The role of certified professional accountants in sustainability assurance
In recent years, environmental, social and governance (ESG) themed investment products and ESG-branded stock indexes have become increasingly prevalent. In Hong Kong alone, the assets under management of the 188 SFC-authorised ESG funds have reached US$151.7 billion in March 20231. At the same time, investors have become increasingly wary of potential greenwashing as ESG investments become more popular. Investors and other stakeholders have heightened expectations for entities to report credible and reliable sustainability information that helps them make informed decisions.
According to research by the International Federation of Accountants covering around 1,400 companies across the globe, 63.8%2 of companies that reported sustainability information provide some level of assurance on it in 2021, up from 50.8% in 20193. Certain jurisdictions, including the European Union4 and New Zealand5, have set timelines for mandatory assurance, while others, such as the United States6 and Australia7, have proposed mandatory assurance requirements for certain eligible companies. Further changes on the horizon include companies expanding the scope of their sustainability reporting as well as the scope and level of assurance, and companies entering into new businesses with parties that can provide relevant data and information.
Sustainability reporting requirements are advancing globally albeit at varying paces in different jurisdictions. Therefore, it is now more crucial than ever for business leaders to devise plans to train up staff across different corporate functions on how to prepare for the reporting requirements, budget for adequate manpower and other resources, engage with those charged with governance to ensure there is appropriate oversight on the reporting process, and discuss with the assurance providers on an appropriate assurance approach on the reported sustainability information (if any). A holistic approach will enable the reported sustainability information to meet prevailing market expectations and help maintain an organisation’s competitive edge.
Given their professional training and technical competencies, certified professional accountants (CPAs) with relevant experience are well placed to play a vital role in assuring sustainability information. This viewpoint is further elaborated below:
- Leveraging on their business acumen and industry-specific knowledge, CPAs are good at designing appropriate procedures to evaluate the various types of information prepared by an entity.
- CPAs are accustomed to exercising professional judgment. In terms of sustainability metrics, CPAs can assess the appropriateness of measurement approaches, methodology as well as assumptions used by an entity to estimate key sustainability information.
- Reporting systems are the nexus of sustainability reporting. Gathering quality data from various internal sources and third parties along the supply chain remains complicated. With the ability to evaluate the integrity of data reporting systems, CPAs can validate data sources, scrutinise relevant controls, as well as identify deficiencies in the data collection and reporting processes used by management.
- Sustainability reporting and financial processes are inherently interconnected; in particular, the IFRS Sustainability Disclosure Standards are developed under a similar approach to IFRS Accounting Standards. For instance, when an entity discloses the current and anticipated financial effects of climate-related risks, CPAs have an edge in comprehending how those financial effects are derived. Although such disclosures may not fall within the scope of the assurance engagement, CPAs are in a prime position to follow up on any anomalies identified between in-scope subject matters and related financial figures as necessary.
- CPAs are required to maintain professional skepticism throughout the assurance process, including an evaluation of whether sufficient appropriate evidence have been obtained on the reported information that is subject to assurance.
- CPAs are effective communicators. They utilise their communication skills when collaborating with process owners from different corporate functions and external subject matter experts such as environmental scientists and engineers, to assess a range of environmental metrics, such as emissions, resource usage statistics and waste generation.
- Independent third-party assurance is key to enhancing the credibility of sustainability reports. CPAs are required to adhere to a suite of robust ethical and quality management standards that are designed to ensure that they maintain the highest levels of professionalism and integrity in their work. These standards, which cover a wide range of areas, including independence, objectivity, confidentiality and due care, among others, serve as moral compasses guiding CPAs’ work.
- The field of sustainability reporting is expected to evolve gradually. Having access to a wide range of continuing professional development (CPD) courses and activities provided by their professional bodies and other entities, CPAs can stay abreast of the latest developments in sustainability reporting requirements and best practices to provide high quality services.
Everyone plays a part in the sustainability reporting ecosystem. As a standard setter, the HKICPA has been actively contributing to the development of the IFRS Sustainability Disclosures Standards (IFRS SD Standards) issued by the International Sustainability Standards Board (ISSB). Furthermore, the HKICPA has been promoting the value of sustainability assurance and how the accounting profession can take the lead in this initiative.
