Sign up for Dialogue
sustainability
The Challenges of Quantifying Hot Air
GHG assurance issue illustrates difficulties of setting sustainability standards
The environmental and social issues related to sustainability reporting are diverse, challenging and complicated. A consultation paper released last fall by the International Auditing and Assurance Standards Board (IAASB) inviting comments on sustainability reporting is a good example of the magnitude of the challenge in developing globally accepted standards.
The IAASB, a standard-setting board of the International Federation of Accountants (IFAC), invited comments as a part of its due diligence process on a consultation paper “Assurance on a Greenhouse Gas (GHG) Statement” for the purpose of drafting an International Standard on Assurance Engagements (ISAE). The paper notes: “One area of specialization within professional accounting is assurance, which includes, but is broader than, financial statement auditing. Competence in assurance requires specialist skills, knowledge and experience in assurance concepts and processes developed through extensive training and practical application.”
This is a strong rationale for why the accounting profession should assume responsibility for providing assurance on greenhouse gas statements. The large transnational audit firms have each developed considerable expertise in the area of environmental reporting and assurance. The KPMG International Survey of Corporate Responsibility Reporting 2008, a comprehensive global survey on the subject, shows this investment in expertise has paid off. The vast majority (70 per cent) of firms seeking assurance of their corporate sustainability reporting chose major accounting firms to provide that assurance, ahead of certification bodies, technical experts, specialist assurance providers, and other third parties.
However, the providing of assurance on emissions is complicated by the fact that it doesn’t neatly fall within the purview of one profession. Assurance engagements related to greenhouse gas emissions are complex and are usually handled by multidisciplinary teams, including professional accountants, professional engineers and experts in environmental science. As
Another example of the complex nature of GHG assurance is the level of scientific uncertainty.
It’s challenging enough to account accurately for the emissions that can be attributed to the operations of a business. But the level of uncertainty increases even further if the sustainability reporting is extended to include the carbon footprint of supply chains and the purchase of emissions offsets credits.
Yet, as complex and challenging as the subject may be, there is mounting evidence of the need for a GHG assurance standard such as the IAASB is proposing. The KPMG report, based on a survey of 2,200 large companies, found that roughly 40 per cent of those companies include a formal assurance statement in their sustainability reports. That reflects a strong upward trend, as the previous KPMG survey in 2005 indicated about 30 per cent utilized formal assurance. In Canada that trend is even more noticeable with 19 per cent of companies providing formal assurance statements, compared to only 10 per cent in 2005. Figures for the U.S. are 14 per cent in 2008, up from a measly 3 per cent in 2005. However, both countries lag behind other developed countries and are a long way behind the leading nations – France (73 per cent), Spain (70 per cent) and South Korea (67 per cent).
The growing demand for independent assurance – whether to meet regulatory requirements or to satisfy the demands of investors, customers and other stakeholders – will increase the need for globally accepted sustainability accounting and assurance standards. And these developments tend to validate both the IFAC recommendation on the need for a global framework and a recommendation of the 2005
