Despite well-known disparities among the global community and nations about international preparation for ESG sustainability issues, most countries could be better prepared to structure, legislate, and execute their sustainability monitoring, disclosures and audits.
External audits of sustainability-related data are deemed crucial by the regulators and oversight authorities to provide stakeholders in general and investors with accurate information, freeing the corporate clutter and from misleading claims, known as greenwashing.
Under the current regime, ESG disclosures will be subject to external audits in most Western countries, ensuring reliability and transparency in reporting. Some countries are ranked lower in readiness for the new ESG regulations. In preparation for upcoming environmental, social, and governance (ESG) regulations set to roll out globally, reveals that an overwhelming 75% of companies worldwide are not adequately prepared for external audits of their ESG data.
These regulations, scheduled for implementation during the 2024 reporting season in the European Union, the United States, and globally, are intended to replace voluntary practices among listed companies regarding climate-related disclosures. Among the 750+ surveyed companies, only 25% feel sufficiently prepared for these impending changes, highlighting a significant industry-wide challenge. Larger companies demonstrate better preparedness than smaller counterparts, according to the report.
The audit conflicts on Double Materiality Assessment, Execution and Reporting
Many stakeholders, including oversight authorities, have expressed concerns that several audit firms led by the Big 4 offer to do dual materiality analyses for their existing clients. All large companies must conduct sustainability reporting, also known as CSRD. One of the most critical areas in the CSRD is that a double materiality analysis, also known as the Double Materiality Assessment, must be carried out as a decisive indication for all the corporate initiatives and work with CSRD. The double materiality analysis must also be audited and certified. The corporate accountant must check whether this analysis has been done correctly. And here comes the problem! If you both provide consultancy, the work, and the subsequent audit, the audit firm audits them. This is a significant conflict.
The statutory auditors, however, can provide some aspects of consultancy tasks. For example, they may give the company generic advice and “best practice advice”—however, the advice and the frameworks that the customer can use when preparing the analysis themselves. Similarly, the statutory auditors can assist the company in mapping “impact, risk and opportunities”, conducting interviews, and doing generic workshops. However- again, the company needs to prepare the analysis.
The solution is to participate in the Esguiera courses, get the knowledge and templates to implement, execute and monitor the double materiality analysis and present it to the auditor for review, analysis, audit and ultimate certification.