Company-reported ESG metrics and disclosures are being relied on by an increasingly diversified stakeholder base, both within and outside companies, to evaluate risk, drive internal operations and make investment, purchasing and employment decisions.
Board of directors
Because investors increasingly see ESG issues as a window into business viability and the future of company performance, boards may want to assess whether public-facing disclosures about ESG are of high quality.
Investors
Investors are increasingly focused on ESG information because they find such information helpful in understanding the resilience of a company’s long-term value-creation strategy, and the information enables them to manage their investments based on ESG risks and opportunities.4 Third-party assurance can enhance confidence in ESG information by providing insight into the reliability of management’s assertions, data and disclosures. In addition, investors increasingly look to published ESG ratings and data provider reports to make decisions (for example, ratings on ESG indexes including the CDP [formerly known as the Carbon Disclosure Project] and Dow Jones Sustainability Index [DJSI]); external assurance on the ESG information can contribute to improved ratings performance.
Management
Management may want to seek assurance from a third party to obtain an independent opinion or conclusion on its ESG reporting prepared in accordance with suitable criteria.5 Assurance by a third party can be an important tool to enhance management’s confidence in its ESG data management and reporting processes to better inform strategic decision-making and understanding of performance against goals.
Obtaining assurance on ESG information can also support companies in
signaling to their stakeholders the importance of ESG reporting to the company,
identifying limitations of controls and reporting systems around ESG reporting,
raising awareness of the importance of the quality of ESG information at the board and C-suite level and
driving better decision-making based on higher-quality ESG information.
Many believe that key ESG factors (such as corporate culture, human capital management and climate change strategies) promote corporate success and value. Therefore, these and other key ESG matters likely will be increasingly important to corporate competitiveness and reputation, especially with future investors and consumers who have a keen focus on corporate culture and approach to ESG issues.
Other stakeholders
Customers, suppliers and prospective employees also may rely on a company’s ESG information to make decisions, and assurance by a third party could enhance the reliability of such information. For example, information on a company’s ESG practices in the supply chain may affect whether a customer purchases a product from that company or chooses to purchase it from a competitor.
