Important trends in environmental sustainability reporting

A recent report published by the International Federation of Accountants (IFAC), along with the AICPA and CIMA, marks important trends in sustainability disclosures and illustrates the increase in corporate reporting on environmental, social, and governance (ESG) measures.

The report, The State of Play: Sustainability Reporting and Assurance, found that 95 percent of the entities reviewed provided ESG disclosures in 2021. The 1,350 companies are situated in 21 different foreign jurisdictions and were also reviewed in 2020 and 2019. The data captured across this three-year timeframe establishes important global trends and provides insight into the role of ESG standards.

Sustainability reporting usually falls into one of three categories—sustainability reports, annual reports and integrated reports. When gathering the sustainability data for the companies reviewed, reports were located on a company’s website in one of four places:

1. Dedicated sustainability web page for stakeholders
2. Sustainability web page under “About the Company” section
3. Annual reports or downloads section of investor relations web page
4. Sustainability section of investor relations web page

In 2019, 51% of the companies reviewed obtained some level of assurance around their ESG reporting. That number increased to 58% in 2020, and 64% in 2021. The 6 jurisdictions with the largest three-year increases are Hong Kong, Italy, Japan, Singapore, Turkey and the United Kingdom.

The report states that there is a growing need for harmonized ESG standards because 86% of the companies reviewed used multiple standards and separate reporting frameworks to prepare their sustainability information. This creates issues with comparability and consistency.

Some of the key takeaways from the executive summary include:

• Stand-alone sustainability reports remain a popular format for disclosure in areas like Canada, the United States, and Asia but there are jurisdiction-specific trends toward more integrated reporting and connectivity between ESG and financial information.
• There is an increased reliance on the Task Force on Climate-related Financial Disclosure (TCFD) Framework and Sustainability Accounting Standards Board (SASB) Standards.
• The most widely used assurance standard is the International Auditing and Assurance Standards Board’s (IAASB) International Standard on Assurance Engagements 3000.

Based on the information reviewed, 70% of the time, companies that obtained sustainability assurance from a professional accountant engaged their auditor to also review their ESG disclosures.

The report also highlights some interesting trends in the scope of reporting and assurance. It found that 96% of companies provided information in all four ESG categories--greenhouse gas, other environmental, social and governance sustainability matters. With respect to assurance, most companies focused on greenhouse gas data, but 53% of companies obtained assurance in all four ESG categories.

Another section of the report is focused on climate reduction goals. It notes that the terms ‘carbon neutral’ and ‘net zero’ are often used interchangeably, leading to inconsistencies in what stakeholders understand about emissions reduction targets. This is another area where information reporting and standards can be improved upon to create greater clarity moving forward.

There are also important changes with respect to where companies reported on ESG. For example, in France, the use of integrated reports increased 44% between 2020 and 2021. Many jurisdictions that have high rates of integrated reporting also have high rates of assurance—the assurance rate is 98% in France and 72% in Brazil in 2021.

In Saudi Arabia, reporting on ESG increased 24%--primarily in annual reports. This is significant because annual reports have a broad reach and provide financial data alongside sustainability measures.

These trends – and an increase in sustainability reporting – helps demonstrate how sustainability data is becoming more widely accessible to the public and how consistent reporting standards will allow for even greater analysis and benchmarking in the future.

Reference: “The State of Play: Sustainability Disclosure & Assurance. 2019-2021 Trends & Analysis” https://www.ifac.org/system/files/publications/files/IFAC-State-of-Play-Sustainability-Assurance-Disclosures.pdf

Tara Fisher has been practicing tax for over 20 years. Her professional background includes working for the U.S. Congress Joint Committee on Taxation, the national tax practice of PricewaterhouseCoopers, the University of Pittsburgh, and American University in Washington D.C. She is a licensed CPA and holds both an undergraduate and graduate degree in accounting from the University of Virginia.