In addition to collaborating with the Green and Sustainable Finance Cross Agency Steering Group, set up by the government to promote Hong Kong as an international green finance centre, the HKICPA's multifaceted efforts over the years include:
- Promoting a vast array of top-notch resources and insights from the Accounting Bodies Network of Accounting for Sustainability (A4S), the International Federation of Accountants, and the Global Accounting Alliance;
- Publishing a technical bulletin tailored to the ESG reporting context in Hong Kong and providing non-authoritative guidance in 2020;
- Establishing advisory panels comprising industry representatives and subject matter experts to advise the Institute in the development of new sustainability assurance pronouncements;
- Launching a series of thought leadership publications, including "ESG Assurance in Hong Kong - A Snapshot of the Situation" as well as revamping the Best Corporate Governance and ESG Awards in 2021;
- Keeping members informed about current developments through our ESG information centre, flagship A Plus magazine and periodic newsletters; and
- Building capacity by equipping our members with a better understanding of sustainability through various workshops and seminars.
The first two IFRS SD Standards issued by the ISSB in response to calls from investors represent a fundamental shift towards improving the consistency and comparability of sustainability reporting. The information prepared in accordance with the IFRS SD Standards will stand to benefit from external assurance by qualified accountants who are subject to stringent quality management and ethical requirements as it will enhance the credibility of the reported information.
The International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA) have commenced projects to support the performance of quality sustainability assurance engagements. The IAASB aims to develop an overarching standard for assurance on sustainability reporting while the IESBA is working on specific ethics provisions that are relevant to sustainability reporting and assurance.
In light of the rapidly changing sustainability reporting and assurance landscape, the HKICPA will continue to closely monitor any relevant developments and will review the initiatives and key action items set out in our Strategic Plan in a timely manner.
Further information and references
Thought leadership articles in A Plus magazine
- Thought leadership: Bridge the gap between ESG and business risks (2020)
- Special report: Adding sustainable value (2020)
- How to apply ethical leadership in ESG (2020)
- A summary of the Institute’s new assurance technical bulletin for ESG reporting (2020)
- Investing for a sustainable future(2021)
- Beyond the bottom line(2021)
- Second opinions: How can common standards combat greenwashing?(2021)
- How to: How to empower CFOs to drive climate action(2021)
- The journey to net-zero(2021)
- Thought leadership: The impact of climate risk on corporate reporting(2021)
- Thought leadership: Post-COP26 sustainability disclosure trend(2022)
- ESG Series – Latest trends and updates(2022)
- Thought leadership: What does ESG assurance in Hong Kong look like?(2022)
- Second opinions: How will the International Sustainability Standards Board’s two proposed standards meet the needs of investors?(2022)
- How to: How CPAs can drive change and lead the way on sustainability(2022)
- Charting the new era of globally accepted international sustainability assurance standards(2022)
- Sustainability reporting assurance(2022)
- Thought leadership: Walking the ESG talk: the time is now(2022)
- Thought leadership: The centrality of ethics to sustainability(2022)
- Thought leadership: A guide to navigating the evolving climate landscape for CFOs(2022)
- Thought leadership: Board oversight of sustainability and ESG(2023)
- Second opinions: Is embracing sustainability and green finance an option or prerequisite for CPAs?(2023)
- Second opinions: What is critical to effectively meeting the ISSB standards?(2023)
- ISSB exposure drafts and Link Asset Management Limited: case study for streamlining ESG KPIs(2023)
Other thought leadership publications
- Best Corporate Governance and ESG Awards
- ESG Assurance in Hong Kong - A snapshot of the situation (2021)
Auditing and Assurance Technical Bulletins
- Environmental, Social and Governance Assurance Reporting
- Non-Authoritative Guidance on Applying HKSAE 3000 (Revised) to Extended External Reporting Assurance Engagements
Comment letters to international consultations
- IAASB Consultation Paper, Extended External Reporting Assurance (June 2019)
- IAASB Proposed Non-Authoriative Guidance, Extended External Reporting Assurance (July 2020)
The Stock Exchange of Hong Kong Limited
Financial Services Development Council
The International Organisation of Securities Commissions (IOSCO)
- IOSCO encourages standard-setters’ work on assurance of sustainability-related corporate reporting
- IOSCO sets out key considerations to promote an effective global assurance framework for sustainability-related corporate reporting
- IOSCO welcomes the initiative by the IAASB to seek early engagement and broad inputs in the consultation on the new international sustainability assurance standard
- Introductory remarks, IOSCO’s STF Roundtable on sustainability assurance
