee had responsibility for oversight of sustainability reporting). Twenty-nine percent of companies that made disclosure concerning board-level oversight of reporting gave that responsibility to more than one committee.
Twenty-two percent of companies disclosed board-level oversight of sustainability assurance, and 79 percent of those companies identified the audit committee as having such oversight responsibility. Only 5 percent gave sustainability assurance oversight responsibility to more than one board committee.
Assurance over ESG disclosures continues to increase.
As noted above, 69 percent of companies obtained third party assurance over at least some of their ESG reporting, up from 64 percent in 2021. For the U.S. companies studied, 88 percent obtained some level of assurance over at least some ESG disclosures.
Audit firms performed 58 percent of assurance engagements, a slight increase from 57 percent last year, but below the 63 percent share audit firms had in 2019. In the United States, audit firms only provided about 23 percent of ESG assurance.
Information disclosed using GRI standards is subject of assurance more often than any other reporting standard or framework – 40 percent of reports that referenced GRI were subject to assurance in 2022. Only 11 percent of SASB disclosures were subject to assurance.
Ninety-five percent of audit firm ESG engagements resulted in limited assurance reports, while 6 percent provided moderate assurance, and 9 percent provided reasonable assurance. In contrast, 64 percent of engagements conducted by other service providers resulted in limited assurance, while 15 percent resulted in moderate assurance and 15 percent in reasonable assurance.
The report contains detailed information concerning reporting and assurance practices on a country-by-country basis. Audit committees might find this material of interest in benchmarking their company’s approach to ESG disclosure and assurance.
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