ESG – Eager to Save and Grow

As time passes, new generations have concerns reflected in everything affecting small and large businesses, private and public sectors, shareholders and customers, and financial and marketing departments.

Our profession obliges us to deliver assurance serving the public interest, and that assurance now includes ESG.

What do we know about ESG? 

It is a set of standards and frameworks assessing company operations risks related to large-scale, long-term environmental, social, and governance issues related to executive pay and financial reporting.

What does it mean to auditors? 

Due to the growing importance of corporate social responsibility(CSR) and green marketing, many leading corporations and brands are being found guilty of practicing greenwashing- a process when the business uses false claims or misleading information to sell products as sustainable.  To prevent greenwashing, there is a requirement for governance and assurance. Independent cost assurance audits that examine costs, cash inflows, and payments are one way to achieve this. If a business is involved in greenwashing or does not comply with ESG standards while promoting itself as sustainable, it could further harm the community and environment. It is vital for relevant businesses to ensure that internal audits, independent audits, ESG audits, and financial audits are coordinated and conducted using the latest credible techniques and standards for ESG reporting.

What to expect?

The increased demand for third-party auditors and assurance specialists.

Many leading companies in the United States (Coca-Cola, Nike, and Starbucks, for example) are already engaging auditors to evaluate their ESG. This trend will grow as investors and stakeholders increasingly look to public companies to disclose their ESG metrics and expect independent auditors to validate them. I believe that  ESG information will affect the scope and level of assurance companies seek from their auditor. The types of services may include:

• Examination – the auditor provides an independent opinion on whether the ESG information is reported per specific agreed-upon criteria. This type of service is considered the closest equivalent to the reasonable assurance statement made by an auditor in a typical audit.
• Review – the auditor concludes on whether material modifications should be made to the reported ESG information based on the agreed criteria. Review engagements are less in scope than examination engagements and provide limited assurance.

We are looking at a new and radical phase in global ESG regulation. Although the reporting of ESG information presents a challenge to companies, auditors have the perfect opportunity to transfer some of their accountability, impartiality, and standards-based analysis to perform oversight over ESG reporting.

One thing that cannot be ignored is that ESG factors are just as important as financial factors. More importantly, they impact a company’s financial condition and ability to generate returns over the long term. ESG implementation is a journey, a long-sighted strategy that builds on our responsibility to ensure a better future than today. Global challenges amplified by the COVID-19 pandemic have made ESG issues even more pressing for policymakers, boards, and executives. The ever-rising need for social responsibility and sustainability demands better financial and non-financial data from corporations and businesses. Green, eco-friendly companies, have that told-you-so attitude, and PR specialists are pointing toward the social responsibility activity lists.

Why does ESG reporting matter?

It’s not just investors that demand greater transparency regarding environmental and social concerns in business;

Consumers choose reliable brands.  Particularly Gen Z, who are more willing to support brands with an effective ESG strategy. Therefore such transparent companies not only attract investors and meet shareholders’ needs, but they also give a sense to employees, attracting prospective talents as a stable workforce.

Embedding ESG into Strategy

This is fundamental to ensure that a golden thread runs throughout a business and its value chain to achieve trust and credibility in ESG reporting. This can be reached via an independent third party to build confidence in the information provided by the parties, and the appropriate metrics can be fed into strategic and operational planning, budgeting, management decisions, and reporting accordingly.

Kreston’s team, with more than 23500 professionals worldwide, offers an initial ESG assessment, an overview of actual costs to prevent or evidence greenwashing, impact reporting, a payroll audit to safeguard equal pay, and practical training to embed ESG KPIs into investment decisions.

Identify, resolve, and follow through with Kreston.