More companies are reporting more information on their sustainability practices, continuing a trend that’s been gathering force for years. However, questions still abound over how useful much of the information is.
According to a broad new study, 98% of organizations reported some level of detail on sustainability/ESG in 2022, up from 95% in 2021 and 91% in 2019.
Data from 2022 was recently added to a history tracked since 2019 by the International Federation of Accountants (IFAC) and AICPA & CIMA. The study included 1,400 organizations in 22 jurisdictions (21 individual countries plus Hong Kong).
While the incidence of sustainability reporting was near-ubiquitous, only two-thirds (69%) of those studied obtained third-party assurances on any of their sustainability disclosures in 2022. Still, that was up from 64% the prior year, and the scope of assurance engagements broadened somewhat, with 59% of companies obtaining assurance on greenhouse gas disclosure.
Among the 22 jurisdictions, only three — France, Italy, and Spain — registered a 100% assurance rate. Countries with rates lower than 50% included Saudi Arabia, Argentina, Indonesia, Russia, Singapore, and China. The U.S. rate was a well-above-average 88%.
Perhaps even more problematically, companies continued to employ a variety of reporting standards and frameworks. “That leaves investors and lenders in a bind when it comes to having consistent, comparable, and high-quality information at hand,” noted David Madon, IFAC’s director of sustainability, policy, and regulatory affairs.
The study report noted that 87% of companies use “a mix of standards and frameworks” for reporting on ESG. Further, it observed that “it is unclear whether most provided their information in accordance with the requirements of well-established standards setters.”
On a positive note, the study found that more than half of companies use the Sustainability Accounting Standards Boards standards and the Task Force on Climate-related Financial Disclosures Framework. That should “ease the transition” to the International Sustainability Standards Board standards released last year, according to the study report.
Sustainability and Finance Draw Closer
One major trend has companies moving in droves away from preparing standalone sustainability reports and instead including disclosures in their annual or integrated reports.
In 2022, only 30% of companies used standalone reports, way down from 57% in 2019. Notable exceptions included the United States, Canada, China, and South Korea, where more than 70% of companies used stand-alone reports.
The overall global trend, coupled with the growth in obtaining assurances for sustainability disclosures, “is evidence of progress toward better connectivity between sustainability and financial corporate disclosures,” the study report said.
“The goal of sustainability disclosure must be information, including the process to prepare it, that is on par with financial reports.”
Other findings from the study:
- The average number of days between the finalization of statuary audits and ESG assurances was 95 days in the Americas — and just 5 days in the European Union. Asia-Pacific was in between at 59 days.
- Almost half (42%) of assurance engagements were handled by companies’ statuary auditors, 16% by non-statuary auditors, and 42% by consultants and other types of service providers.
- Majorities of companies disclosed board-level oversight of sustainability strategies (83%) and sustainability reporting (56%). Only 22% of boards disclosed board oversight of sustainability assurance.