ESG* Reporting Is on the Rise
Despite the blowback against ESG in politics and in the media, companies are actively engaged in sustainability and ESG reporting. That’s because investors are demanding it, stakeholders expect it, and regulations are requiring it more and more. The Center for Audit Quality recently analyzed 2021 data for S&P 500 companies, gathered from ESG reports, company websites and climate change questionnaires from CDP (formerly called the Carbon Disclosure project). Following are the key findings.
More Reporting, More Use of Standards
ESG reporting is on the rise. Out of the 500 companies, 494 had reported ESG information to some degree, which is 30 more companies than the previous year and approximately 99% of the S&P 500.
Effective ESG reporting requires the use of common standards. Companies increased the use of four common standards, with 452 aligning with the Sustainability Accounting Standards Board (SASB), 395 with the Taskforce for Climate-related Financial Disclosures (TCFD), 346 with the Global Reporting Initiative (GRI) and only 18 using Integrated Reporting (IR). Most were using three standards at once, which has become common practice.
More Obtaining Assurance – Mostly Limited
Nearly two-thirds (328) of companies obtained some form of assurance or verification on their ESG reporting, a 13% increase from the previous year. Sixty of these companies used a CPA firm to perform the attest work, while 268 utilized the services of a non-CPA firm. Limited assurance was the most common level of assurance used by 263 companies.
As for those providing assurance, most CPA firms used AICPA attestation standards, with some using ISAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information, and others using ISAE 3410 Assurance Engagements on Greenhouse Gas Statements. For non-CPA firms providing assurance, most used ISO 14064-3 Specification with guidance for the verification and validation of greenhouse gas statements and ISEA 3000 standards, with a small number using AA 1000, the AccountAbility Assurance Standard.
Scope of Reporting Going Beyond GHG Scopes 1 and 2, and Beyond GHG Alone
More than half of companies (318) obtained assurance or verification on their GHG emissions, which included 44 new companies compared to the previous year. Most (249) obtained assurance over scopes 1, 2 and 3 emissions, which covers the full value chain, with a fourth of that amount (68) covering scopes 1 and 2 alone.
The number of categories of Scope 3 GHG emissions grew too, with more companies reporting areas like business travel, fuel and energy-related activities (those not included in scopes 1 or 2), purchased goods and services, and employee commuting.
While more companies still focused on GHG emissions alone (152), that number dropped from the previous year (186), with a significant increase in companies covering topics beyond emissions, including water, energy, waste, employee health/safety and DEI.
What This Means for Your Reporting
If you aren’t already reporting on your sustainability and ESG impact, you should consider starting. Expanded regulations for companies doing business in the EU and pending regulations in the US will soon require some level of reporting. It’s important to use common standards for comparability, accuracy and completeness, choosing those that are best for your company.
Third-party assurance is an important consideration as well, especially as stakeholder scrutiny and accusations of greenwashing are on the rise. And while reporting greenhouse gas emissions is now table stakes, there is a growing expectation that companies include all scopes that cover the full value chain, as well as include topics beyond just emissions, like water, waste, human capital and others.
Written by Dan Harris. Copyright © 2023 BDO USA, P.A. All rights reserved. www.bdo.com
*ESG stands for Environmental, Social and Governance and represents a framework used by businesses and investors to evaluate a company’s sustainability and ethical practices.