International Federation of Accountants
- Using ISAE 3000 (Revised) in Sustainability Assurance Engagements
- The State of Play in Sustainability Assurance (2023 / 2022 / 2021)
- More Companies Obtaining Independent Assurance on Sustainability Data
- Sustainability Information for Small Businesses: The Opportunity for Practitioners
- Sustainable Debt and the Role of Professional Accountants in Business and the Public Sector
- Professional Accountants Leading Reporting and Assurance on Sustainability
- Time for Action on Sustainability: Next Steps for the Accountancy Profession
- Balancing Urgency and Effectiveness in International Sustainability Assurance Standards
- Recent Developments in Extended External Reporting Assurance
- Assurance Standards Keeping Pace on Non-Financial Reporting
- IFAC's Vision for High-Quality Assurance of Sustainability Information
- Key Questions for Audit Committees Overseeing Sustainability-Related Disclosure
- Board Oversight of Sustainability and ESG
- Eight Key Takeaways for the Accountancy Profession Facilitating Sustainable Development and Net Zero Transitions
- Getting to Net Zero: A Global Review of Corporate Disclosures
- Navigating the Sustainable Debt Market: Enhancing Credibility in an Evolving Market
Accounting for Sustainability
Accountancy Europe
American Institute of Certified Public Accountants
- Resources centre
- Why CPAs for ESG Assurance
- ESG assurance: CPAs are the preferred choice
- Sustainability, A Governance introduction: Putting the G in ESG
- How to measure, collect and report ESG data
- Actions for Establishing Effective Governance Over ESG Reporting
- Attestation Engagements on Sustainability Information (Including Greenhouse Gas Emissions Information and Climate-Related Financial Disclosures)
Association of Chartered Certified Accountants
- Accountancy professionals' role in meeting the demand from investors for delivering sustainability assurance
- Sustainability assurance – rising to the challenge
Chartered Accountants Australia and New Zealand
Chartered Accountants Ireland
Chartered Professional Accountants of Canada
- Sustainability assurance resources
- How CPAs can lead ESG initiatives
- Sustainability reporting and assurance: Why it should be on your radar
- Sustainability assurance alert: Third-party assurance over sustainability information
- Why CPAs are the best choice to produce sustainability reports (podcast)
- Sustainability: A call to action
- Climate change briefing: Questions directors should ask
Center for Audit Quality
- The Role of Auditors in Company-Prepared ESG Information: A Deeper Dive on Assurance
- Corporate decision-making: Why choose a CPA for your ESG assurance needs?
- ESG reporting and attestation: A roadmap for audit practitioners
- The Rise in S&P 500 ESG Reporting
- S&P 500 ESG Reporting and Assurance Analysis
- The Role of Auditors in Company-Prepared ESG Information: Present and Future
European Federation of Accountants and Auditors for small and medium-sized enterprises
Institut der Wirtschaftsprufer in Deutschland e.V.
Institute of Chartered Accountants in England & Wales
- ESG assurance hub
- The nine stages of an assurance engagement
- Buyer’s guide to assurance on non-financial information (produced in association with the World Business Council for Sustainable Development)
Institute of Chartered Accountants of Scotland
- Sustainability assurance: factors to consider
- The conditions necessary for the reporting of high-quality sustainability information
Japanese Institute of Certified Public Accountants
- Integrating Sustainability into Professional Accountants' Competency Discussion Paper
- Sustainability Capacity-Building Policy and Actions
South African Institute of Chartered Accountants
Other organisations
- ESG Controller: The Position You Didn't Know You Needed (Financial Executives International)
- ESG Investing: Challenges and Opportunities for Hong Kong (HKTDC PwC Joint Pulse Survey)
- Balancing Urgency And Effectiveness In International Sustainability Assurance Standards (IAASB)
- Sustainability assurance’s link to reporting quality (Journal of Accountancy)
- How firms are seizing the ESG opportunity (Journal of Accountancy)
- Special report - Investing in ESG funds is the growing trend, but keep an eye out for ‘greenwashing’ (South China Morning Post)
- How to Set Up Effective Climate Governance on Corporate Boards: Guiding principles and questions (World Economic Forum)
Note to readers:
Readers are reminded that the sustainability reporting landscape is evolving rapidly. The information in this webpage is up to date at the time of last update (see below).
Footnotes:
1 https://www.sfc.hk/-/media/EN/files/COM/Annual-Report/2022-23/SFC-Annual-Report-2022-23_Eng.pdf
2 https://ifacweb.blob.core.windows.net/publicfiles/2023-02/IFAC-State-of-Play-Sustainability-Assurance-Disclosures_0.pdf
3 https://www.ifac.org/_flysystem/azure-private/publications/files/IFAC-Benchmarking-Global-Practice-Sustainability-Assurance.pdf
4 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32022L2464
5 https://www.xrb.govt.nz/standards/climate-related-disclosures/assurance/
6 https://www.sec.gov/rules/proposed/2022/33-11042.pdf
7 https://treasury.gov.au/sites/default/files/2023-06/c2023-402245.pdf
Last edited: August 2023